Are Trump’s Tariffs Legal? Here’s What the Courts Say

It’s been a whirlwind 24 hours in tariff news: first, a trade court blocked Trump’s sweeping new tariffs, calling them executive overreach. Then, a federal appeals court reinstated them—at least for now. We break down what happened, what’s next, and why it matters.

Transcript

Kyle Hulehan: 0:00

So we have some breaking news on tariffs right now. Um, it's been a crazy 24 hours. There's been a lot going on. I feel like Erica, every time we're talking it usually includes tariffs. I guess recently the one big beautiful bill. But, um, there's been some big news. A lot is changing and happening literally right now in like the past hour stuff has changed. Uh, so could you just break down for people what's going on, what's in the news and what's changing about tariffs?

Erica York: 0:24

On Wednesday, May 28th, the US Court of International Trade ruled that Trump's emergency economic powers, tariffs were illegal. So that's. The so-called fentanyl tariffs that were placed on Canada, Mexico, and China, as well as the April 2nd reciprocal tariffs. Um, that's the 10% baseline tariff on virtually all countries, plus these. Additional scheduled increases that were maybe going to come in July. Um, all of those by that court order were, were ruled illegal, and that ruling, uh, gave the president 10 days to figure out how to end the tariffs as well as rebate any tariffs already paid. Back to importers who, who faced those tariff bills? Um, we knew yesterday that the Trump administration would appeal this decision. They have appealed and just in the last hour, um, uh, the ruling came out from that, or, um, you know, I'm not a lawyer, so I may not be using the exact right, like legal terms, but the, that appeals court stayed the decision, which means that, um, the tariffs are now back into effect. So we had like a. 14 hour break from these tariffs and rebates were maybe gonna be issued. And now that is frozen in place and the court has given a really short turnaround time for, um. Appeals to to be made. So this is a really fast moving process and it just like heightens the uncertainty that, that we're already seeing with tariffs. So it's probably illegal for Trump to do these kind of like willy-nilly universal worldwide tariffs. Uh, but we don't know how the appeals court is going to rule.

Kyle Hulehan: 2:10

What do you see as the president's authority in terms of, of tariffs? Like how, how do you break this down?

Erica York: 2:17

So for these emergency tariffs, he used this 1977 law that doesn't actually even use the word tariff in it. It's some like emergency economic powers that Trump used because it made it really easy for him to do what. Ever type of tariff he wanted without any type of investigation. Um, and that's what the court has said, like, no, this is way too broad. The president does have tariff authorities under these other statutes, but those are really specific. You have to follow certain investigations, certain processes, certain timelines. Um, the president doesn't just have unilateral authority to impose tariffs on everyone. And with the fentanyl tariffs specifically, they said like. The tariffs that he did were not really directly related to fentanyl. He did tariffs on everything from China. Um, everything non USMC, a non-trade agreement from Canada and Mexico that's not related to fentanyl at all. So in that case, it was too broad. It was an abuse of the authority. So I think it's a really good sign that the courts are stepping up and saying, Hey, there are rules here that have to be followed. If you want to do tariffs, you have to go through these specific processes that. Congress has granted the president to have in order to impose tariffs. But you can't just like decide one day to do 145% tariff on China because of some, you know, nebulous economic emergency. I.

Kyle Hulehan: 3:42

And so what effects do these, let's call them willy-nilly tariffs, you know, have, when you're kind of just pushing a tariff out, pushing an idea out what happens when he does this?

Erica York: 3:53

So there's two things. One is uncertainty. Um, and uncertainty itself acts like a tax on the economy. If you're a business, if you're a person trying to make a decision and you don't know if that decision is going to face a 145% tax or a 10% tax, or maybe no tax, you're gonna wait. Until you have some certainty before you make a big decision. And whether that's hiring, whether that's starting a new line of business, um, whether that's expanding the types of products you offer, that's all gonna get held up. Um, so investment stops just because of the uncertainty. And then if the tariff actually. Is in place, then that creates this big tax burden. You have higher costs if you're a business. If you're a consumer, you might be paying a higher price for something and that reduces your income. It reduces your incentives to invest and work in the long term. Um, so you have both of those channels of negative effects. And in our projections at Tax Foundation, we focus on that second type of effect, the actual direct effect of the tax on the economy, not the effect of uncertainty, because that's. Really difficult to, to try to tangle out. But what we've found in our estimates is that these so-called I EPA tariffs, the Emergency economic powers, tariffs, um, they drive about three fourths of the long run harm of all of the tariffs. Um, the remaining tariffs are pretty narrow in scope compared to the emergency tariffs, and those remaining tariffs went through the processes that that Congress has delegated to the president. Um, so National Security investigations, findings issued public comment periods, those resulted in specific product tariffs on steel, aluminum autos. There are more investigations pending. Um. Those are relatively narrow in scope, and so they drive a smaller amount of the economic harm that we project. but right now there's like a$1.4 trillion tax increase up in the air depending on which way the, the court rules. One of the big things we've seen the Trump administration say in the past few weeks especially, is that the revenues from these tariffs are gonna help reduce the deficit. They've talked about, you know, billions and billions of dollars a day coming in. Those numbers are too high, but we have seen tariff payments. Go up significantly because of this broad 10% tariff and these other tariffs on Canada, China, and Mexico, especially if those are taken off the table. And if the government has to rebate those tariff payments potentially with interest, uh, that. Just washes out this entire argument, and it points in favor of what several people have been saying. The revenue from tariffs is highly uncertain, not only because of the bad economic impact, but because of the shaky legal ground that the tariffs were imposed on. Um, and so lawmakers in Congress especially should not count on significant tariff revenues because of this legal uncertainty.

Kyle Hulehan: 6:47

That is a lot of money and I don't think anybody wants prices to be higher, you know, it was really nice for like 14 hours to be liberated from tariffs, actually. But, you know, I'm just wondering, Erica, is there, is there anything else about this that you want to hit on that you need to let the people know?

Erica York: 7:04

Uh, I mean the, the arguments were really clear in, in this ruling. Um, and I think, you know, it's a really strong chance, at least I hope. That the ruling gets upheld, um, that this was an abuse of authority, that the president cannot just unilaterally impose a huge sweeping tax on the American economy. You know, this is a$1.4 trillion tax hike over the next decade that the president did. By just like signing an executive order, um, that is so far out of the bounds of what Congress has delegated the president to be able to do on trade and tariffs. And so it's, you know, it's a good sign that this has been potentially stricken down. Um, hopefully that stands and hopefully it means that American taxpayers in the US economy. Can avoid the worst of these tariff hikes. I don't think that means all tariff hikes are off the table. I think if this channel is shut off by the courts, we're likely to see the Trump administration use these other channels. Um, but those will have to go through like a regular process and there will be a lot more transparency associated with that as opposed to this. A tariff where Trump can just, you know, change the rate depending on the day, depending on the news. Um, that's really bad for the economy if he is able to continue doing that.

Kyle Hulehan: 8:29

Yeah, and I think it's nice to see that maybe the division of Powers is, is working here with our three branches and we're getting a little bit of movement. On these things. Um, Erica, thank you so much for breaking this down for us. I appreciate that so much.

Erica York: 8:42

Thanks, Kyle.