When US trade court says no: The limits of presidential tariff authority

FOR the second time this year, a US federal court has told the Trump administration that it cannot tariff its way around the Constitution.

On May 7, a three-judge panel of the US Court of International Trade ruled 2-1 that the 10 per cent across-the-board duty the president had imposed in February was unauthorised by law.

The decision is narrow in its immediate reach, since only the small-business plaintiffs who sued are entitled to refunds and exemptions, but its implications are anything but.

To understand why, it helps to retrace the steps that brought us here. In February, the Supreme Court struck down the broader tariff regime US President Donald Trump had built on the International Emergency Economic Powers Act (IEEPA), holding that the Act simply does not authorise tariffs at all.

Within hours, the administration pivoted to a different statute: Section 122 of the Trade Act of 1974, which permits the president to impose a temporary surcharge of up to 15 per cent for up to 150 days when there is a “large and serious” balance-of-payments deficit, when the US dollar is in danger of significant depreciation, or when international cooperation requires it.

The administration’s theory was straightforward: The US runs an enormous goods trade deficit of roughly US$1.2 trillion annually and that, the White House argued, is a balance-of-payments deficit within the meaning of the statute.

The May 7 majority disagreed, and the disagreement turns on an unglamorous but critical point of statutory interpretation.

A balance-of-payments deficit, in the sense Section 122 was written to address, is not the same thing as a trade deficit. Section 122 is a relic of the Bretton Woods era, when the greenback was pegged to gold and the US could face genuine currency-and-reserves crises if US dollars flowed abroad faster than they could be financed.

Congress wrote the statute, codified in 1975, to give a president emergency authority for that kind of monetary emergency. Once the gold peg ended and the greenback began to float, that particular form of crisis became largely obsolete.

When foreigners want fewer US dollar assets, the greenback simply depreciates, and equilibrium restores itself. A country with a floating currency, deep capital markets and the world’s reserve asset does not, in any technical sense, run a balance-of-payments deficit.

The court accepted that distinction. Trade deficits, the majority found, are not what the 1974 Congress had in mind, and the president’s proclamation pointed to nothing else that fit.

The dissenting judge would have given the administration more room, arguing the case was premature, but the majority’s reading is consistent with the statute’s text, structure and history, including the fact that a separate subsection of the same law uses “balance-of-trade” language at the points Congress actually wanted to talk about trade.

What happens now matters in several ways. In the immediate term, the ruling is limited. The tariffs remain in place against everyone except the named plaintiffs through to July, and an appeal to the Federal Circuit is certain.

Importers across the country are watching closely; if the ruling is upheld and broadened, the universe of refund claims could be enormous. Estimates of potential refunds across the administration’s various tariff regimes already run well into the hundreds of billions of dollars.

In the longer term, the decision underscores a pattern. The administration has now lost its two boldest legal theories for unilateral, across-the-board tariffs, IEEPA at the Supreme Court and Section 122 at the trade court.

Other instruments

That leaves narrower, slower instruments: Section 301 investigations into specific trading partners’ practices, Section 232 national-security tariffs on particular industries, and the long-dormant Section 338 of the 1930 Tariff Act.

Each can do something. None can replicate, with speed and breadth, the kind of universal tariff wall the administration has tried twice to build.

The president’s reaction on the night of May 7, that he would simply “do it a different way”, is at once defiant and revealing. The legal runway is shrinking.

The deeper question is institutional. Congress, over the past century, has delegated extraordinary trade authority to the executive, but it has done so in pieces, each tied to a specific problem and bounded by specific conditions.

What the courts are now insisting, ruling by ruling, is that those conditions actually mean something. A statute written for a currency crisis cannot be repurposed for a trade-deficit crusade simply because the words sound similar. A sanctions law cannot be retrofitted into a tariff code.

That is not a defeat for trade policy; it is a reminder of where trade policy ultimately lives. If the country wants a 10 per cent global tariff, the constitutional address for that decision is Capitol Hill. The May 7 ruling, whatever one thinks of tariffs themselves, is a small but pointed insistence on that fact.