“Watch the courts,” a well-connected diplomat quietly advised me during a recent trip to Washington DC, amid the latest wave of tariff chaos in the United States.
Most attention was on a high-profile case in California, where Democratic Governor Gavin Newsom challenged President Donald Trump’s tariffs as unlawful. However, it was a different lawsuit brought before the U.S. Court of International Trade by a coalition of a dozen states and small businesses—that delivered a significant blow to Trump’s flagship trade policy.
This development raises major questions: Will the broader reciprocal tariffs scheduled for July ever be implemented? Can the proposed 10% universal tariff be upheld? Will other countries even bother to negotiate? Could Congress step in to support the president? And ultimately, how will the Supreme Court respond?
The core of the issue lies in the unusual legal foundation behind Trump’s tariff decisions.
Trump’s dramatic announcements of sweeping tariffs—highlighted by his infamous Rose Garden presentation with a blue chart—are central to the legal challenges. Traditionally, and constitutionally, trade policy is managed by Congress. Key members of the House and Senate trade committees hold considerable authority.
Trump sidestepped these institutions by invoking various national emergencies. While the president does have some leeway during genuine emergencies, the lawsuits argue that he overstepped his legal bounds by using those powers to impose broad, permanent tariff changes—making the move unconstitutional.
Legal scholars point to past examples, including limited use of these powers by former President Richard Nixon, and foundational documents like the Federalist Papers, which clarify that the power to “regulate importation” is narrowly defined and not meant to justify sweeping tariffs, especially to address trade deficits.
Adding to the controversy, the Trump administration undermined its own rationale by targeting countries like the UK with “reciprocal” tariffs—despite running a trade surplus with them.
In another blow, the court found that the justification for tariffs targeting fentanyl trafficking from Mexico, Canada, and China didn’t align with the stated purpose. The president’s claim that tariffs could create “leverage” for negotiations was rejected as an invalid use of his powers. This dismantles the entire “art of the deal” strategy that framed tariffs as a clever bargaining tool.
The Supreme Court will now take up the matter. The legal case appears solid and strengthens California’s parallel lawsuit. It also severely weakens Treasury Secretary Scott Bessent’s efforts to negotiate international trade deals.
Countries like Japan and members of the EU were already hesitant to engage after watching the U.S. backtrack under pressure from rising borrowing costs linked to tariff uncertainty. American retailers, meanwhile, warned not only of inflation caused by tariffs but of potential shortages on store shelves.
The decision to withdraw the China tariffs—ironically targeting a nation accused of fentanyl trafficking—has led G7 allies to expect fairer treatment. Now, with American courts declaring the tariffs unlawful, the White House faces pressure not just from foreign partners, but also from domestic markets, businesses, state governments, and the judiciary.
Though the administration quickly filed an appeal, some insiders may quietly welcome the judicial intervention.
Could Congress be persuaded to support these tariffs? That seems unlikely. And even if attempted, other nations may revert to tried-and-true tactics—targeting the interests of key senators and representatives by applying economic pressure on symbolic industries like motorcycles, jeans, or bourbon.
An alternative might be to shift to a different legal justification, such as Section 232, which was used to impose steel and auto tariffs. This would redirect the trade war from broad, country-level actions to more targeted, industry-specific measures.
Regardless of next steps, the court highlighted undeniable economic harm caused by these tariffs.
For instance, Virginia-based educational company MicroKits warned it might not survive—unable to pay its staff due to financial losses. New York wine importer VOS reported immediate cash flow issues as it pays tariffs upon delivery at the Port of New York. Terry Cycling has already paid $25,000 in tariffs this year and expects a total burden of $250,000.
The court noted that the government failed to meaningfully challenge the economic evidence showing real harm caused by retaliatory tariffs.
Would the White House really risk a messy, high-profile battle in Congress over this, while companies across the U.S. struggle to stay afloat?
For now, the rest of the world’s trade negotiators may well take a step back and watch—waiting as the White House scrambles to defend the legality of the very foundation of its trade war.
