Federal trade court strikes down Trump’s reciprocal tariffs

A federal court ruled Wednesday that President Donald Trump exceeded his authority with his reciprocal tariffs, dealing a blow to a major tenet of the president’s economic agenda.

A three-judge panel at the U.S. Court of International Trade ruled that the International Emergency Economic Powers Act (IEEPA), a 1977 law that Trump invoked to justify the tariffs, does not actually give the president the power to unilaterally implement the sweeping duties.

“The Worldwide and Retaliatory Tariff Orders exceed any authority granted to the President by IEEPA to regulate importation by means of tariffs,” the judges wrote in their ruling.

Specific tariffs on Canada, Mexico and China related to drug trafficking, they wrote “fail because they do not deal with the threats set forth in those orders.”

The court ordered a permanent halt to the tariffs at issue in the case, and it barred any future modifications to them.

The Trump administration was given 10 days to make the necessary changes to carry out the judges’ orders.

The ruling applies to the set of trafficking tariffs and to the “reciprocal” tariffs Trump imposed on scores of countries in April to correct what he said were persistent trade imbalances.

Several existing tariffs on specific products like aluminum and steel are not impacted by Wednesday’s ruling, because the president did not invoke IEEPA powers to justify their necessity.

Dow futures jumped 500 points on news of the ruling.

Implementing tariffs typically requires congressional approval, but Trump chose to bypass Congress by declaring a national economic emergency under IEEPA, and then using the purported emergency as justification for cutting Congress out of the process.

The Trump administration swiftly appealed the ruling Wednesday to the U.S. Court of Appeals for the Federal Circuit.

“Foreign countries’ nonreciprocal treatment of the United States has fueled America’s historic and persistent trade deficits,” White House spokesperson Kush Desai said in a statement after the order.

“These deficits have created a national emergency that has decimated American communities, left our workers behind, and weakened our defense industrial base – facts that the court did not dispute.”

“It is not for unelected judges to decide how to properly address a national emergency,” Desai added.

One of the lead plaintiffs in the case, Oregon Attorney General Dan Rayfield called the ruling “a victory not just for Oregon, but for working families, small businesses, and everyday Americans.”

“President Trump’s sweeping tariffs were unlawful, reckless, and economically devastating,” Rayfield said in a statement late Wednesday. “They triggered retaliatory measures, inflated prices on essential goods, and placed an unfair burden on American families, small businesses and manufacturers.”

The ruling — and subsequent Trump administration appeal — likely set up a bitter legal battle that could easily wind up at the Supreme Court.

The court ruling “is a significant setback for the administration, which has leaned heavily on IEEPA to impose tariffs at will against China, Mexico, Canada, and everywhere else,” said independent trade expert Jack Slagle, founder of NexINT Global.

“Even if the Supreme Court doesn’t hold up the tariffs, it doesn’t necessarily mean the end of tariffs on imported goods. It may not even result in a relative pause of the trade conflict,” Slagle told CNBC in an email.

“We can expect that the president and his trade advisors will be reviewing all options, and to be clear, this is all far from over,” said Slagle.

The case was made up of two different lawsuits brought against the tariffs, one by a group of state attorneys general and another challenge brought by five American businesses that each rely on goods that are imported to the U.S. and are impacted by tariffs.

The judges said that Trump’s tariff orders were “unlawful as to all,” not just to the specific plaintiffs in this case.

Trump announced on April 2 sweeping reciprocal tariffs on imports from nations around the world, ranging from 11% to 84%. Days later, on April 9, he issued a 90-day pause, but kept in place the 10% baseline tariffs on most products entering the country.

One of the issues the three-judge panel took with Trump’s tariff regime was that they did not see a clear connection between the purported emergency that Trump was using to justify the trafficking tariffs, and what tariffs can actually do in practice.

Trump had argued at the time that a 25% tariff on goods from Mexico and Canada, and a 10% levy on imports from China were urgetly necessary because the countries had failed to “arrest, seize, detain, or otherwise intercept” drugs and drug traffickers.

But the judges found that there was no clear link between the president’s stated goal, namely cutting international drug trafficking, and the method Trump was using to pursue it: charging import duties on legal trade.

“Customs’s collection of tariffs on lawful imports does not evidently relate to foreign governments’ efforts ‘to arrest, seize, detain, or otherwise intercept’ bad actors within their respective jurisdictions,” they wrote.

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