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Brad W. Setser is the Whitney Shepardson senior fellow at CFR on global trade.
The U.S. Court of Appeals for the Federal Circuit’s ruling to strike down President Trump’s use of special powers to set tariffs now intensifies the legal struggle over the administration’s bold trade policy.
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The 7–4 appeals court decision on August 29, upholding a U.S. Court of International Trade ruling that the tariffs are illegal, permits the tariffs to stay in place until October 14 to give time for an appeal to the Supreme Court, which the administration has signaled it will do.
The latest ruling resurfaces doubts about the deals the president has reached with Japan, the European Union, and other trading partners. Those agreements brought down the “reciprocal” tariff rates set on their imports when the administration announced its “Liberation Day” tariffs in April.
The administration’s defeat at the appellate level again raises the prospect of potentially having to repay billions of dollars of duties collected so far. But other tariffs set by President Trump are not affected, and these could be expanded.
Following is a rundown on some of the implications of the latest major trade ruling.
What is the immediate impact of this ruling?
The U.S. Court of Appeals for the Federal Circuit decision has allowed the tariffs to remain in effect until October 14 to enable the administration to appeal to the Supreme Court. If that happens, there is a strong expectation that the Supreme Court will rule on this case relatively quickly, given its importance. If the high court upholds the decision of the lower courts and the appellate court to strike all tariffs introduced with the International Emergency Economic Powers Act (IEEPA), the bulk of the tariffs that Trump has introduced this year will be canceled. Specifically, the appellate court ruling strikes down the “reciprocal” or “Liberation Day” tariffs and the tariffs imposed on Canada, China, and Mexico for what the administration said was a failure to take proper steps to end the trafficking of fentanyl into the United States.
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The sectoral tariffs on autos, steel, aluminum, and copper have been put in place using a different legal authority, Section 232. These tariffs would remain in force even if the Supreme Court upholds the rulings of the Court of International Trade and the Appellate Court. Additional Section 232 tariffs could also be imposed over the next few months.
What sort of effect will this have on U.S. businesses, which have reportedly spent billions of dollars on tariffs?
Many firms will be relieved if the Supreme Court strikes down the tariffs imposed using IEEPA. Most studies have found that the bulk of the tariffs is currently being paid by American firms as they import foreign goods. Some will be looking to get significant rebates on tariffs paid. But I think most large firms recognize that the president will be looking to reintroduce many of these tariffs using other legal authorities, and thus the current uncertainty over trade policy will persist for some time.
There is a broader issue here—namely that until there is clarity about which tariffs will stick, most firms will be reluctant to make the large, multiyear investments needed to reconfigure supply chains.
What effect will the court’s decision have on the president’s trade agenda?
Trump clearly enjoyed the flexibility to adjust tariffs quickly using IEEPA, yet his aggressive use of this law also strengthened the legal case against these tariffs. General tariffing authority resides with Congress.
The bigger question, of course, is whether Trump’s tariff agenda has been a positive for the economy and whether the deals that the president has struck with U.S. trading partners, trying to avoid the full “Liberation Day,” have created a new trading order that will work to the benefit of the United States. I personally found the tariffs introduced through IEEPA to be poorly targeted and have not been impressed with the recent deals, which seem to be based around inflated investment numbers that are unlikely to materialize. So, a rollback of the current IEEPA tariffs would be a net positive for the United States.
Trump’s trade team has been aware of this legal risk for some time, and no doubt will be looking to find alternative ways to reintroduce many of the current tariffs. The fastest way to put broad tariffs back in place would be to bring a balance of payments emergency case under Section 122 of the Trade Act of 1974, which allows the President to impose a 15 percent tariff for up to 150 days. After 150 days, though, those tariffs would need to be extended by Congress.
The administration is also working on a number of Section 232 cases, which allow the introduction of sectoral tariffs if imports in that sector are a threat to national security. The administration, for example, recently indicated it is working on a Section 232 case against furniture imports—and it could look to bring cases in other sectors. Finally, the administration could revive the use of Section 301, the authority used to bring the big case against China in Trump’s first term. That authority requires identifying specific unfair trade policies by American partners that burden U.S. commerce and linking the remedy to the underlying trade concern.
Yet even if there are alternative legal routes available to Trump, it would take time to replicate the full set of tariffs that he has introduced under IEEPA, and it will be difficult to replicate the broad sweep of the current tariffs. If the Supreme Court upholds the appellate court ruling, the net result will likely be somewhat lower tariffs.
What are the issues to focus on if this case reaches the Supreme Court?
The central issue is whether Congress intended to delegate authority to raise tariffs to the president under IEEPA. The lower courts have noted that the words “tariff” and “duty” don’t appear in the statute, which has generally been used for financial sanctions. Trump’s use of this statute for the bulk of his tariffs was novel and was viewed as legally risky from the start.
A subsidiary issue is whether the statute allows for a determination that the “trade deficit” is an international economic emergency, and whether such a determination is sufficient to allow the president to unilaterally adjust any and all tariffs. Trump has interpreted the statute as basically given the executive branch, rather than the legislative branch, tariffing authority so long as there is a trade deficit. The other statutes that delegate tariffing authority to the president do so in more limited ways, and require that either the U.S. Commerce Department or U.S. Trade Representative prepare a report explaining the nature of the problem that the tariffs are intended to address, and require that the administration take comments on its proposed remedy.
The appeals court ruling noted that “It seems unlikely that Congress intended, in enacting IEEPA, to depart from its past practice and grant the president unlimited authority to impose tariffs.” Finally, there is a question as to whether Section 122, which spells out a process for putting in place tariffs in the event of a balance of payments emergency, is the only congressionally approved path for introducing tariffs to respond to the trade deficit. The trade balance is the main component of the balance of payments.
The Council on Foreign Relations is an independent, nonpartisan membership organization, think tank, and publisher, and takes no institutional positions on matters of policy.