Are Trump’s tariffs unlawful? A major court case could reshape his trade strategy

By Elisabeth Buchwald, CNN

(CNN) — For months President Donald Trump has been slapping higher tariffs on practically every country’s exports to the United States, citing emergency economic powers. Now, just as he’s about to enact a new round of tariffs, a federal appeals court could render them void.

Oral arguments began Thursday for an appeal in a case alleging Trump overstepped his legal authority to impose many of his sweeping tariffs. Five small business owners and 12 Democratic-led states are arguing that Trump can’t use a law known as the International Emergency Economic Powers Act of 1977 to enact those import duties.

The US Court of International Trade sided with those states and businesses in May but the United States Court of Appeals for the Federal Circuit, which is taking on the case, allowed Trump’s tariffs in question to remain in place while the case is being challenged.

It could take them weeks, or even months, to reach a decision. And the appeal could eventually make it to the Supreme Court as well.

But the federal appeals court’s decision could still significantly reshape Trump’s trade strategy – even as it won’t stop Trump from imposing higher tariffs altogether.

Judges dispute Trump’s tariff rationale

Already it appears the president’s case faces an uphill battle.

Assistant Attorney General Brett Shumate sought to convince the appeals court that Trump is within his legal authority. But his arguments were met with skepticism from 10 of the 11 judges who spoke on Thursday.

Of particular issue was the unusual and unprecedented use of the IEEPA to levy tariffs.

“But IEPPA has been rarely used, hasn’t it? It’s been over 50 years since it’s been used?” Judge Jimmie Reyna said.

Reyna pointed out: “IEEPA doesn’t even say tariffs, doesn’t even mention them,” with several judges echoing that sentiment.

Several other judges questioned Trump’s use of an economic emergency to impose tariffs. The president has previously stated that US trade deficits with other countries, that is, when the US imports more than it exports, merit a national economic emergency requiring tariffs to correct.

Judge Raymond Chen, however, questioned: “Can the trade deficit be an extraordinary and unusual threat when we have had trade deficits for decades?”

What’s at stake

Trump has cited IEEPA to impose country-specific tariffs. That includes the 10% universal tariffs that have been applied to most countries’ exports to the United States since April as well as tariffs on China, Mexico and Canada aimed at curbing the flow of fentanyl and illegal immigrants to the United States.

On Wednesday, he cited the law again to increase tariffs on most Brazilian exports to the US by 40 percentage points to 50%, and he’s expected to do so again on Friday, the self-imposed deadline he set for trading partners to make trade agreements or face higher tariffs.

Even trading partners that reached trade agreements with Trump, including the European Union and Japan, are set to face higher tariffs compared to rates since April. The new rates they face are also being backed by Trump’s use of IEEPA, which means if the court rules against him, the trade agreements he announced could face an uncertain fate.

The Trump administration likely believes they can find other legal avenues to back those trade agreements, even if they lose the IEEPA fight in court, said Patrick Childress, international trade and disputes attorney at Holland & Knight and former US Trade Representative attorney.

And starting over on trade talks carries risks as well, said Brent Skorup, a legal fellow at the Cato Institute, a libertarian-leaning think tank that filed an amicus brief siding with the plaintiffs. “I suspect most nations will not want to provoke the administration by reopening negotiations,” he added.

Economists at JPMorgan aren’t as convinced.

“If the IEEPA is deemed inadmissible, the legal status of the trade deals themselves could come into question,” they said in a note earlier this week.

What’s not at stake

Trump has made tariffs a centerpiece of his entire economic policy; don’t expect that to stop any time soon.

But Trump hasn’t just been using IEEPA to levy tariffs. All the sectoral tariffs Trump has imposed during his second term, most recently a 50% copper tariff, have used Section 232 of the Trade Expansion Act of 1962.

This gives the president the authority to impose higher tariffs on national security grounds. It can only be used to target specific sectors and requires an investigation to be launched before tariffs can be imposed.

There’s also Section 301 of the Trade Act of 1974, which allows the US Trade Representative to investigate countries potentially violating other nations’ trade agreements or practices in a way that is “unjustifiable” and “burdens or restricts” US business. Trump used Section 301 during his first term to hike tariffs on several Chinese imports, along with aircraft and other European Union goods.

There are a slew of other levers he can pull to enact higher tariffs, too, which, like Section 232 and 301 tariffs, aren’t being legally challenged.

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