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The key points
US Court of International Trade rules that Donald Trump does not have the authority to impose sweeping “liberation day” tariffs
This is not the end of Trump’s tariff mission, with levies imposed under other powers unaffected and lengthy court battles ahead
The ruling raises the possibility of much lower tariffs and the Fed lowering interest rates because disinflation is progressing as it hoped
The verdict
Our base case is not to change our central scenario on this court decision. The Trump administration will first seek a stay to ensure tariffs can remain in place while the matter goes through the courts and there are many other routes the president can use to impose import taxes.
The court’s ruling, however, increases the probability of a more benign tariff regime, with the US administration imparting less of a stagflationary shock than has seemed likely over the past two months.
The details
Late on Wednesday, the US Court of International Trade ruled that Donald Trump’s administration cannot use the International Emergency Economic Powers Act of 1977 to unilaterally impose unlimited tariffs on goods from nearly every country in the world.
It said that Trump had exceeded his powers in using the 1977 Act because the tariffs imposed did not deal with the threats outlined by Trump and those in the law and the Act did not specify trade deficits to be an international emergency covered by the Act.
The ruling applies to the “liberation day” tariffs, which now stand at 10 per cent for most countries under the climbdown Trump announced on April 9, a week after threatening higher duties.
More from Monetary Policy Radar
See more articles from Monetary Policy Radar, a new product from the FT, which has been designed to boost investors’ confidence and help them anticipate future monetary policy decisions.
The ruling does not end tariffs, however. The US administration last night said it would appeal against the ruling in action that would ultimately go up to the Supreme Court. In the meantime, it is likely to seek a stay of this ruling while appeals are ongoing, so that tariffs will not be dismantled quickly.
The administration also has other vehicles it can use to impose restrictive trade practices. Section 301 tariffs are in place against China and are designed to counter practices deemed to be “unreasonable or discriminatory and burden or restrict United States commerce”. These can be set only after an investigation by the US Trade Representative.
After a similar investigation, Section 232 tariffs can be levied on national security grounds and currently apply to autos, steel and aluminium.
Part of the court’s reasoning that the International Emergency Economic Powers Act did not apply to trade balance concerns was grounded in another presidential power from 1974 to apply Section 122 tariffs of up to 15 per cent for 150 days to address “fundamental international payment problems”, including “large and serious balance-of-payments deficits”. These could easily replace the 10 per cent current minimum tariff applied by the US.
Although Trump can appeal and still has other powers to impose tariffs, the ruling suggests his powers are weaker than we previously thought.
It raises the chances of a more benign US trade policy, which does not impose as great a stagflationary impulse to the economy as previously expected.
The odds of a benign outcome in which US inflation falls gently to target and output growth remains robust have risen. This raises the chances of steady interest rate cuts on the basis of good economic news. But we still judge the probability of this more positive scenario to be relatively low.
More from Monetary Policy Radar
Concerns about more persistent pressure from trade tariffs were higher at the US central bank’s May meeting
Changes to bank capital rules are a short-term fix to the long term US debt problem
