Tariff Tracker, May 29: Trump’s tariffs held unlawful under Act mandating ‘national emergency’ powers

The basis for this is simple: By his own admission, the businessman-turned-President views his charge, the United States of America, as a “department store” for which his administration will “set the price” for countries seeking to do business with it.

Central to this analysis was the idea of the US facing a “national emergency”. This is an idea he has invoked repeatedly since his return to the Oval Office for a second term on January 20. That very day, he declared a national emergency at the US’s southern border, hitting Mexico and Canada with 25% tariffs on February 1. His intent then was to pressure the two nations to do more to curb illegal migration and trafficking fentanyl, a deadly opioid.

The subsequent (escalating) tariff announcements against China, and the sweeping “Liberation Day” tariffs declared on April 2, invoked the same notion: that the US is facing a “national emergency” due to the “foreign trade and economic practices” and the “absence of reciprocity” in its trade relationships. The April 2 order invokes the President’s authority under the 1977 International Emergency Economic Powers Act (IEEPA) to address the American trade deficit.

Over the last few weeks, the President has seen his objective met with some successes: the US has finalised a trade agreements with the UK and held talks to lower tariffs with China. India and the US have engaged in talks earlier this month, with details of a staggered India-US trade agreement awaited. And, the EU and the US agreed on talks towards a trade agreement, likely on the sidelines of the G7 Summit in June.

However, this train came to a halt on Wednesday (May 28), when a US federal trade court held that Trump did not, in fact, have the authority under this act to levy sweeping tariffs on every country in the world.

What constitutes an ’emergency’ in the US?

The Indian experience of an emergency state has been singular. On June 21, 1975, Prime Minister Indira Gandhi declared a state of emergency using special Constitutional provisions. In a nutshell, the move curtailed the fundamental rights to freedom of speech and expression, and temporarily suspended the existing governance structure, with states directed to follow the central government’s diktat.

The American experience, in contrast, has not been as stark for the average citizen. The US has virtually been in a state of emergency for decades, since President Jimmy Carter enacted the IEEPA in 1977 to replace the outgoing Trading with the Enemy Act of 1917 (TWEA), which had given the US president sweeping powers. (Interestingly, President Richard Nixon imposed 10% tariffs in 1971 on all imports, just as the US struggled with a Balance of Payments crisis resulting from the inflexible fixed currency exchange rates mandated by what was then the new Bretton Woods System.)

The IEEPA empowers the President “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.”

So far, US presidents have used the Act in a sanctionary capacity: Carter declared a national emergency in the wake of the 1979 Iran hostage crisis to freeze all Iranian government assets in the US. President George W Bush did something similar in 2001 following the September 11 attacks on the World Trade Center.

A Congressional Research Service report noted that US presidents had invoked the IEEPA to declare 69 national emergencies, many of which lasted for over a decade.

President Trump invoked the emergency authority to bypass Congress and impose tariffs immediately, without seeking public comments or information, and using the country’s trade deficit as a justification.

So what did the court ruling say?

Essentially, a three-judge panel of the US Court of International Trade in Manhattan has ruled that the IEEPA “does not authorize the President to impose unbounded tariffs.” Two issues were under consideration:

• The validity of the Liberation Day tariffs, meaning both the 10% baseline impacting all countries and the country-specific ‘reciprocal’ tariffs on countries with which the US maintained the largest trade deficits.
• The punitive 25% tariffs on Mexico and Canada targeted towards fentanyl trafficking.

Quite simply, the court held that the President exceeded his authority under the IEEPA in imposing tariffs, and that the “Worldwide and Retaliatory tariffs are thus ultra vires and contrary to law.”

The court also found the fentanyl tariffs invalid simply because of the president’s logic of using them to pressure countries to curb drug trafficking. The bench held that the IEEPA may be invoked to directly deal with the so-called emergency, something that the fentanyl tariffs do not currently do.

The court has ordered the Trump administration to issue new orders reflecting its decision within 10 days, while an appeal against the order was filed soon after by the government.

So, what comes next?

Markets worldwide responded positively. The dollar traded at its highest level all week against a basket of currencies, while Wall Street stock index futures rose by over 1.5%. Bloomberg reported that Asian markets were up, with Japanese and South Korean stocks gaining more than 1.5%.

However, the present ruling does not seal the door on tariff announcements indefinitely, with a White House spokesperson saying, “It is not for unelected judges to decide how to properly address a national emergency.” Trump would likely use the Wednesday ruling as fodder for his continued criticism of the legal system.

Different countries have responded to the tariffs saga differently: China maintains that there are “no real winners” in a trade war, Australia called the tariffs “unjustified”, and the UK described the ruling as “only the first stage of legal proceedings.”

It remains to be seen what the ruling means for the trade deals underway. A CNN analysis noted that the One Big Beautiful Bill, currently being deliberated in Congress, may need to be revised to push for reduced tax cuts or increased spending cuts. Further, countries like Japan that have yet to initiate trade deal talks with the US may no longer find an incentive to do so.

Crucially, the ruling does not impact Trump’s sector-specific tariff announcements outside the act. These include the duties on steel, aluminium and automobiles, as well as potential tariffs on pharmaceuticals, semiconductors and other critical products. Trump’s duties on China, dating back to his first term (2017 to 2021), would also be unaffected, and the administration may consider using the basis of these levies to continue its tariff campaign.