Washington, 30 Aug

President Donald Trump has audaciously claimed virtually unlimited power to bypass Congress and impose sweeping taxes on foreign products. Now a federal appeals court has thrown a roadblock in his path.

The US Court of Appeals for the Federal Circuit ruled Friday that Trump went too far when he declared national emergencies to justify imposing sweeping import taxes on almost every country on earth.

The ruling largely upheld a May decision by a specialised federal trade court in New York. But the 7-4 appeals court decision tossed out a part of that ruling striking down the tariffs immediately, allowing his administration time to appeal to the US Supreme Court.

The ruling was a big setback for Trump, whose erratic trade policies have rocked financial markets, paralysed businesses with uncertainty and raised fears of higher prices and slower economic growth.

Which tariffs did the court knock down?

The court's decision centres on the tariffs Trump slapped in April on almost all US trading partners and levies he imposed before that on China, Mexico and Canada.

Trump on 2 April— Liberation Day, he called it — imposed so-called reciprocal tariffs of up to 50 per cent on countries with which the United States runs a trade deficit and 10 per cent baseline tariffs on almost everybody else.

The president later suspended the reciprocal tariffs for 90 days to give countries time to negotiate trade agreements with the United States — and reduce their barriers to American exports. Some of them did — including the United Kingdom, Japan and the European Union — and agreed to lopsided deals with Trump to avoid even bigger tariffs.

Those that didn't knuckle under — or otherwise incurred Trump's wrath — got hit harder earlier this month. Laos got rocked with a 40 per cent tariff, for instance, and Algeria with a 30 per cent levy. Trump also kept the baseline tariffs in place.

Claiming extraordinary power to act without congressional approval, Trump justified the taxes under the 1977 International Emergency Economic Powers Act by declaring the United States' longstanding trade deficits “a national emergency.”

In February, he'd invoked the law to impose tariffs on Canada, Mexico and China, saying that the illegal flow of immigrants and drugs across the US border amounted to a national emergency and that the three countries needed to do more to stop it.

The US Constitution gives Congress the power to set taxes, including tariffs. But lawmakers have gradually let presidents assume more power over tariffs — and Trump has made the most of it.

The court challenge does not cover other Trump tariffs, including levies on foreign steel, aluminum and autos that the president imposed after Commerce Department investigations concluded that those imports were threats to US national security.

Nor does it include tariffs that Trump imposed on China inhis first term — and President Joe Biden kept — after a government investigation concluded that the Chinese used unfair practices to give their own technology firms an edge over rivals from the United States and other Western countries.

Why did the court rule against the president?

The administration had argued that courts had approved then-President Richard Nixon's emergency use of tariffs in the economic chaos that followed his decision to end a policy that linked the US dollar to the price of gold.

The Nixon administration successfully cited its authority under the 1917 Trading With Enemy Act, which preceded and supplied some of the legal language later used in IEEPA.

In May, the US Court of International Trade in New York rejected the argument, ruling that Trump's Liberation Day tariffs “exceed any authority granted to the President" under the emergency powers law. In reaching its decision, the trade court combined two challenges — one by five businesses and one by 12 US states — into a single case.

On Friday, the federal appeals court wrote in its 7-4 ruling that “it seems unlikely that Congress intended to ... grant the President unlimited authority to impose tariffs.”

A dissent from the judges who disagreed with Friday's ruling clears a possible legal path for Trump, concluding that the 1977 law allowing for emergency actions “is not an unconstitutional delegation of legislative authority under the Supreme Court's decisions,” which have allowed the legislature to grant some tariffing authorities to the president.

So where does this leave Trump's trade agenda?

The government has argued that if Trump's tariffs are struck down, it might have to refund some of the import taxes that it's collected, delivering a financial blow to the US Treasury. Revenue from tariffs totalled USD 159 billion by July, more than double what it was at the same point the year before.

Indeed, the Justice Department warned in a legal filing this month that revoking the tariffs could mean “financial ruin” for the United States. It could also put Trump on shaky ground in trying to impose tariffs going forward.

“While existing trade deals may not automatically unravel, the administration could lose a pillar of its negotiating strategy, which may embolden foreign governments to resist future demands, delay implementation of prior commitments, or even seek to renegotiate terms,” Ashley Akers, senior counsel at the Holland & Knight law firm and a former Justice Department trial lawyer, said before the appeals court decision.

The president vowed to take the fight to the Supreme Court. “If allowed to stand, this Decision would literally destroy the United States of America,” he wrote on his social medial platform.

Trump does have alternative laws for imposing import taxes, but they would limit the speed and severity with which he could act. For instance, in its decision in May, the trade court noted that Trump retains more limited power to impose tariffs to address trade deficits under another statute, the Trade Act of 1974. But that law restricts tariffs to 15 per cent and to just 150 days on countries with which the United States runs big trade deficits.

The administration could also invoke levies under adifferent legal authority — Section 232 of the Trade Expansion Act of 1962 — as it did with tariffs on foreign steel, aluminum and autos. But that requires a Commerce Department investigation and cannot simply be imposed at the president's own discretion.