A little-known court has blocked major portions of President Donald Trump’s trade agenda, but that doesn’t mean his tariffs – or his efforts to extract concessions from trade partners like the European Union – are over.
On Wednesday, the U.S. Court of International Trade ruled that he exceeded his authority under a 1977 law to impose tariffs on other nations. Markets around the world initially surged Thursday as investors cheered the prospect that the president’s aggressive trade actions would be reined in, or at least delayed.
The ruling doesn’t block all of Mr. Trump’s tariffs, such as on steel and aluminum imports, but it targets some of his biggest moves. These include initial tariffs against Mexico, Canada, and China due to fentanyl imports, as well as his “Liberation Day” tariffs of 10% or higher on all nations’ imports to the United States. In both cases, the administration invoked a 1977 law, the International Emergency Economic Powers Act (IEEPA), which outlines conditions under which a president can declare a national emergency to take control of foreign trade, an arena usually under Congress’ purview.
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While courts review the legality of President Trump’s tariff threats, the longer-term risks of America’s chaotic trade policy include lost confidence of longtime allies.
The IEEPA does not “delegate an unbounded tariff authority to the President,” the court wrote. The ruling has thrown a wrench in President Trump’s continued rollout of aggressive trade actions.
The European Union is a front-burner case study of how U.S. trade policy is in flux. In the past week alone, Mr. Trump threatened to impose 50% tariffs on European goods entering the U.S., and then pushed back his June 1 deadline to July 9 after positive talks with EU leaders over the weekend. Now, the two sides are fast-tracking talks to reach a bargain.
At stake is nearly $1 trillion worth of trade in mostly high-value goods. If a transatlantic trade war breaks out, it could prove different from, but as far-reaching as, the U.S.-China conflict, analysts say. Instead of shortages of basic goods from China, American consumers and companies could see higher prices on European pharmaceuticals, cars, specialized industrial machinery and electric goods, and parts flowing to the U.S.
And if Europe retaliates, as it has threatened to do, the U.S. could see reduced sales of oil and gas, pharmaceuticals, aerospace goods, medical equipment, and cars flowing in the other direction. That’s far more total trade in terms of value than the diminished U.S.-China trade flows.
More than money lost
Perhaps the biggest long-term casualty would be political rather than economic: the loss of trust and cooperation between longtime allies.
If a trade war does break out, “We won’t see it as much in the prices at Walmart or at Target,” says Ryan Chahrour, a professor of economics at Cornell University in Ithaca, New York. “If we really put those kinds of barriers there, we could see … a probably bigger impact in a lot of these important industries.”
The administration’s pattern of big threats followed by negotiations has created uncertainty for businesses and roiled markets in the past. That may be one reason that markets initially cheered a ruling that might limit such actions in the future.
But the enthusiasm faded as some analysts pointed out that the administration retains many options to get its way on trade. It has already appealed the ruling. It could use authority other than the 1977 IEEPA to impose tariffs. Thus, Wednesday’s ruling, while a setback for the administration, may add new uncertainty to the picture without changing the outcome for America’s biggest trading partners.
On paper, a deal with the EU looks far more likely than one with China.
“The U.S.’s substantive problems with the EU are less dramatic, less severe, and the EU has been more forward-leaning in offering solutions,” says Scott Kennedy, a China specialist and senior adviser at the Center for Strategic and International Studies. “If the U.S. is willing to take yes for an answer, it’s much more likely to resolve those differences with the EU first than with China.”
For example, experts say, it should be far easier for European companies to open factories in the U.S. – a key goal of the Trump administration – than for Apple, Samsung, and other smartphone makers to relocate their assembly operations from China to the U.S. President Trump is threatening 25% tariffs on the tech giants if they don’t replace low-cost Chinese labor with high-priced American workers. Europe, by contrast, already has high labor costs.
Bargain barriers
But there are challenges for the U.S. and EU to get to, analysts say, especially in resolving long-standing disputes between the two trading partners.
One is the U.S. negotiating position, which is to impose tariffs and then ask for something in return for lifting those tariffs, says Mary Lovely, a senior fellow at the Peterson Institute for International Economics in Washington. That’s not the kind of win-win bargaining that can lead to important breakthroughs.
A related challenge is the Trump administration’s negotiating style, she adds. American threats and counterthreats don’t inspire cooperation.
A third problem is that it’s not clear what the EU can offer to satisfy President Trump. He has pushed for reform of European taxes that hurt sales of U.S. goods. But that’s the purview of individual countries, not the EU. He has also targeted agriculture. For decades, Europe has resisted American demands that it reduce farm subsidies and allow imports of crops infused with genetically modified organisms into the European market. This would increase sales of American crops.
“Letting GMOs into Europe more broadly? That’s a nonstarter,” says Dr. Chahrour of Cornell. “So what can the EU give up to make the U.S. happy? It’s not clear.”
One deal, and it has sticky issues
The only U.S. trade deal negotiated so far, with the United Kingdom, doesn’t offer much guidance. British Prime Minister Keir Starmer had little economic leverage and was eager for a deal, so he acceded earlier this month to most of America’s demands. That includes better access for some U.S. farm and commercial aviation goods while allowing America’s 10% tariff on British goods to remain in place.
But stickier issues, such as Britain’s tax on digital services and its restrictions on U.S. chicken imports, remain unresolved, wrote conservative economist and columnist Peter Morici, a former director of the Office of Economics at the U.S. International Trade Commission, in a recent column in The Washington Times. The British deal “demonstrates the limits of foreign governments’ willingness to yield to tariff bullying.”
Some nations may have no choice but to find an agreement.
When size matters
“Smaller countries are more likely to kowtow to the U.S. They don’t havel any kind of negotiating power,” says Dr. Lovely of the Peterson Institute.
“But the EU and China are different,” she says. “They’re very large trading blocks. And I would imagine that while we may see something coming [in terms of a deal], it’s unlikely that the U.S. will really get much from all of this.”
Several analysts believe the two sides will reach some kind of deal.
“Although there will be fits and starts and tariffs could go back up, eventually the U.S. will probably have no choice but to accept the EU offer because the alternative will be further escalation and further isolation of the United States,” says Dr. Kennedy, the China specialist.
The longer-term damage may be geopolitical, says Dr. Chahrour. “The most likely scenario is one in which cooperation between the U.S. and Europe on all kinds of issues is going to be less, it’s going to be harder to achieve. And there’s going to be a lot of negative consequences from that loss of confidence in each other.”
