In a late decision on Friday, August 29, the US Court of Appeals for the Federal Circuit in Washington, DC, decided 7 to 4 that Donald Trump’s tariffs were largely imposed without the proper authority. While the levies will remain in place until October 14, the fact that the challenge exists could be enough to cause more than just market turmoil.
From Court to Court
The DC court ruled the president did not have the right to implement the type of tariffs he did using the 1977 International Emergency Economic Powers Act (IEEPA). Historically, this has been used to levy sanctions when the US is under threat. Trump argued in a range of executive orders that the trade imbalance and the flow of illegal migrants and drugs through American borders constituted a justifiable threat.
Beyond the main ruling, the DC panel also sent a portion of the question back to the lower courts to decide whether – under this decision – just the parties involved in the lawsuit could reclaim the levies collected, or if all businesses that have paid should seek redress.
The case was brought by a number of state governments in cooperation with small businesses, which jointly argued that no emergency existed to justify the imposition of tariffs. Ultimately, it seems the Supreme Court will have to rule on at least one of two questions: First, whether the IEEPA warrants the range of tariffs imposed, or, second, whether any POTUS has the right to declare an emergency situation, and under what circumstances.
Of course, there are various legal routes the administration might take to challenge the DC court’s ruling, but expediency will almost certainly be the watchword.
Tariffs and Tests
Jeffery Schwab of the Liberty Justice Center, which represented the plaintiffs, said in the wake of the ruling, that:
“The President cannot lawfully impose tariffs on his own; and IEEPA does not give him unlimited unilateral tariff authority … This decision protects American businesses and consumers from the uncertainty and harm caused by these unlawful tariffs.”
But are consumers actually being harmed? The consensus among economists when Trump began his tariff war was that US customers would feel the weight as tariffs were collected by the federal government. However, month after month, price increases and the expected inflation have failed to materialize. Even Fed Chair Jerome Powell suggested that if there is an inflationary response, it will be a one-time hit.
While there may be price increases down the line, energy prices and goods prices have either remained steady or decreased.
What’s Next?
President Trump responded to the ruling on Truth Social, saying:
“ALL TARIFFS ARE STILL IN EFFECT! Today a Highly Partisan Appeals Court incorrectly said that our Tariffs should be removed, but they know the United States of America will win in the end. If these Tariffs ever went away, it would be a total disaster for the Country. It would make us financially weak, and we have to be strong. The U.S.A. will no longer tolerate enormous Trade Deficits and unfair Tariffs and Non Tariff Trade Barriers imposed by other Countries, friend or foe, that undermine our Manufacturers, Farmers, and everyone else. If allowed to stand, this Decision would literally destroy the United States of America.”
Although this court's decision will remove significant leverage from any ongoing negotiations, the president still has a variety of tools at his disposal.
The 1974 Trade Act permits the president to apply tariffs for 150 days up to a maximum of 15%. This could be extended by Congress. As things progress through to the highest court, President Trump may consider this a temporary backup. Beyond this, the contentious Smoot-Hawley Tariff Act of 1930 allows an imposition of levies up to 50% on nations that “discriminate” against the US.
Ultimately, the final arbiter will be the Supreme Court, but the president, despite this blow, has plenty of economic tools in his arsenal.
