US court appears as confused as Trump about reciprocal tariffs

Hours after the US Court of International Trade deemed President Donald Trump’s extensive tariffs on goods imported from nearly every country illegal, the Federal Circuit Court in Washington, DC, which oversees the trade court, temporarily suspended this ruling on Thursday, thereby reinstating the tariffs for the time being.

The court's order indicated that it would approve the Trump administration’s request for an immediate administrative stay. It provided the plaintiffs — a coalition of 12 states and five US-based companies — with a deadline of June 5 to respond to the administration.

Judicial process

As the appeal from the Trump administration progresses through the American judicial system, it is evident that this case is likely to reach the US Supreme Court shortly.

The three-judge panel at the US Court of International Trade, which included one appointee from Trump, unanimously determined that the statute invoked by the White House, known as the International Emergency Economic Powers Act (IEEPA), does not empower the American President to impose tariffs of such a broad nature as those enacted through Trump’s reciprocal tariffs on nearly all significant trading partners of the US. In their ruling, they stated that the emergency economic powers legislation (IEEPA) does not confer “unbounded tariff authority” to the President, and that the statute is applicable only in cases of unusual and extraordinary threats. They concluded that a trade deficit does not meet this criterion.

Simultaneously, there exist sector-specific tariffs that the Trump administration imposed on steel, aluminium, automobiles, and automotive components, among others, under a different statute referred to as Section 232. This statute may soon be applied to sectors such as semiconductors and pharmaceuticals as well. All these tariffs were enacted under the pretext of national security and are separate from those imposed under the IEEPA. For the time being, these tariffs can remain in effect, and there is a possibility that the Trump administration might utilise provisions like Section 232 to impose similar sector-specific tariffs on various countries, particularly if the Federal Circuit court were to rule against the IEEPA tariffs.

It is important to note that, aside from the case at the International Trade Court initiated by several other states and some small businesses, there is another significant case in California led by Democrat Governor Gavin Newsom, who contends that Trump’s trade tariffs were unlawful. Legal experts suggest that this is the case to monitor closely.

Ongoing uncertainty

Meanwhile, it remains uncertain whether businesses should ultimately prepare for relief if the trade court’s decision is upheld or if the tariffs will persist. This raises critical questions regarding the potential implementation of the so-called reciprocal tariffs scheduled for July, the viability of the 10% universal tariff, whether the US Congress will support the president, and what the Supreme Court's final ruling will entail. The outcome of this situation will determine whether nations will need to engage in negotiations with the US.

During the appeals process, experts indicate that the Trump administration may explore alternative avenues to impose additional tariffs. This could further contribute to the prevailing uncertainties. The previous ruling that halted the imposition of the tariffs undermines ongoing efforts by US Treasury Secretary Scott Bessent to negotiate trade agreements with other nations, including India.

The United Kingdom appears to be acting rather recklessly by hastily entering into a trade agreement with the United States, which maintains the 10% base rate that was included in Trump's initial proposal. This decision comes even though the US enjoys a trade surplus with the UK. Other nations, including Japan and the European Union, have already chosen to exercise caution after witnessing the Trump administration retreat in the face of rising government borrowing rates in the US. Additionally, the prevailing legal uncertainties serve as another reason for countries to adopt a wait-and-see approach.

As US negotiators prepare to arrive in New Delhi for trade discussions scheduled for June 5-6, officials from the Ministry of Commerce and Industry have indicated that they are currently "analysing the implications" of the ruling issued by the US Court of International Trade on Wednesday. On April 2, Trump had declared a significant 26% reciprocal tariff on India, despite New Delhi's willingness to initiate negotiations with Washington regarding a trade agreement. The implementation of these tariffs has been suspended until July 8, and the Indian government is eager to finalise an interim trade deal before that date. However, the recent legal developments may necessitate a reassessment at this juncture.

Legal analysts believe that the Trump administration may face a challenging case, particularly concerning the legal aspects of the International Emergency Economic Powers Act (IEEPA). In the United States, trade policy is constitutionally under the jurisdiction of Congress, and the leaders of the Trade committees in both the House and Senate (which are part of the Ways and Means Committee) typically hold significant influence. President Trump circumvented these established protocols by declaring a series of national emergencies. While he possesses some authority to act in genuine emergencies, this power has been granted by Congress to the Executive Branch over the years. The two specific instances in question argue that the extensive use of these powers to implement permanent tariff modifications was both illegal and unconstitutional. This argument may have merit. The ruling from the Court of International Trade appears to be quite solid from this viewpoint and also strengthens California's analogous case.

At the moment, it would be wise to anticipate that other negotiators globally will take a step back and remain passive, as the White House endeavours to validate the legality of the fundamental premise of its international trade offensive.