The U.S. Court of Appeals for the Federal Circuit ruled that most of President Donald Trump’s reciprocal tariffs on global trading partners are illegal. The decision upheld an earlier ruling by the Court of International Trade, which found that the tariffs could not legally be justified under the International Emergency Economic Powers Act (IEEPA).
The ruling is a major setback for Trump’s trade strategy. The appeals court said the administration’s justification didn’t qualify as an emergency under the law.
“Both the Trafficking Tariffs and the Reciprocal Tariffs are unbounded in scope, amount, and duration,” the majority opinion stated. “These tariffs apply to nearly all imports into the United States, cover almost all countries, impose high and shifting rates that exceed the official tariff schedule, and are not limited in time.”
The 7-4 decision won’t take effect until Oct. 14, giving the administration time to appeal to the Supreme Court. The ruling also does not cover sector-specific tariffs, like those on aluminum and steel, which were imposed under a different law.
The judges sent the case back to the trade court, which must now decide whether the decision applies to everyone affected by the tariffs or just the original plaintiffs. Those include a group of Democratic-led states and several small businesses.
“ALL TARIFFS ARE STILL IN EFFECT!” Trump wrote on Truth Social. “A Highly Partisan Appeals Court wrongly said our Tariffs should be removed, but America will win in the end.”
This marks the administration’s third court defeat on the issue. A U.S. District Court judge and the Court of International Trade had both earlier found that IEEPA didn’t grant Trump the authority for most of his tariffs.
Trump’s “Liberation Day” tariffs, announced on April 2, had rattled global markets and helped secure several trade agreements. These included a deal with the European Union, which pledged $600 billion in U.S. investments and $750 billion in U.S. energy purchases, along with large orders of American weapons. A separate U.S.-Japan trade deal promised $550 billion in investments.
The reciprocal and sectoral tariffs were also projected to raise $300 billion to $400 billion annually, providing major government revenue.
The Congressional Budget Office recently estimated that tariff income would cut trillions from the federal deficit. S&P Global reaffirmed the U.S. credit rating of AA+ with a stable outlook, citing “robust tariff income” as a factor offsetting the impact of tax cuts and federal spending.
If the ruling stands and applies broadly, importers that paid IEEPA tariffs could demand refunds from the federal government.
Before the decision, there were signs the administration expected to lose. Earlier this month, Solicitor General D. John Sauer and Assistant Attorney General Brett Shumate warned the court of a “doomsday” scenario if the tariffs were struck down. They claimed it could cost millions of jobs, force people from their homes, wipe out savings, and even threaten Social Security and Medicare.
The alarmist tone fueled speculation on Wall Street that the administration anticipated defeat.
James Lucier of Capital Alpha Partners noted that Trump doesn’t have the legal authority to re-create the IEEPA tariffs under other statutes. Sectoral tariffs, he explained, are based on separate national security laws.
“In other words, the president is in a jam because if the court strikes down the IEEPA tariffs, his trade deals have no legal basis,” Lucier wrote.
He also predicted that most countries would continue honoring their trade deals with the U.S. during the appeal process, to avoid antagonizing Trump. But trading partners could become less cooperative over time, especially if tariffs are refunded and replaced with new ones.
“This could lead to months of uncertainty in global trade,” Lucier warned. “Countries that cooperated with Trump once may be far less willing to do so again.”
