President Donald Trump’s trade war faces a crucial test as a federal appeals court hears a challenge to his use of emergency powers to impose sweeping tariffs on imports.

The US Court of International Trade ruled on May 28 that the vast majority of Trump’s levies were issued illegally and ordered them blocked. Just a day later, an appeals court gave the Trump administration a temporary reprieve from the ruling and subsequently decided that the tariffs can remain in place until it hears the case, scheduling the arguments for July 31.

The trade court concluded that Trump wrongfully invoked an emergency law, the International Emergency Economic Powers Act, to justify the duties — a rare rebuke as the courts tend to defer to the president on trade matters. If its verdict is upheld, it would mark a big setback for one of Trump’s signature economic policies. The decision could ultimately rest with the Supreme Court.

At stake is the future of trillions of dollars of global trade. Beyond that, the legal fight fits into a broader wave of lawsuits over executive orders that probe the limits of presidential authority. The outcome could also test the power of the courts to enforce their rulings if the executive branch chooses to defy judges’ orders.
Which tariffs did the trade court’s ruling apply to?
The trade court’s order applies to tariffs that Trump imposed on most imports from dozens of countries, including China, Canada, Mexico and the European Union trading bloc. If the trade court ruling ultimately holds, these tariffs could be eliminated. (For a more comprehensive list of Trump’s tariffs and an assessment of their economic impact, see Bloomberg’s tariff tracker.) The ruling doesn’t affect the duties imposed on certain product categories using different legal foundations. For example, some levies on steel, aluminium and automobiles were put in place by harnessing Section 232 of the 1962 Trade Expansion Act. Those tariffs depend on a Commerce Department investigation that concluded that imports of such products pose a national security risk. The Trump administration has laid the groundwork to target pharmaceutical products and semiconductors, among other things, with Section 232 tariffs.

The trade court’s ruling also doesn’t affect tariffs imposed under Section 301 of the 1974 Trade Act, which authorises levies based on unfair trade practices. Trump implemented tariffs on billions of dollars of imports from China during his first term under Section 301, on goods including solar cells, semiconductors and medical supplies.
What powers does the president have to impose tariffs?
Article 1 of the US Constitution gives Congress the power to levy taxes and duties, and to “regulate commerce with Foreign Nations.” But lawmakers have for decades delegated parts of their power over trade via various bits of legislation, most of which allow presidents to deploy tariffs only for limited reasons.

While Trump tested the boundaries of those powers in his first term, this time around, he invoked what he claimed were virtually unlimited powers under the emergency powers act to impose tariffs via executive orders. The 1977 law had never been used for this purpose before and doesn’t mention tariffs.

IEEPA grants the president authority over a variety of financial transactions during certain emergencies, although the typical tool is sanctions. Trump cited the trade deficits with other countries and drug trafficking at the US border as national emergencies that allowed him to invoke the law to impose tariffs.
What do the legal challenges to tariffs say?
Several lawsuits have been launched challenging Trump’s tariffs. The May 28 ruling responded to two cases brought before the trade court.

One was filed on April 14 by the Liberty Justice Center — a libertarian-leaning legal advocacy group — on behalf of five small businesses. The companies include a wine distributor in New York, a Vermont-based retailer of women’s cycling apparel, and a small electronics manufacturer in Virginia.

Their lawsuit alleges IEEPA doesn’t grant the president authority to issue tariffs. In addition, the suit contends, the national emergencies cited by Trump are invalid, because trade deficits are “neither an emergency nor an unusual or extraordinary threat” and that even if they were, the emergency law doesn’t allow a president to impose across-the-board tariffs.

The other case was filed on April 23, brought by the attorneys general of 12 Democratic-led US states. They made the same allegations and argued that Trump’s tariffs amount to a massive tax on American consumers and infringe on the authority of Congress.
What did the trade court decide?
A panel of three judges unanimously concluded that because of the Constitution’s “express allocation of the tariff power to Congress,” IEEPA does not “delegate an unbounded tariff authority to the President.” The ruling determined that Trump’s initial executive order announcing global tariffs, as well as his subsequent order imposing additional levies on imports from countries that retaliated, exceeded the president’s authority under the emergency law.

A third executive order, hitting goods from Mexico and Canada with tariffs, was deemed to be illegal because those levies do not ultimately attempt to address the emergency used to justify them.

The panel made clear that it wasn’t passing judgment on the “wisdom or likely effectiveness of the president’s use of tariffs as leverage.” Instead, the judges said that Trump’s imposition of tariffs was “impermissible not because it is unwise or ineffective, but because [federal law] does not allow it.” The trade court wasn’t the only one to rule against Trump’s levies. A federal judge in Washington released a separate ruling on May 29 that declared unlawful a number of Trump’s tariffs related to trade with China and other countries. US District Judge Rudolph Contreras limited his decision to the family-owned toy manufacturing businesses that sued. He delayed his order from taking effect until an appeal is heard.
What do the rulings mean for Trump’s tariff agenda?
Even if the rulings against the tariffs hold up, they might not be a permanent setback for Trump’s push to reshape global trade.

Trump has other tools available to impose tariffs, such as his Section 232 national security powers, though they are more limited than what he attempted to use IEEPA for.

To take similarly sweeping action, he could temporarily roll out import taxes of as high as 15% for a maximum of 150 days using a provision of the Trade Act. But this can only be done unilaterally in the event of a “large and serious” US balance-of-payments crisis, to help correct an international balance-of-payments disequilibrium, or to prevent an “imminent and significant” depreciation of the dollar.

The administration could also initiate investigations into countries’ unfair trade and economic policies under Section 301, but those would take longer to implement.

If the trade court’s ruling survives the appeals process, the unravelling of a large portion of Trump’s tariffs could exacerbate concerns about the state of America’s public finances. Bond market investors, in particular, have been questioning the trajectory of the country’s mounting debt load.

The administration had cited increased tariff revenue as a way to offset the tax cuts adopted in the tax and spending bill that Trump signed into law on July 4. The nonpartisan Congressional Budget Office estimated that the bill will add $3.4tn to the US federal deficit over the next decade, whereas tariffs — if kept at high levels across this period — could shrink the budget gap by $2.8tn.
What is the US Court of International Trade?
The US trade court is part of the nation’s federal court system and was created by Congress to handle specialised disputes about trade and customs, including tariffs. Its decisions are appealed on the same track as rulings from district courts, meaning the challenge by Trump is being heard by a federal appeals court and then could potentially end up before the Supreme Court.

Nine judges constitute the US Court of International Trade. As with other federal courts, these judges are appointed by sitting presidents, with the advice and consent of the Senate. The panel of three that oversaw the two tariffs cases were appointed by three separate presidents: Trump, Barack Obama and Ronald Reagan.