Another Crack in the Tariff Wall

The Court of International Trade (CIT) delivered another blow to Trump’s tariff policy last week by invalidating the 10 percent tariffs imposed last February after the Supreme Court ruled out the tariffs imposed under the International Economic Emergency Powers Act (IEEPA).

This time, the court’s decision was both narrow and broad. Narrow because it applied only to the state of Washington and two private sector plaintiffs—Burlap and Barrel, Inc., and Basic Fun, Inc. 23 other state plaintiffs were dismissed for lack of standing. In cases like this, plaintiffs must demonstrate, among other things, that they have been harmed by the government’s actions. In the May 7 ruling, the court determined that only those who had actually paid the tariffs were harmed. The other plaintiffs argued that the fact that they and their citizens had to pay higher prices as a result of the tariffs also constituted harm, but the court did not buy it and dismissed them without prejudice, meaning they can refile a complaint if they come up with a better argument. As a result, the immediate impact of the ruling—and it is immediate, as the court provided no delay on its injunction against the tariffs going into effect—will be very small, affecting only the state of Washington and the two private companies.

At the same time, the decision is potentially broad because by invalidating the Section 122 tariffs, the court implicitly invited everyone else who has paid the tariffs to file a complaint. The court could have issued a universal injunction that applied to everyone, but it chose not to go down that road, likely because the judiciary’s ability to do that has come into question via a recent Supreme Court ruling on an unrelated matter. That allowed the CIT to avoid getting involved in a messy debate over the scope of its authority, but the downside is that the decision will inspire a torrent of additional lawsuits from companies that have been paying the tariffs, all of them expecting the same outcome. (This validates my old argument that the real winners in all these cases are the lawyers.)

I confess I was surprised by this outcome. In the IEEPA case, many observers expected the negative decision because the statute does not mention tariffs. In this case, Section 122 explicitly mentions tariffs and permits them up to 15 percent and up to 150 days under these circumstances:

(a) Whenever fundamental international payments problems require special import measures to restrict imports—

(1) to deal with large and serious United States balance-of payments deficits[,]
(2) to prevent an imminent and significant depreciation of the dollar in foreign exchange markets, or
(3) to cooperate with other countries in correcting an international balance-of-payments disequilibrium

As a result, the argument turned on the meaning of “balance-of-payments deficits.” (The question of whether it is “large and serious” was acknowledged to be a matter of presidential discretion.) The administration’s argument maintained that the current account, where the trade deficit is a significant component, is the best measure of balance of payments, but the court noted that a later part of Section 122 deals specifically with the trade balance, which indicated that Congress was making a distinction between balance of payments and balance of trade, and the relevant part of section 122 was intended to address the former.

That distinction led the court to a long discussion of the proper definition of “balance-of-payments deficit,” in which Hill staff, current and former, will be pleased to see extensive space devoted to the provision’s legislative history, including the relevant committee reports and statements by various members of Congress. Reviewing all that material and attempting to discern what Congress originally intended in 1974, the court concluded (citations omitted):

Rather than identifying “balance-of-payments deficits” as that term was intended in 1974, the Proclamation relies upon current account deficits, and a discussion of “a large and serious trade deficit.” . . . The Proclamation asserts that “the United States runs a trade deficit, does not currently make a net income from the capital and labor that it deploys abroad, and experiences more transfer payments, on net, flowing out of the country than into the country.” . . . Nowhere does Proclamation No. 11012 identify balance-of-payments deficits within the meaning of Section 122 as it was enacted in 1974. . . . Proclamation No. 11012 is invalid, and the tariffs imposed on Plaintiffs are unauthorized by law.

The opinion was, to me, a surprising but welcome descent into the economic weeds that one does not often see in legal opinions. Lawyers, after all, are trained in the law, not in economics. Many observers expected that this decision, as well as the inevitable future litigation on the use of Section 301 tariffs, would show significant deference to the president’s judgment, as judges would be reluctant to second-guess presidential determinations on economic matters. The CIT spends more time in the economic weeds than most courts, so it will be interesting to see if this decision is upheld on appeal. The court is on a winning streak, having had its decision in the IEEPA case affirmed. Regardless of the outcome, the fact that higher courts, including the Supreme Court, now have to drill down into economic minutiae could be a good learning experience for them. It could also be a reminder for the president that the Constitution and the law matter, and he cannot simply reinterpret them as he wishes.

Author’s Note: I retired from CSIS on March 29, 2026. I plan to continue writing this column and participating in the Trade Guys podcast, so please continue to read and listen. However, my CSIS email address will no longer be working, so if readers or podcast listeners want to contact me directly, they should do so at [email protected].

William A. Reinsch is a senior adviser (non-resident) and Scholl Chair emeritus with the Economics Program and Scholl Chair at the Center for Strategic and International Studies in Washington, D.C.