In a surprise twist for those watching global trade, a divided US appeals court has determined that Donald Trump's tariffs are illegal, further weakening one of the Republican President's scripts for using levies as a linchpin of international economic policy. This ruling may have wide-ranging impacts across sectors that depend on tariff-enabled protections and disrupt import-export planning.
With a legal lens becoming clearer, the fight over the independence of the Federal Reserve appears on course for the Supreme Court, keeping alive the prospect of a historic showdown this year that could challenge the full breadth of Trump's economic agenda. As of now, the court has permitted the tariffs to stay in effect until October 14, providing the Trump administration a window to escalate the matter to the US Supreme Court.
In his second term, Trump has made tariffs a robust foundation of the US foreign policy, using them as a political tool and means of renegotiating trade agreements with exporting countries. While these actions gave the administration significant leverage, they contributed to increased volatility across financial markets.
Trump condemned the ruling, claiming that the court was "politically motivated" and raised hope that the tariffs would ultimately be approved. He expressed optimism that the policies will remain part of maintaining the US economic benefits, possibly with help from the Supreme Court.
In a 7-4 decision, the US Court of Appeals for the Federal Circuit in Washington, D.C., reviewed the legality of the "reciprocal" tariffs, which were enacted in April by Trump, as well as a different set that was passed in February on Chinese, Canadian and Mexican goods.
The majority was composed of six judges appointed by Democratic presidents and one appointed by a Republican, while the dissent had two Democrats and two Republicans. The ruling does not affect tariffs instituted under other legal authorities, such as tariffs on steel and aluminium imports.
Trump's justification for the tariffs imposed
Trump justified these tariffs as well as newer ones based on the authority contained in the International Emergency Economic Powers Act (IEEPA), which gives the President the power to respond to "unusual or extraordinary" threats during national emergencies.
To this, the court replied, "The statute bestows significant authority on the President to undertake several actions in response to a declared national emergency, but none of these actions explicitly include the power to impose tariffs, duties, or the like, or the power to tax. It seems unlikely that Congress intended, in enacting IEEPA, to depart from its past practice and grant the President unlimited authority to impose tariffs."
The 1977 IEEPA was mainly used to freeze the assets of enemies or impose sanctions on them. However, Trump was the first president to use the IEEPA to impose the tariffs, justifying them through trade imbalance, a "dwindling" American manufacturing strength and the flow of illegal drugs over borders into the United States.
The Department of Justice argued that the IEEPA allows the President to "control or even block" imports under those emergency provisions. In April, Trump declared a national emergency on the grounds of the dated trade deficit and stated it was a threat to manufacturing capacity and military readiness. The February tariffs were enacted on China, Canada and Mexico on the idea that the countries were not doing enough to combat illegal fentanyl trafficking, something that the countries have all denied.
The uncertainty continues
William Reinsch, an ex-senior Commerce Department official, now with the Centre for Strategic and International Studies, stated that the Trump administration had prepared for this ruling, implying that a plan is likely already underway to sustain the tariffs in the alternative legal statutes.
Art Hogan, chief market strategist at B. Riley Wealth, stated, "The last thing the market or corporate America needs is more uncertainty on trade."
While a 6-3 conservative-majority Supreme Court generally favours aspects of Trump's second-term agenda, the court has exercised caution in interpreting broad or ambiguous grants of authority to presidents in earlier statutes. The appeals court ruling stems from two cases, first from five small US businesses and the other from twelve Democratic-benefited states. Both cases argued the President does not have the authority to regulate tariffs and said the only authority given to the President through IEEPA is the authority to authorise tariffs.
Admittedly, the government has also confused Congress's constitutional authority to create taxes, tariffs and other trade regulations. There can be no delegation of authority to tax without an explicit delegation of authority and the drafters made clear they were careful with creating an even limited delegation of authority to taxes.
The US Court of International Trade, based in New York, ruled on May 28 that Trump exceeded his authority in regard to both sets of tariffs, with a ruling made by a three-judge panel which included one Trump-appointed judge. However, another court in Washington, D.C., also found that Trump exceeded his authority, and he has also appealed. Besides small businesses, there are at least eight lawsuits, including one from California, National Fuel and Gas Co., which challenged Trump's tariff policies.
Trump's appeal to the Supreme Court
On Wednesday night, President Donald Trump requested that the Supreme Court expedite an appeal to overturn lower court decisions that found most of his tariffs to be illegal. The appeal follows a ruling from the US Court of Appeals for the Federal Circuit five days ago, which found, in a 7-4 decision, that Trump exceeded his authority in imposing high tariffs on nearly all trade partners.
Trump further stated that a Supreme Court decision against his tariffs could cause the US to reexamine current trade agreements with the European Union, Japan and South Korea, indicating that not keeping the tariffs could have serious economic consequences, suggesting possible upheaval of international trade agreements now in place.
Other personnel in the administration are planning for contingencies. The US Treasury Secretary Scott Bessent said he was confident that the US Supreme Court would uphold Trump's use of the 1977 emergency law to implement broad tariffs, but acknowledged that a Plan B is being prepared in case the ruling goes the other way.
At the same time, Trump confirmed that he has no plans to reduce tariffs on India, following last week's US decision to double duties on Indian imports to 50 per cent in retaliation for the country's purchase of Russian oil.
Trump has ramped up his criticism of the US-India trade relationship and called it heavily one-sided for years. His comments come as Indian Prime Minister Narendra Modi is working to enhance economic ties with China and Russia while the US is becoming more distant.
According to filings obtained by NBC News, Trump asks the Supreme Court to consider his appeal in early November and then come down with a decision on the legality of the disputed tariffs not long afterwards. This timeline is striking, as usually a decision does not come until next summer.
Trump's filings state, "Delaying a ruling until June 2026 could result in a scenario in which USD 750 billion to USD 1 trillion in tariffs have already been collected and unwinding them could cause significant disruption."
As of now, the appeals court postponed its ruling until October 14, allowing Trump a chance to apply for a Supreme Court review, and allowing the court to issue a stay that is indefinite while the appeal is pending.
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