A US court recently struck down former President Donald Trump’s AKA China tariffs. This decision poses enormous hurdles for his ambitious trade policy. The district court concluded that Trump does not have the legal power to raise these taxes in the absence of support by Congress. This decision has sent shockwaves through the financial markets. Investors are justifiably feeling cautiously optimistic, thinking that the ruling should eventually chip away the tariffs.
Market participants seem to be cheering the news. They are optimistic that the court’s ruling will result in lower tariffs that have roiled international trade relations. In part, investors have been relieved by the uncertainty over whether Trump can actually impose these levies without congressional approval. Furthermore, they are now seriously considering the ramifications for current trade negotiations.
The ruling could undermine America’s negotiating hand in ongoing trade talks. Among critics, they point out that the court’s ruling chiefly constrains Trump’s ability to impose these more offensive tariffs. That doesn’t mean he can’t use other mechanisms available in the Trade Act of 1974 to work around these judicial limitations. This might involve the introduction of sectoral tariffs, which the existing 11-68 ruling does not preclude.
Though Trump isn’t completely out of options even after this major court defeat. He retains the policy space to pursue other sector-specific tariffs aimed at targeting sectors. Right now, nothing legally prevents him from doing so. This approach risks dragging out the uncertainty around these trade negotiations, keeping them in purgatory.
The upcoming deadline for striking new trade deals on July 9 is fueling the urgency further. As negotiations continue, stakeholders are getting more restless about how Trump’s legal wrangling will affect any deals that can be made. Hopefully, this court ruling will encourage our trading partners to adopt a more aggressive approach. This move risks making it more difficult to successfully close deals.
Most analysts are hard pressed to imagine how these tariffs can be justified when he doesn’t have obvious legal routes to impose them. Any effort to backtrack from the court’s decision would face a lengthy process. This effort will make the already complex world of international trade all the more complicated. The longer this uncertainty drags on, the harder it will be for everyone—including industry and government—to reach deals.