Why the US Court of International Trade struck down Trump’s tariffs, what the appeals court said

The Court of International Trade stated that Trump overstepped his authority when he invoked the 1977 International Emergency Economic Powers Act, on what he called “Liberation Day”. It was aimed at countering what Trump deemed to be high tariffs on American imports globally. Here is what to know.

What is the case?

Twelve US states (including New York, New Mexico, Connecticut and Arizona) challenged the tariffs, as did five small businesses. The court combined the two cases.

States had argued that the burden of paying for tariffs on imports fell on them, and that tariffs also did not specifically target drug cartels, which was cited as one reason for the initial tariffs on Mexico, Canada and China.

The key question under the court’s consideration was the extent of the President’s emergency powers on economic matters, and if the recent tariffs fell within their scope.

And what is the US Court of International Trade?

It is tasked with providing a comprehensive system for judicial review of civil actions, “arising out of import transactions and federal transactions affecting international trade.” It further ensures national uniformity in judicial decision-making affecting import transactions.

Its roots can be traced back to 1890, when the US Congress authorised the President to appoint nine general appraisers of merchandise at certain ports to remove appraisers, on grounds such as inefficiency or neglect of duty. Over time, they were given the powers of a court, and their jurisdiction was widened.

At present, the court can hear and decide cases arising anywhere in the country. Under the Customs Courts Act of 1980, it has a “residual grant of exclusive jurisdictional authority” to decide any civil action against the United States, its officers, or its agencies, arising out of any law related to international trade.

The President, with the advice and consent of the Senate, appoints the nine judges who constitute the USCIT for lifetime tenures.

What did the court rule, and what happens now?

The court said, “The question in the two cases before the court is whether the International Emergency Economic Powers Act of 1977 (“IEEPA”) delegates these powers to the President in the form of authority to impose unlimited tariffs on goods from nearly every country in the world.”

It held, “The court does not read IEEPA to confer such unbounded authority and sets aside the challenged tariffs imposed thereunder.”

It reasoned that in the early 20th century, the World Wars and the Great Depression led to an enhancement in the US President’s powers over economic matters, in both foreign and domestic domains. In 1977, these were curtailed under the IEEPA. The Act says the authorities “may only be exercised to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared”, as defined under the Act.

On Trump’s inauguration date on January 20, he issued an order declaring a national emergency under the IEEPA. He cited the threat of international cartels that “have engaged in a campaign of violence and terror throughout the Western Hemisphere that has not only destabilized countries with significant importance for our national interests but also flooded the United States with deadly drugs, violent criminals, and vicious gangs.”

The subsequent “trafficking tariffs” are now at 25 per cent for Mexican and Canadian products and 20 per cent for Chinese products. The court ruled that these tariffs “fail because they do not deal with the threats set forth in those orders.”

Second, on April 2, Trump announced two sets of tariffs – a flat 10% “baseline” tariff on all countries trading with the US, and “retaliatory tariffs” on US trade partners. He argued that the tariffs were a response to “underlying conditions, including a lack of reciprocity in our bilateral trade relationships, disparate tariff rates and non-tariff barriers, and U.S. trading partners’ economic policies that suppress domestic wages and consumption, as indicated by large and persistent annual U.S. goods trade deficits.” They amounted to an “unusual and extraordinary threat to the national security and economy of the United States”.

He has since paused the reciprocal tariffs for 90 days till July, with the state aim of securing trade agreements with countries affected by these. However, the 10% tariff remains in place.

However, the court held that “The President’s assertion of tariff-making authority in the instant case, unbounded as it is by any limitation in duration or scope, exceeds any tariff authority delegated to the President under IEEPA. The Worldwide and Retaliatory tariffs are thus ultra vires and contrary to law.”

Further, it said Section 122 of the Trade Act of 1974 grants the President limited authority to impose restricted tariffs in response to “fundamental international payment problems,” including “large and serious balance-of-payments deficits.” That these powers are granted under “narrower, non-emergency authorities” implies that tariffs cannot be imposed unconditionally.

The judges further ordered the Trump administration to issue new orders reflecting its decision within 10 days. Notably, other Trump tariffs, including those on foreign steel and aluminium, will remain nonetheless because they were not imposed under these powers.

According to the Associated Press, the decisions can be appealed ultimately at the Supreme Court. A White House spokesperson said, “It is not for unelected judges to decide how to properly address a national emergency… President Trump pledged to put America First, and the Administration is committed to using every lever of executive power to address this crisis and restore American greatness.”

There is uncertainty around what happens next, with markets reacting in a muted manner following the appeals court’s order.