US Trade Court Rules Trump Global Tariffs Unlawful in Narrow Ruling

A US trade court ruled on May 7 that President Donald Trump’s 10 per cent global tariffs are unlawful under a 1974 trade law, dealing a second major judicial blow to the administration’s tariff strategy in three months but limiting the immediate relief to just three plaintiffs.

The US Court of International Trade in New York found in a 2-1 decision that the administration lacked the legal justification to impose the duties under Section 122 of the Trade Act of 1974. The statute permits a president to levy tariffs of up to 15 per cent for as long as 150 days to correct “large and serious United States balance-of-payments deficits,” a threshold the court ruled the administration had failed to meet.

“The presidential proclamation putting the tariffs in place identifies no ‘large and serious United States balance-of-payments deficits’ as Congress understood that phrase,” the majority opinion stated.

A narrow injunction

The court declined to issue a universal injunction blocking the tariffs for all importers, rejecting a request from a coalition of 24 states, most led by Democrats. The judges said those states lacked standing because they were not importers that had paid or could have paid the Section 122 duties.

The exception was the State of Washington, which submitted evidence that it had paid tariffs through the University of Washington, a public research institution. Washington joins two small businesses, toy company Basic Fun! and spice importer Burlap & Barrel, as the only parties granted relief from the levies.

“Private plaintiffs make no specific arguments for a universal injunction. Costs to one plaintiff is not an appropriate basis for the imposition of a universal injunction. Accordingly, the court declines to enter a universal injunction,” the ruling said.

The tariffs continue to apply to thousands of other importers while the case proceeds through appeal. The ruling requires the administration to stop collecting the duties from the three prevailing plaintiffs and to refund their prior payments, but it leaves the broader import economy unchanged.

Dave Townsend, a partner in Dorsey & Whitney’s international trade group, said the decision “undoubtedly will be appealed by the United States and thus sets the stage for further consideration by the US Court of Appeals for the Federal Circuit and the Supreme Court.” He added that other importers are now likely to seek intervention or file parallel suits to obtain the same relief.

Jeffrey Schwab, the attorney representing the importer plaintiffs, said the limited scope “of course brings up a lot of questions about how this will play out,” but noted that other companies could file similar lawsuits to seek refunds. Whether that wave materialises depends partly on whether the government appeals or decides to let the tariffs expire on July 24 as scheduled.

Trump vows to ‘do it a different way’

Trump responded to the ruling on Thursday night by blaming what he called “two radical left judges” and said his administration would find alternative legal pathways for its tariff agenda.

“Nothing surprises me with the courts. Nothing surprises me,” Trump told reporters after viewing a reflecting pool renovation project in Washington. “We get one ruling and we do it a different way.”

The reaction recalled the president’s response to the Supreme Court’s February decision, which struck down his original tariff regime imposed under the International Emergency Economic Powers Act. Within hours of that ruling, the White House replaced the IEEPA tariffs with the Section 122 duties now at issue. The plaintiffs in the current case described the substitution as an attempt to sidestep the high court’s ruling.

Jay Foreman, chief executive of Basic Fun!, described the decision as “an important win for American companies that rely on global manufacturing to deliver safe and affordable products.”

He added: “We are encouraged by the court’s recognition that these tariffs exceeded the president’s authority. This ruling brings needed clarity and stability for companies navigating global supply chains.”

Section 301 tariffs loom as fallback

The administration is expected to appeal, but trade lawyers say it already has a backup. Three separate investigations under Section 301 of the same 1974 trade act, which covers unfair trade practices and has withstood numerous court challenges, are due for completion in July, around the same time the Section 122 tariffs expire.

“The administration will appeal this decision but it will continue collecting most of the 10 per cent tariffs under Section 122 until July 24, at which point we will likely have permanent Section 301 tariffs in place,” said Ryan Majerus, a former senior Commerce official now at the King & Spalding law firm.

The shift from Section 122 to Section 301 would move the legal basis from balance-of-payments deficits to unfair trade practices, a framework that courts have historically been more deferential toward. Section 301 tariffs carry no built-in expiry date, giving the administration a permanent statutory foundation for its tariff policy.

Majerus cautioned that Section 122 refunds will not be possible until the appeals courts have weighed in, meaning importers hoping to recover payments face a wait that could stretch into 2027.

A disputed economic premise

The administration had argued that a US goods trade deficit running at $1.2 trillion annually and a current account deficit of 4 per cent of gross domestic product constituted the kind of serious imbalance Section 122 was designed to address.

Many economists rejected that characterisation from the outset. Gita Gopinath, former first deputy managing director of the International Monetary Fund, told Reuters in February: “We can all agree that the US is not facing a balance-of-payments crisis, which is when countries experience an exorbitant increase in international borrowing costs and lose access to financial markets.”

Thursday’s ruling endorsed that view. The majority found that the kinds of trade deficits the administration cited, large though they are, were not the sort of acute crisis Congress had in mind when it wrote the law in 1974. One judge on the three-member panel dissented, arguing it was premature to grant victory to the plaintiffs.

Political stakes and the Xi summit

The legal setback lands at a tense moment for US trade policy. Voter disapproval of Trump’s economic management reached 58 per cent in a Financial Times poll published this week, with tariffs ranking among voters’ top concerns ahead of the November midterm elections.

Trump is scheduled to meet Chinese President Xi Jinping in Beijing next week. Trade tensions were already expected to feature prominently on the agenda alongside discussions over the Iran conflict and rare-earth mineral supply chains. The court ruling further complicates those talks: an administration tariff architecture that has now been struck down under two different statutory authorities in three months may strengthen Xi’s negotiating position.

An earlier analysis noted that the Iran war had already pushed tariff and rare-earth negotiations down the summit agenda.

The White House and the Office of the United States Trade Representative did not immediately respond to requests for comment on the ruling.