Insights into the Trump Administration’s IEEPA Tariffs Setback

On May 28, the Court of International Trade (CIT) issued a major decision on two of the lawsuits pending against Trump’s use of the International Economic Emergency Powers Act (IEEPA) to impose tariffs on Canada, Mexico, and China, as well as the “Liberation Day” tariffs he announced on April 2. The cases are V.O.S. Selections, et al., v. Trump and Oregon, et al., v. Trump. The decision came as a surprise for two reasons: its timing and its substance.

On timing, the court’s second hearing was held only last week, so the decision, embodied in a 49-page ruling, was made quickly. Since the decision is certain to be appealed, probably all the way to the Supreme Court, quick action at this stage will prove helpful in getting the matter to a final resolution faster than the usual two or three years. That also makes sense given the enormous economic disruption the tariffs have caused globally, and the inevitable confusion the court’s ruling will also cause, since businesses no longer know if the tariffs are in effect, and if not, when they might return.

This entire episode has been noteworthy for the degree of uncertainty it has created for foreign as well as U.S. companies, so the earlier a final decision can be reached, the faster economic equilibrium can be restored. The administration has appealed the ruling—no surprise there—and obtained an emergency stay to keep them in place. That all prolongs the uncertainty, but the CIT at least has put it on a faster track to resolution.

On substance, the court surprised everyone by ignoring requests for an injunction to halt the tariffs while the court deliberated. Instead, the court went straight to the merits of the lawsuits and issued a summary judgment in favor of the plaintiffs and against the government. Here is the essential portion of the court’s conclusion:

Because of the Constitution’s express allocation of the tariff power to Congress, see U.S. Const. art. I, § 8, cl. 1, we do not read IEEPA to delegate an unbounded tariff authority to the President. We instead read IEEPA’s provisions to impose meaningful limits on any such authority it confers. Two are relevant here. First, § 1702’s delegation of a power to “regulate . . . importation,” read in light of its legislative history and Congress’s enactment of more narrow, non-emergency legislation, at the very least does not authorize the President to impose unbounded tariffs. The Worldwide and Retaliatory Tariffs lack any identifiable limits and thus fall outside the scope of § 1702. Second, IEEPA’s limited authorities may be exercised only to “deal with an unusual and extraordinary threat with respect to which a national emergency has been declared . . . and may not be exercised for any other purpose.” 50 U.S.C. § 1701(b) (emphasis added). As the Trafficking Tariffs do not meet that condition, they fall outside the scope of § 1701.

The reference to “Worldwide and Retaliatory Tariffs” is to the April 2 announcement. The reference to “Tracking Tariffs” is to the Canada, Mexico, and China tariffs, where the basis claimed by the administration was the failure of the countries to adequately control fentanyl trafficking. The court differentiated between the two but concluded both were illegal.

With respect to Canada, Mexico, and China’s fentanyl-related tariffs, the court concluded that the administration’s argument that they were intended as “leverage” to persuade the other countries to act was not a sufficient link to the alleged emergency. It might be a legitimate diplomatic strategy, the court argued, but that did not by itself create a sufficient connection between the action and the emergency to meet the standard in the law.

Concerning the April 2 tariffs, the court concluded that IEEPA did not give the president “unbounded” authority, a term used several times in the ruling, and because the announced tariffs had no discernible limits, they fell outside the limits of the law. The decision did not conclude that IEEPA was unconstitutional—an issue the Supreme Court will likely address. Instead, it argued that the president’s action exceeded the inherent limits of the statute. Of course, the alternative argument—that IEEPA was an unconstitutional delegation of congressional authority to the executive branch—would lead to the same result, striking down the tariffs.

The court also ruled that the Trump administration’s declaration of a national economic emergency did not meet the statutory threshold under IEEPA, as long-standing trade imbalances and foreign manufacturing reliance did not constitute an “unusual and extraordinary threat.”

A subsidiary issue that will probably lead to further litigation is whether importers who have paid the tariffs can get their money back. If the White House is unsuccessful in its appeal process, and all courts uphold the ruling, businesses that have had to pay tariffs will likely receive refunds on the amounts paid, with interest. For now, Customs and Border Patrol would be prudent to suspend liquidation of entries pending a final decision, which would make it easier for importers to get refunds if the tariffs are ultimately removed, but the administration will probably reject that option since it would appear to be complying with the ruling, at least temporarily.

The administration may seek to use other authorities to impose tariffs. These could include Section 122 of the Trade Act of 1974, which is intended to deal with a balance of payments emergency but does not require a formal investigation and would therefore be a swifter way to circumvent the CIT’s ruling. That provision, however, restricts tariffs to 15 percent, and they can only last 150 days. The administration could also double down on Section 301 investigations on trading partners, laying a more permanent groundwork for tariff action. Section 232 of the Trade Expansion Act of 1962, another national security authority that is already in place for steel, aluminum, and autos, could be broadened to other sectors. Seven other investigations have already been launched under that provision. Lastly, Section 338 of the Trade Act of 1930 allows the administration to impose tariffs of up to 50 percent on countries that discriminate against the United States—an argument that the White House would likely make given the rhetoric it has used against key trading partners. It has never been used before, but uncharted territory is now the name of the game for the Trump administration. The last three require investigations, which could take months. The administration might choose to truncate any investigations, but that would risk a court rebuke on procedural grounds.

The White House has already appealed the decision and was broadly successful in asking the Court of Appeals for the Federal Circuit (CAFC), which hears appeals from CIT decisions, to stay the court’s order and restore the tariffs pending its review of the CIT decision. It has also been indicated that if the CAFC does not grant a stay, it will appeal directly to the Supreme Court. That will prolong the uncertainty, at least for a few more weeks. Meanwhile, negotiations with other countries will probably continue at a slower pace. Other countries would be foolish to reach a final agreement on concessions, given the uncertain future of the tariffs that brought them to the table in the first place.

William A. Reinsch is senior adviser and Scholl Chair emeritus with the Economic Program and Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Thibault Denamiel is a fellow with the Economics Program and Scholl Chair in International Business at CSIS.