Court rejects Trump’s tariffs, but path still murky

The US Court of International Trade ruled that President Trump did not have the authority to levy reciprocal tariffs using emergency powers .  The Trump Administration has vowed to challenge the ruling, setting up a case in front of the Supreme Court and in the meantime the Court gave executive branch up to 10 days to complete the bureaucratic process of halting them. Trump invoked the International Emergency Economic Powers Act (IEEPA) when he announced the Liberation Day tariffs, though tariffs are not listed as a tool under IEEPA and have never previously been utilized under IEEPA. Trump’s declaration of a national emergency was in response to what he claimed was a lack of reciprocity in bilateral trade relationships that led to an “unusual and extraordinary threat” to the US economy and to national security.  This rationale was challenged by a group of US businesses claiming to be harmed from the tariffs and 12 US states. Arguing on behalf of the Trump administration, a Department of Justice lawyer said that the injunction against the tariffs would harm Trump’s negotiating position and added that the goal of the administration was to “ bring our trading partners to the table” and create political leverage for deal-making. The Court deemed that a political problem and not a legal one, and therefore not of concern to the Court. Not all the tariffs applied by Trump have been struck down however , and the sectoral tariffs, which were applied under different laws, remain. The sectoral tariffs require the administration to conduct investigations before levying tariffs, so while they take longer to enact, they are more legally durable. The Supreme Court will be the ultimate arbiter about whether or not Trump overstepped his bounds when using IEEPA to apply tariffs. It will also have to determine how much leeway the President has to declare emergencies and the remedies that can be used to address them. For now, uncertainty will still reign. Uncertainty about the Court’s ruling and, perhaps most importantly, about how broadly Trump will try to apply sectoral tariffs if he cannot use reciprocal tariffs. The selective use of sectoral and retaliatory tariffs would cause an even more protracted period of trade uncertainty and would allow aggressive lobbying from domestic firms and foreign trading partners – perhaps the worst long-term policy outcome. In the meantime, we can likely expect a lower and slower pass-through to consumer prices and a jubilant reaction from risk assets.