The ruling yesterday by the US Court of International Trade (CIT) declaring Trump’s “liberation day” tariffs illegal will have a huge impact on Trump’s trade war should it hold up on appeal.  The CIT effectively ruled that Trump’s claim of the existence of an emergency justifying imposition those tariffs is bogus. 

The legal basis cited by the Trump administration for these tariffs was the International Emergency Powers Act (IEPA), which allows broad presidential authority in the event of an emergency.  The IEPA creates an exception to the constitutional principle that Congress has the exclusive powers to “lay and collect Taxes, Duties, Imposts and Excises,” and to “regulate Commerce with foreign Nations.”   If neither the IEPA nor some other statutory grant of tariff authority is made by Congress then, like other taxes, only Congress can enact tariffs.

The CIT effectively ruled that Trump does not have the unfettered right to decide what constitutes an emergency giving him power to impose tariffs under the IEPA without review by the courts. 

The court determined that an emergency under the IEPA must be of such a nature as “to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared.”   It held that Trump’s given rationale that the US is running a trade deficit with most other countries (a fact that has existed since the 1970’s) was not of a type that amounted to an emergency under the IEPA. 

Trump’s rationale that the tariffs against Canada, Mexico and China were needed as an emergency tool to combat drug trafficking was rejected by the court because there was not a sufficient nexus between this purported harm and the supposed remedy, i.e. the tariffs.  The following language in the CIT opinion indicates that it simply did not accept this rationale to justify Trump’s emergency declaration:

“'Deal with' connotes a direct link between an act and the problem it purports to address. A tax deals with a budget deficit by raising revenue. A dam deals with flooding by holding back a river. But there is no such association between the act of imposing a tariff and the 'unusual and extraordinary threat[s]' that the Trafficking Orders purport to combat. Customs’s collection of tariffs on lawful imports does not evidently relate to foreign governments’ efforts 'to arrest, seize, detain, or otherwise intercept' bad actors within their respective jurisdictions. The Government’s only suggested connection between these two activities—that '[t]he President’s action . . . deters importation of illicit drugs concealed within seemingly lawful imports,' … has no apparent basis in the Trafficking Orders themselves. The Orders cite the general problem of a failure to thwart trafficking and other crime as their target 'unusual and extraordinary threat[s],' not the specific problem of drugs smuggled within shipments of dutiable merchandise. And if this specific problem were really what the Trafficking Tariff Orders aimed to 'deal with,' the Orders would have to 'deal with' that specific problem, not create 'leverage' ostensibly to do so."

If the CIT’s ruling is upheld on appeal, Trump has other statutory means by which he can attempt to avoid the constitutional mandate that Congress has the sole authority to impose tariffs.  But these other provisions are much more restricted than the IEPA.  For example, the Trade Act of 1974 limits amounts of tariff increases and requires congressional approval after 150 days.  There also are provisions allowing tariffs after investigations into unfair trade practices of particular countries, but this is a cumbersome process that would require a higher level of diligence than the Trump administration usually prefers.

The Trump administration itself has conceded that its inability to use the IEPA would cripple its ability to maintain its trade war.  “If this court limits that authority, foreign counterparts will have reduced incentives to reach meaningful agreements” declared Commerce Secretary Howard Lutnick in a court filing. 

So it will be interesting to keep on eye on where this leads.  What Lutnick says makes sense, as countries will have little to gain by issuing any concessions when Trump’s tariffs have been deemed illegal.  If Trump does not successfully appeal the CIT ruling, it could mean that the Trade Warrior will be deprived of his most potent weapon, and his dreams of a panacea of great deals to create an American manufacturing renaissance ultimately will fail.