Trade Court Rules Trump’s 10% Global Tariff Is Illegal

A panel of federal judges on Thursday found President Trump had violated the law when he imposed a 10 percent tariff on most U.S. imports, dealing yet another legal setback to the White House in its efforts to wage a trade war without the express permission of Congress.

In a split ruling, the Court of International Trade found that Mr. Trump had wrongly invoked a decades-old trade law when he applied those duties beginning in February. The president imposed the levies after his previous set of punishing tariffs was struck down by the Supreme Court.

The decision appeared to place, for now, new limits on Mr. Trump’s trade powers, which he has wielded aggressively in hopes of resetting relationships with allies and adversaries, raising new revenue and encouraging more companies to make their products in the United States.

While the court declared Mr. Trump’s tariffs to be illegal, it only explicitly blocked their collection from small businesses and some states that had sued over their legality. It remained unclear how the administration would interpret that order, though it is widely expected to appeal.

The ruling marked a major setback for Mr. Trump as he prepares to travel to China next week to meet Xi Jinping, its leader, about trade. Tariffs are expected to be a major topic on the agenda, and the court decision could undercut the president’s leverage.

The decision also raised the likelihood that Mr. Trump might once again have to pay back money collected from the illegal duties. A refund process is already underway for the roughly $166 billion collected under Mr. Trump’s prior set of sweeping tariffs.

The White House and the Office of the U.S. Trade Representative did not immediately respond to a request for comment.

From the beginning, the Trump administration envisioned the across-the-board tariff as a temporary solution, one that would buy time for Mr. Trump to craft a more lasting set of higher rates using other legal authorities. That process is now well underway, and could yield rates akin to those that Mr. Trump announced last year using a decades-old economic emergency law.

After the Supreme Court invalidated those tariffs in February, the White House swiftly moved to revive them, employing a never-before-used provision in the Trade Act of 1974, known as Section 122. The power allows the White House to apply tariffs up to 15 percent for a maximum of 150 days in response to “large and serious United States balance-of-payments deficits” and situations that present “fundamental international payments problems.”

The two intricate concepts reflect lawmakers’ concerns back when the U.S. dollar was pegged to gold, creating economic risks that the president might need to manage using tariffs. But the dollar is no longer pegged to that commodity, prompting a coalition of states and a group of small businesses to sue the Trump administration this spring, arguing that he did not meet the criteria under law to apply his 10 percent tariff.

The two sides clashed at a tense and highly technical three-hour hearing last month, when the judges on the Court of International Trade seemed to struggle at times to interpret lawmakers’ intentions in 1974 — and the extent to which Mr. Trump could wield that power about a half-century later.

In its 53-page ruling, two of the three judges on the trade court ultimately found that the president had failed to meet the threshold established under law to allow the use of Section 122. In doing so, the judges pointed to legislative history, which they said “chronicles a series of efforts to carefully cabin presidential discretion” on trade.

“Section 122 was passed in response to a specific historical crisis that resulted in the United States’ currency and gold reserves being depleted,” said Jeffrey Schwab, the director of litigation at the Liberty Justice Center, a legal group that represented small businesses in the case. “That is not the situation here.”

It marked the second major win for the Liberty Justice Center, which had prevailed against the president in the case that reached the Supreme Court. States joined small businesses in that case as well, but on Friday, the trade court found most did not have standing to challenge Mr. Trump over his use of Section 122.

“So long as President Trump continues to try to illegally tax Oregonians, we’ll continue to go to court to stop him,” Dan Rayfield, the attorney general of Oregon, said in a statement.

Ryan Majerus, a partner at King & Spalding, said the court had “clear concerns with the administration’s expansive reading of Section 122.” He predicted that the refund process, if it occurred, could last until 2027.

The administration is already working on its next plan for tariffs, but those levies can’t be implemented immediately. It has proposed two trade investigations under a legal provision known as Section 301, one related to global laws against trade in goods made with forced labor, and another on other countries’ manufacturing capacity.

Hearings on those measures were held in Washington this and last week. But the administration was counting on the Section 122 tariff to last until July, and those alternate tariffs may not be ready for many weeks.

Timothy C. Brightbill, an attorney at Wiley Rein, said the decision was “a decisive rejection of the president’s use of Section 122 tariffs.”

However, he added, “this decision will surely be appealed by the administration, and there is already a ‘Plan C’ in place: the Section 301 investigations that are already underway, and which will likely conclude with new tariff announcements in July.”