New setback for Donald Trump’s trade ambitions. The United States trade court ruled this Thursday that the universal 10% tariffs approved by the U.S. president last February, following the Supreme Court ruling that annulled the reciprocal tariffs, are also illegal.
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The court considers that the White House did not have the authority to approve the new import duties based on the Trade Act of 1974, bypassing the control of the United States Congress.
The United States International Trade Court has ruled in favor of the small businesses that challenged these tariffs, which came into effect last February 24.
In a split decision, two to one, the court ruled that President Trump’s maneuver to approve a new global tariff does not meet the requirements set forth in Section 122 of the Trade Act, under which he approved the new duties.
This Section 122 is a legal provision that grants the president temporary authority to approve extraordinary measures in the face of severe balance of payments deficits or significant declines in the value of the U.S. dollar. The judges consider that none of these circumstances are met. This section of the trade law was designed as a short-term economic safeguard instrument, allowing the administration to respond quickly to international financial instability or trade imbalances.
Without Congressional approval
The short-term consequences of the ruling are unclear, as the White House can appeal the decision. Furthermore, the 10% tariff approved by Trump under Section 122 is temporary and requires validation by Congress within 150 days. This means that Congress should ratify it before next August, which does not seem likely given the current majorities and the reservations of many representatives from both parties just before the midterm elections, which will be held next November, where the Republicans risk much of their power.
The trade court’s decision once again sets red lines for Trump. Last February, the Supreme Court annulled the reciprocal tariffs that the Republican president had approved on April 2 of last year, a day he dubbed Liberation Day. The justices of the high court ruled that the president could not impose tariffs under the International Emergency Economic Powers Act (IEEPA) of 1977, which is intended for other circumstances.
The Supreme Court ruling also served to remind the president of the separation of powers and emphasize that an economic measure of that magnitude, such as tariffs on all U.S. trading partners, must pass through the filter of Congress.
Section 122
Although the United States International Trade Court has ruled that the occupant of the Oval Office cannot invoke Section 122 of the Trade Act to establish a universal tariff, the White House was already working on other ways to replace these rates.
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The Department of Commerce, led by Jamieson Greer, opened a trade investigation in April into 59 countries and the European Union to justify new rates above 10% in the likely event that Congress does not endorse Trump’s universal tariff.
The White House plans to rely on Section 301 concerning “unfair trade practices” to justify the new tariffs. To do so, it must first justify, through a Department of Commerce investigation, which has already opened the files, that abuses are occurring by the trading partners to be taxed.
One of the strategies gaining more weight in the Department of Commerce investigation is to impose tariffs on countries that do not commit to passing laws prohibiting the import of products made with forced labor.
Tariff refunds
The trade court ruling comes as the Trump Administration is beginning to refund the $166 billion improperly collected from the tariffs annulled by the Supreme Court. A few weeks ago, it initiated the procedure and hundreds of companies have already submitted formal requests to claim reimbursement of the import duties paid over the past months.
If this court’s ruling is confirmed, companies will also be able to claim the refund of the new universal 10% tariffs they have paid to the Administration between late last February and this May.
Tariffs are nothing more than a tax on the import of goods. They have had mixed effects on the U.S. economy. They have contributed to raising the cost of imported products and, therefore, to fueling inflation and slowing the growth rate of the U.S. economy, although less than expected.
Academic studies on the impact of tariffs on the economy reveal that most of these duties have fallen on the shoulders of U.S. businesses and families. Hundreds of small shops and companies that rely on importing products from other countries and reselling them in the United States or that buy essential parts for their production chain have seen their costs skyrocket.
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