The Midfield Battle of Trump's Tariffs

On May 28, the U.S. Court of International Trade (CIT) made an important ruling: it determined that "the global tariff executive order announced by Trump, as well as the subsequent orders imposing additional tariffs on retaliatory countries," exceeded the president's authority under the International Emergency Economic Powers Act (IEEPA). Additionally, the court ruled that the executive order imposing tariffs on Mexico and Canada under the pretext of combating drug trafficking was also illegal, as these tariffs failed to effectively address the drug trafficking issue.

1. This ruling suspends the vast majority of Trump's tariffs—“reciprocal tariffs” and tariffs related to fentanyl imposed on China, Canada, and Mexico.

Tariffs imposed under Section 232 and Section 301 are not affected, including tariffs on steel, aluminum, and automobiles. If the ruling is ultimately upheld, the government may need to refund the tariffs that have been collected. The U.S. Court of International Trade is located in Manhattan, and a panel of three judges heard arguments in lawsuits brought by Democratic attorneys general from New York, Illinois, Oregon, and nine other states.

This ruling stems from two significant lawsuits. One was filed on April 14 by the nonpartisan Freedom and Justice Center on behalf of five small U.S. businesses affected by the tariffs (including a wine and spirits importer from New York and an educational supplies and instrument manufacturer from Virginia), who argued that the U.S. government lacked the authority to impose comprehensive tariffs without congressional approval. The other was initiated on May 21 by 12 states, which argued that Trump's declaration of a national emergency to impose comprehensive tariffs was an abuse of power.

2. After the CIT announced its ruling, the Trump administration immediately filed a notice of appeal and questioned the court's authority.

The White House will appeal the CIT's ruling to the U.S. Court of Appeals for the Federal Circuit in Washington, D.C., and may ultimately appeal to the U.S. Supreme Court. During the appeal process, the White House may seek an emergency stay to pause the enforcement of the ruling and continue collecting tariffs.

This ruling gives the executive branch up to 10 days to complete the administrative process to stop the tariffs. If the Trump administration successfully obtains an emergency stay during this period, the tariffs will continue to be collected until the appellate court or the Supreme Court makes further rulings.

3. Even if the appeal ultimately fails, the Trump administration may still seek to invoke other legal authorities to replicate the effects of the “reciprocal tariffs.”

The court's ruling primarily targets the “reciprocal tariffs” and the tariffs related to fentanyl imposed under the IEEPA. Tariffs imposed under other laws (such as Section 232 tariffs on steel and aluminum, or Section 301 tariffs on specific goods) are not affected by this ruling and will remain in effect. Even if the appeal fails, the Trump administration can utilize Section 122, Section 301, and Section 338 to achieve similar effects.

However, compared to the IEEPA, Section 122 has more limitations on the scope and duration of the increased tax rates, while Sections 301 and 338 involve more complex procedures and are more time-consuming to implement.

4. The CIT ruling does not deter Trump's determination to impose tariffs, while adding more uncertainty to the tariff game.

Since President Trump announced the "reciprocal tariff" bill and invoked the IEEPA to impose tariffs on April 2, its legality has been continuously questioned. Previously, a federal judge had halted key parts of his mass deportation efforts, restricted attempts to dissolve multiple federal agencies, and slowed down the mass layoffs of some federal employees. This CIT ruling marks another legal obstacle encountered by Trump's policies.

For Trump, this is a critical time to push the OBBB (grand tax reduction bill). Tariffs play a dual role in Trump's economic strategy: both as a source of revenue and as a symbol of "America First." If the CIT blocks the imposition of tariffs, it would undoubtedly put immense pressure on his tax reduction plan and may even make it difficult to advance. This is not just about political face, but touches on substantive issues regarding his core economic policies and fiscal revenues.

Domestic tariff constraints may prompt the Trump administration to accelerate efforts to reach trade agreements before the court ruling takes effect, especially pressuring negotiations with the European Union and Japan. However, for countries negotiating trade with the U.S., the uncertainty of whether the tariff threat is effective may weaken their willingness to negotiate. Therefore, in the upcoming negotiation games between the U.S. and various countries, there may be more frequent occurrences of sudden escalations of threats like "imposing a 50% tariff on the EU starting June 1" and unexpected compromises.

Author of this article: Song Xuetao, Source: Guojin Securities, Original title: "Song Xuetao: The Midfield Battle of Trump's Tariffs"

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