A divided three-judge panel at the Court of International Trade in Manhattan has dealt a fresh blow to the administration’s economic agenda by declaring 10% global tariffs unlawful.
This ruling comes several months after the Supreme Court vacated previous levies.
The tariffs were imposed in February under Section 122 of the Trade Act of 1974, a provision that had never been invoked before.
The court granted a request by a group of small businesses and two dozen states to vacate the duties, though the immediate block on enforcement currently applies only to the companies that sued and Washington state.
Legal standing and immediate impact
The panel clarified that it was not issuing a universal injunction at this stage.
It found that while direct importers had standing, several states involved in the lawsuit did not, as they were not direct importers. These states had argued they were harmed indirectly when businesses passed on tariff costs to consumers through higher prices.
It remains unclear how this ruling will affect other importers who have been paying the contested levies.
The majority of the judges rejected the administration’s argument that balance-of-payments deficits represented a flexible phrase that could be broadly interpreted to justify the duties.
Misinterpretation of trade laws
The court concluded that the proclamation imposing the levies failed to identify a balance-of-payments deficit as defined by the 1974 law. Instead, the administration used trade and current account deficits as substitutes, which the court found legally insufficient.
This decision marks the latest setback in an effort to levy tariffs without congressional input. Previous duties, which were overturned by the Supreme Court on 20 February, had been issued under the International Emergency Economic Powers Act.
In that instance, the justices ruled the president had exceeded his authority, leading to a scramble for nearly 170 billion dollars in refunds.
Framework of Section 122
Section 122 allows for the imposition of duties when the country faces fundamental international payments problems.
While the president argued that a large and serious trade deficit justified the move, legal experts had long questioned whether this provided a solid legal framework.
Under the law, tariffs can be imposed on a short-term basis to address concerns such as an imminent and significant depreciation of the dollar.
Unlike other legal avenues, Section 122 can be invoked without a prior federal agency investigation, though the actions remain subject to judicial challenge.
Allegations of discriminatory application
The small businesses and states involved in the lawsuit argued that Section 122 became outdated once the gold standard was abandoned.
They alleged the administration’s order was filled with omissions and mischaracterizations regarding the definition of a balance-of-payments deficit.
Furthermore, the states argued that the tariffs violated requirements for non-discriminatory application by improperly exempting goods from specific countries, including Canada, Mexico, and several Central American nations.
The Justice Department may still challenge this latest ruling through the Court of Appeals for the Federal Circuit.
