Court Delivers Blow to Trump’s Tariffs, Biden Fails to Act

Despite former President Donald Trump’s overzealous pursuit of power to levy versatile taxes on foreign entities without Congressional assent, a U.S. federal appeals court has efficiently placed impediments on his path. The bold attempt by Trump to mark trade imbalances as national emergencies was met with judicial scrutiny when the U.S. Court of Appeals for the Federal Circuit ruled that he had overstepped his boundaries.

This ruling largely stems from and supports a prior judgement by a specialized federal trade court in New York during May. An interesting twist, however, was seen when the appeals court, in a split 7-4 decision, dismissed part of that ruling which would immediately annul the tariffs. This allowance provides a golden window for the Trump administration to attempt an appeal to the U.S. Supreme Court.

Unsurprisingly, this decision served as a significant blow to Trump whose fluctuating trade policies have rattled financial markets and sparked fears of price escalations, slower economic progression and heightened business uncertainty. Key questions arise now: which tariffs have been knocked down by the court and what was the rationale behind this decision?

The court’s ruling mainly focuses on the tariffs Trump enforced in April on nearly all U.S. trading partners. Not to be forgotten are the levies he implemented previously on main trading partners, China, Mexico and Canada. Labelled by Trump as ‘Liberation Day’, he actioned reciprocal tariffs up to 50% on countries with which the United States held a trade deficit and applied a 10% baseline tariff on nearly everyone else.

In a surprising move, Trump later suspended these reciprocal tariffs for a duration of 90 days, to allow for trade negotiations between the United States and these countries. Posturing as a means to reduce barriers towards American exports, this suspension was utilized by several entities including the United Kingdom, Japan, and the European Union. They chose to acquiesce to unfairly skewed deals with Trump to steer clear of more severe tariffs.

Those countries that didn’t concede to Trump’s demands, or that managed to displease him, faced substantial ramifications earlier this month. Drastic examples included Laos and Algeria, hit with a draconian 40% tariff and a hefty 30% levy respectively. Furthermore, he maintained the baseline tariffs, even amidst the unwavering global economic fluctuations.

Exhibiting a certain audacity, Trump justified these levies under the 1977 International Emergency Economic Powers Act by terming the United States’ continuing trade deficits as ‘a national emergency’. Previously, in February, he had cited the same law to justify tariffs on Canada, Mexico and China. His argument was based on the premise that the illicit flow of immigrants and drugs across the U.S. border amounted to a national emergency prompting these countries to amp up their efforts.

It is worth noting that the U.S. Constitution permits Congress alone the right to institute taxes, which encompass tariffs. Nonetheless, successive lawmakers have gradually surrendered more control over tariffs to the presidency, a power that Trump had no qualms about exploiting extensively.

The court’s disapproval does not extend to other tariffs levied by Trump. It is silent, for instance, on tariffs imposed on foreign steel, aluminum, and autos after a Commerce Department probe concluded these imports posed threats to U.S. national security. Similarly, tariffs implemented on China during his term, and notably retained by President Joe Biden, were untouched by the ruling. Deemed necessary after an investigation found unfair business practices bolstering Chinese technology firms over U.S. and other Western rivals, these tariffs seem to adopt a different narrative.

What led the court to rule against the former President? The Trump administration put forth that courts had approved then-President Richard Nixon’s exigency use of tariffs amidst economic turbulence consequent to his move to end a policy tying the U.S. dollar to the price of gold. This argument did not bode well and was dismissed by the U.S. Court of International Trade in New York; they ruled that Trump’s ‘Liberation Day’ tariffs vastly exceeded any ‘presidential authority’ granted under emergency powers legislation.

In its ruling, the trade court amalgamated two cases, one by five businesses and one by 12 U.S. states, into a single case. The federal appeals court later wrote in its 7-4 decision, clearly stating their disbelief that Congress intended to give ‘unlimited authority to impose tariffs’ to the President. This case’s dissenting judges might pave a legal pathway for Trump, concluding that the 1977 law allowing for emergency actions was constitutionally valid.

With this judgment, the certainty surrounding Trump’s trade strategies wavers significantly. If the imposed tariffs are invalidated, then the government might be obligated to reimburse some of the collected import taxes, which could potentially deliver a financial blow to the U.S. Treasury. Revenue from tariffs alone amounted to $159 billion by July, a figure more than double its equivalent in the previous year.

This unfolding situation may cause tremors in existing trade deals and pose a formidable challenge to implementing tariffs in the future. Empowered foreign governments may refuse forthcoming demands, defer migration of past agreements, or even seek renegotiations. Unfazed, the former president re-iterated his intent to battle this uphill through the Supreme Court, hyperbolically stating, ‘If allowed to stand, this Decision would literally destroy the United States of America.’

Trump has alternative means to impose import taxes using different legislation. However, their employment would curtail his ability to impose tariffs swiftly and harshly. The trade court, in its May ruling, noted that Trump retains more limited power of tariff imposition under the Trade Act of 1974, another statute to handle trade deficits. This law confines tariffs to a 15% maximum and 150 days for countries having large trade deficits with the United States. The current administration also has the potential to invoke tariffs under another legal authority, Section 232 of the Trade Expansion Act of 1962. However, this demands a Commerce Department investigation and cannot merely be inflicted based on the president’s whims.