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The U.S. Court of International Trade (CIT) ruled against the Trump administration’s broad-based 10% Section 122 tariff in a relatively narrow opinion issued on May 7.
The court ordered narrow, immediate relief in the form of a permanent injunction on collection of Section 122 tariffs from two businesses and the state of Washington, as they demonstrated direct economic impact through payment of tariffs. The court found that 23 other states did not provide sufficient evidence of standing in their arguments, which the administration successfully challenged in court.
In the 2-1 summary judgment for lawsuits brought by both businesses and states, the court found that the administration’s rationale for applying the never-before-used tariff authority, invoked by presidential proclamation on Feb. 20, exceeded the letter of the law. The proclamation and administration officials since have asserted that Section 122, which was written to resolve a balance of payments crisis with other countries, or rapid devaluation of the dollar, can apply to the trade deficit. The majority of the court took issue with this argument.
“Nowhere does [the Feb. 20 Section 122 proclamation] identify balance-of-payments deficits within the meaning of Section 122 as it was enacted in 1974,” the majority opinion reads in The State of Oregon, Et Al. v. U.S. and Burlap and Barrel, inc., Et Al., v. U.S.
Trade deficits are a measure of the value of products a country imports versus how much it exports, rather than a direct debt owed other countries, like a balance of payment. But the Trump administration argued that the authority granted by Section 122 of the Trade Act of 1974 could apply to the trade deficit as well.
The Justice Department indicated that it planned to appeal the ruling to the U.S. Court of Appeals for the Federal Circuit.
The ruling throws into doubt one part of the administration’s replacement strategy for the International Emergency Economic Powers Act (IEEPA) tariffs, which the CIT (and Supreme Court) also ruled exceeded legal authority granted to the president.
Grant Thornton insight:
The trade court did not provide comprehensive relief and ruled only that the administration cannot collect the tariff from the three entities with standing in the case, which were the state of Washington and two companies. This means the tariff will continue to be collected from all other parties while the appeals process plays out. Suits brought by other states were dismissed due to lack of demonstrated standing.
While the tariffs could ultimately be upheld on appeal, the CIT’s ruling opens the door for another potential refund scenario, similar to the tens of billions of dollars being refunded by the government following the Supreme Court’s ruling against the administration’s use of IEEPA to impose a number of tariffs in 2025 and early 2026.
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