Trump Tariffs Ruled Illegal by U.S. Appeals Court. It’s More Uncertainty for Markets.

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In a blow to President Donald’s Trump’s trade policy, the Federal Circuit Court of Appeals on Friday upheld an earlier ruling from the U.S. Court of International Trade, which found that a substantial portion of the president’s trade policy violates the law. The legal process will continue, but if the ruling holds, it would upend the administration’s trade and tariff policy.

In May, the Court of International Trade ruled that Trump’s declared emergencies went beyond the meaning of the International Emergency Economic Powers Act, or IEEPA. It issued a universal injunction to the tariffs, which was stayed pending appeal. The universal injunction applied the ruling broadly, not just to the plaintiffs in the case.

Friday’s appeals court decision wasn’t a total victory for the plaintiffs who are led by a small alcohol importer, V.O.S. Selections. Rather than upholding the universal injunction, it sent the case back to the Court of International Trade for further examination.

The injunction remains stayed for now, with the tariffs still in effect. “The 7-4 ruling means the tariffs are on life support, but not dead,” says Henrietta Treyz, head of economic policy research at Veda Partners.

The stay is effectively in place until Oct. 14, says Ryan Majerus, a partner at King & Spalding, who previously worked in the Commerce Department and Office of the U.S. Trade Representative.

“ALL TARIFFS ARE STILL IN EFFECT!” President Trump wrote on social media. “If allowed to stand, this Decision would literally destroy the United States of America.”

The tariffs under review began early in Trump’s term, under the president’s IEEPA authority and applied globally. The White House has declared various “emergencies” that would give the administration wide latitude in setting tariff rates independent of Congress.

The U.S. took in $28 billion in tariff revenue in July, similar to June. If courts ultimately rule against Trump’s authority to impose his sweeping tariffs, Treyz expects potential market whiplash amid concern about lost revenue and the impact on the deficit.

“Ironically, [the decision] could be negative because yields could rise if they cannot collect the revenue from tariffs,” Marko Papic, chief strategist at BCA Research, wrote in an email.

If the court strikes down Trump’s ability to use IEEPA, the administration has other options, including investigations through Section 301 of the Trade Act to impose more durable tariffs, as well as pushing forward on sectoral tariffs and other authorities to keep the tariff revenue flowing.

“Notably, the Federal Circuit found that the Administration by imposing tariffs under IEEPA ran afoul of the ‘Major Questions Doctrine,’ which says that if a regulatory policy has vast economic or political significance, there has to be clear delegation to Congress,” Majerus said. “This will undoubtedly be one of the main issues if the Supreme Court takes the case.”

Typically the Supreme Court doesn’t take up a case in which two lower courts rule in the same direction, but Treyz said the split 7-4 ruling and an intense pressure campaign from the White House could push the Supreme Court to hear the case. “The only thing we can guarantee for certain is chaos and volatility in the second-half of the year, on par or worse than what the first-half offered in terms of trade and tariffs,” Treyz said.

Write to Adam Levine at adam.levine@barrons.com