Federal Trade Court Overturns Emergency Tariffs

The U.S. Court of International Trade, the federal court charged with handling trade matters, on Tuesday overturned recently imposed tariffs on global trade. The ruling covers tariffs imposed on the basis of the International Economic Emergency Powers Act (the “IEEPA”).  The ruling affects the “Liberation Day” tariffs announced by the administration in early April, which imposed double- and triple-digit tariff rates on many US trade partner countries; the White House cited trade deficits with those partners as the basis for those tariffs.  The ruling also applies to separate tariffs levied against goods from Canada, China, and Mexico in response to fentanyl shipped into the US.  The tariffs were opposed in court by a coalition of twelve states and five businesses.  The administration has said it will appeal the ruling.

WHY IT MATTERS

The administration cited trade deficits and the inflow of drugs such as fentanyl to the US in imposing the tariffs, calling on presidential emergency powers vested in the IEEPA when announcing the tariff plans.  The court ruling this week rejects the emergency powers basis on two grounds: as to the tariffs based on trade deficits, the court ruled that because the Constitution reserves tariff powers to the Congress, the “Liberation Day” tariffs exceed the President's emergency authority under the IEEPA.  As to the specific tariffs based on securing assistance with drug trafficking measures, the court held that the IEEPA requires emergency measures to “deal with” the underlying emergency directly.  The court found that tariffs do not address drug trafficking directly, but rather attempt to create economic pressure designed to prompt action from trade partners.  

As we have discussed here before, the tariff programs have spurred trade talks with many U.S. trade partners, and led to the announcement of deals with the UK and China in early May.  A deal with the EU is also potentially pending.  The overturning of the tariffs is likely to create uncertainty about the status of existing deals and may slow the process of securing new trade deals, while trade partners wait for the courts to hash out the scope of presidential emergency powers.