Five small businesses and 12 state governments in the United States filed a lawsuit against the federal government on April 14 and April 23, respectively, challenging the validity of the fentanyl tariffs and reciprocal tariffs on 58 countries enacted by U.S. President Donald Trump under the International Emergency Economic Powers Act (IEEPA) of 1977. The U.S. Court of International Trade (CIT) ruled on May 28 that the IEEPA does not grant the U.S. president the authority to impose fentanyl tariffs or reciprocal tariffs. The following day, on May 29, the U.S. District Court for the District of Columbia delivered a similar ruling to the CIT. The Trump administration immediately appealed to the U.S. Court of Appeals for the Federal Circuit (CAFC), which temporarily stayed the implementation of the CIT's invalidation of the tariff executive orders until the appeal was resolved, thus allowing the IEEPA-based tariffs to remain in effect temporarily, favoring President Trump's stance.

CIT, initially established as the Customs Court in 1926, was elevated to a trade-specialized federal court in 1980. Located in New York, CIT is a court specializing in the interpretation of trade-related treaties and laws. It primarily handles appeals against the U.S. Customs and Border Protection (CBP) tariff decisions, lawsuits regarding dumping and subsidy determinations by the International Trade Commission (ITC), challenges to trade remedy measures by the Department of Commerce, and judicial review of the constitutionality of the president's tariff impositions under Section 232 of the Trade Expansion Act of 1962, IEEPA, among others. From the early stages of his second term, President Trump invoked IEEPA to impose tariffs on numerous countries. While imposed item-specific tariffs on steel and automobiles using Section 232, Section 232 necessitates prior investigation of national security impact.

In contrast, IEEPA allows the president to take immediate tariff action upon declaring a national emergency to meet activation conditions. While IEEPA enables swift presidential action, debate ensues on whether it permits tariff measures. The United States is the only nation where Congress constitutionally holds trade policy authority, delegating tariff policy to the president under limited scope and conditions.

IEEPA tariff litigation and ruling

On May 28, a panel of three CIT judges unanimously ruled that all tariffs imposed by President Trump under IEEPA were unconstitutional. This ruling included tariffs on Canada, China, and Mexico, as well as reciprocal tariffs. The court judged that Trump exceeded the powers granted under IEEPA. This is considered the most critical legal setback for Trump's trade policy. The Trump administration immediately obtained a temporary injunction to maintain IEEPA tariffs until June 9 by appealing. During the appeal process, the administration might re-impose tariffs on specific countries or products through Section 301 (unfair trade practices) and Section 232, and explore alternative measures to impose a 15% temporary tariff depending on balance of payments deficits through Section 122. However, these alternatives require time and have constraints, possibly becoming subjects of further legal challenges. As judicial review arises over Trump's tariff measures, tariff negotiations could be delayed. CIT's ruling signifies judicial intervention in the balance of power between the administration and Congress regarding trade issues.

The Council on Foreign Relations (CFR), a U.S. foreign policy think tank, evaluated the recent CIT ruling from various perspectives. It reminded that trade policy is not solely subject to the president's unilateral decisions, affirming the continued roles of the judiciary and Congress. There was consensus that even if Trump uses alternative means, similar tariff systems may face hindrances on presidential tariff policy.

Ben Steil, CFR's director of international economics, assessed the ruling as striking back against presidential power abuse. The decision checked the unchecked expansion of presidential powers, such as IEEPA, over decades. The Trump administration is likely to attempt to re-impose tariffs through Sections 232 and 301 alongside the appeal. Negotiations with trade partners may become more chaotic, and disputes over tariff legitimacy could persist for several months. Brad W. Setser, CFR senior fellow, noted that impulsive impositions like a 145% tariff on China, reduced to 30% after two days of minister-level negotiations, can no longer be arbitrary under IEEPA. It emphasizes aligning with IEEPA's original sanction purpose, for genuine emergencies. Current or planned Section 232 measures alone cover about 40% of U.S. trade (about 4% of GDP), with high tariffs on the European Union, Korea, Japan, and Taiwan in industries like automotive, semiconductors, and aerospace. A 30% re-imposition on China through Section 301 is possible, and Section 301 measures for non-market economies like Vietnam might be considered. However, these require more time and procedures, making sudden tariff adjustments difficult for the president.

Key issues and prospects

The recent CIT ruling criticized President Trump's broad use of emergency powers for shaping trade policy. It warned against excessive government intervention disguised as a national emergency and suggested restoring Congress's constitutional authority over tariffs. Although Trump's trade policy faced major checks due to the CIT ruling, ending tariff policy seems unlikely even if the ruling is upheld, as the White House may seek alternative means. At a forum held in Seoul, Robert Lighthizer, a key architect of protectionist policies during Trump's first term and former U.S. Trade Representative, asserted that 'the end of the tariff war' is unseeable despite the CIT ruling. He emphasized that while universal tariff impositions face limitations, Trump can still freely utilize tools to impose tariffs on specific items under Section 232 or on specific countries via Section 301.

Lighthizer's assessment aligns with the White House's stance. Karoline Leavitt, White House Spokesperson, called the court's decision the day after the CIT ruling 'judicial overreach' and stressed that despite the ruling remaining in court, various legal means for imposing tariffs exist, hence ongoing tariff negotiations with other countries would not be affected. Currently, the Supreme Court justices align 6-3 between conservative and liberal inclinations, with conservatives in majority. As legal battles escalate over Trump tariff policy, the U.S. trade authority's negotiation schedule will inevitably face bottlenecks, but neglecting tariff negotiations with the U.S. is not an option. Item-specific tariffs on steel and automobiles are not subjects of the CIT ruling, and Trump can expand application under Sections 232 and 301. Furthermore, the conservative-leaning Supreme Court may overturn the CIT ruling. The new government, inaugurated on June 3 through the presidential election, should base its tariff negotiation strategy on agreements made with the previous administration while continuing negotiations with the U.S. on tariffs.

※ This article is published in the June issue of the monthly 'Trade'. Please search 'Monthly Trade' on Naver.