The U.S. Court of International Trade ruled on Wednesday that President Donald Trumpโs tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were unconstitutional due to a lack of presidential authority. This decision has significant implications for U.S. trade policy, particularly affecting tariffs on imports from Canada, Mexico, and China that were aimed at combatting fentanyl smuggling.
Key Court Ruling
The central ruling determined that IEEPA does not empower the president to impose the specific tariffs previously enacted. This affects the recently introduced โfentanylโ tariffs as well as the April 2 announcement of a universal 10% baseline tariff on all imports. However, the judgment does not invalidate Trumpโs existing 25% tariffs on steel and aluminum or on automobiles, which were based on different legal grounds.
Following the trade courtโs decision, a federal appeals court granted a temporary stay, allowing the tariffs to remain in effect while considering the White Houseโs appeal. This leaves the fate of Trumpโs broad tariff agenda uncertain.
Impact on U.S. Trade Revenue
Data from U.S. Customs indicates that the tariffs struck down by the court generated approximately $11.8 billion in revenue during the current fiscal year, with an additional $1.2 billion from the universal tariff implemented in April. Conversely, tariffs on metals and car parts, unaffected by the ruling, contributed around $3.3 billion, while earlier tariffs on Chinese goods from Trumpโs first term brought in $23.4 billion, also exempt from the rulingโs impacts.
Despite the potential for decreased tariffs, analysts at Goldman Sachs estimate that the tariffs invalidated by the court could have yielded up to $200 billion annually. A consultancy, Capital Economics, predicts that the average U.S. tariff rate may fall from 15% to 6.5% as a result of the ruling, although this would still represent a considerable increase from the typical 2.5% seen in 2024.
Negotiation Leverage and Trade Relations
Trump has leveraged these tariffs in negotiations with impacted countries, but analysts suggest that the recent court ruling may deter nations from hastily finalizing trade deals with the U.S. The European Union recently intensified discussions with the White House following Trumpโs threats to raise tariffs to 50%. However, nations like the EU, Japan, and Australia may now prefer to wait for the outcome of the appeal before making any trading concessions.
Global Trade Implications
Global stock markets reacted positively to the courtโs decision, suggesting that it may ease uncertainties surrounding international trade policies. However, some analysts expect Trump to explore different legal avenues to reinstate tariffs. For instance, he could use Section 301 of the Trade Act of 1974, which allows the U.S. Trade Representative to tackle discriminatory foreign trade practices.
The World Trade Organization (WTO) previously warned of a โsharp deteriorationโ in the global trade outlook due to Trumpโs tariffs, predicting a 0.2% decline in merchandise trade for 2025. If upheld, the courtโs ruling could mitigate adverse effects, but uncertainties about future tariffs remain.
Economists caution that trade remains at risk, with many predicting significant fallout from ongoing tensions. Grace Fan from TS Lombard remarked, โTrumpโs trade war is not over โ not by a long shot,โ underscoring the unpredictable nature of U.S. trade relations in the coming months.
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