May 29 Update
On Thursday, less than 24 hours after the U.S. Court of International Trade's ruling, the U.S. Court of Appeals for the Federal Circuit granted an immediate administrative stay, lifting the block while the Justice Department pursues their appeal.
The stay in this case allows the government to continue to collect tariffs; however, many tariffs currently remain blocked under the second ruling from the D.C. District Court ruling, discussed below. Though, the Justice Department is likely to pursue a stay in that case as well.
Which Court has jurisdiction on this issue and which ruling could remain in-place is yet to be decided and appears to be headed for further litigation.
On Wednesday, a federal court blocked President Trump’s attempts to impose tariffs under an emergency powers law, striking a blow to one of the key tenets of his economic agenda. The unanimous ruling, which the Justice Department promptly appealed, heightens the uncertainty surrounding the U.S.’ approach to global trade policy as well as the administration’s ongoing trade negotiations.
Affected Tariffs
The ruling blocks all tariffs implemented under the International Emergency and Economic Powers Act (IEEPA), based on declarations of national emergencies related to illegal immigration, drug trafficking and persistent trade deficits. These include:
- 25% tariffs on Canada and Mexico (immigration, drug trafficking)
- 20% tariffs on China (drug trafficking)
- 10% universal tariff (trade deficit)
- Varying “reciprocal” tariffs (trade deficit)
Implementing broad tariffs under the IEEPA allowed the president to act quickly and unilaterally; however, the legal risks associated with this strategy have now, at least temporarily, hindered the president’s trade policy objectives.
Details of the Ruling
A three-judge panel of the U.S. Court of International Trade ruled that the IEEPA does not “delegate unbounded tariff authority to the president.” The court noted the tariffs don’t “deal with” their stated objectives but rather “aim to create leverage to ‘deal with’ those objectives.”
The ruling is limited to tariffs issued under the IEEPA. The Court ruled the IEEPA does not authorize the trafficking tariffs, which addressed immigration and drug trafficking, because the tariffs do not satisfy the conditions Congress imposed by the IEEPA.
Additionally, the Court ruled the president does not have the power to impose remedies in response to balance-of-payment deficits, and specifically trade deficits, from the powers granted under the IEEPA. Instead, the trade deficit tariffs are subject to the narrower, non-emergency authorities of Section 122. The trade deficit tariffs were therefore also blocked because they failed to comply with Section 122, which limits the president’s authority to impose tariffs of up to 15% for up to 150 days.
Unaffected Tariffs
Tariffs imposed under Section 232 of the Trade Expansion Act of 1962 (Section 232 tariffs) were not impacted by the ruling. Duties levied under Section 232 require certain procedural steps — they are subject to a national security investigation and public comment period, making them much slower to implement.
|
Product |
Tariff Rate |
Effective Date |
|
Steel, Aluminum & Derivatives |
25%^ |
March 12 |
|
Vehicles |
25%* |
April 3 |
|
Certain Vehicle Parts |
25%* |
May 3 |
^Other than Russia, which has a rate of 200%.
*Other than USMC items, automakers building vehicles in the U.S. may apply for temporary tariff offsets.
The administration is also currently conducting Section 232 investigations into:
- Timber and Lumber
- Copper
- Pharmaceuticals
- Semiconductors
- Medium and Heavy-Duty Trucks and Parts
- Commercial Aircraft and Parts
We expect new tariff measure may be introduced on these products in the near future.
Second Federal Court Issues Injunction
Less than 24 hours after the first case, a second federal court issued a preliminary injunction blocking tariffs imposed under the IEEPA. The decision, issued by D.C. District Court Judge Rudolph Contreras, stated the case is "about whether IEEPA enables the President to unilaterally impose, revoke, pause, reinstate, and adjust tariffs to reorder the global economy. The Court agrees with Plaintiffs that it does not." The Court stayed the injunction for 14 days while the administration pursues an appeal, which it filed promptly.
What’s Next?
The ruling ordered that the IEEPA tariffs collected to date be vacated (refunded) and provided the government with 10 days to implement the ruling. The Justice Department may request a stay while their appeal is pending, which, if granted, would relieve them of the requirement to issue refunds for the duration of the appeal.
It is expected there will be uncertainty surrounding U.S. trade policy and its impact on the broader economy to continue over the coming weeks and months. Cherry Bekaert’s Tax Policy team will be tracking:
- The Justice Department’s appeal and any related or subsequent actions
- The possibility of the administration pursuing Section 122 tariffs
- The results of Section 232 studies and the associated imposition of tariffs
Your Guide Forward
Cherry Bekaert’s Tax Policy, International Tax, and Industrial Manufacturing & Consumer Goods teams will be tracking developments and will continue to bring you the latest updates and insights.
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