The U.S. Court of International Trade has ruled that President Trump's 10% universal tariff, imposed under Section 122 of the 1974 Trade Act, is unlawful.
According to a Barclays research report, the 2-1 decision invalidates the tariffs, which went into effect on February 24 as a temporary measure for 150 days.
While the ruling represents a significant blow to the administration's trade agenda, the court declined to grant a nationwide injunction, limiting the immediate effect of the ruling to specific plaintiffs in the case.
The court's decision relies on the requirements of Section 122, which allows for emergency trade measures only in response to a "large and severe balance of payments deficit." The judges concluded that the administration had failed to meet this requirement by basing the tariffs on the trade deficit and net international investment position. The court noted that these metrics are not legally synonymous with a balance of payments deficit.
As the report states: "The court held that the president's proclamation did not meet the statutory requirements... the court found that the president based the tariffs on the trade deficit... which are not the same thing."
This decision follows a previous court defeat over tariffs imposed under the International Emergency Economic Powers Act (IEEPA). Barclays analysts believe that, while an appeal is inevitable, the decision creates new vulnerabilities for the administration's broader trade strategy.
"We expect the administration to appeal... we question whether this decision could create new legal risks for other tariffs," the analysts noted, referring to the upcoming replacement of the Section 301 tariffs.
For investors, the court's decision creates a period of heightened uncertainty. While most importers are still required to pay the 10% duty, the precedent set could spur further legal challenges.
The administration's response and the possible acceleration of the replacement tariffs will be the primary focus of market attention as the original expiration date of July 24 approaches.