Story Highlights
- The Court of International Trade struck down Trump’s 10 percent across-the-board tariffs in a 2-1 ruling on May 7, 2026
- The administration imposed the Section 122 tariffs after the Supreme Court invalidated its broader tariff program in February
- The Department of Justice filed a notice of appeal the following day, keeping the legal battle alive
What Happened
In a 2-1 ruling, a panel of judges at the U.S. Court of International Trade found the administration lacked the justification to enact tariffs under a 1974 trade law known as Section 122. The administration had begun to enact these tariffs after a Supreme Court ruling earlier this year rendered its most sweeping levies illegal. The ruling calls for the administration to cease collecting these tariffs from the plaintiffs and refund prior payments.
President Donald Trump had turned to Section 122 — a never-before-used provision of the Trade Act of 1974 — the same day the Supreme Court struck down the bulk of his tariffs in February, imposing a 10 percent across-the-board surcharge set to expire July 24. The trade statute allows the president to impose a temporary tariff of as much as 15 percent for up to 150 days to address “large and serious” balance-of-payments deficits.
In a 2-1 decision, the panel concluded that the Trump administration misread the law used to justify the sweeping tariffs. The ruling marks the second time this year that the president’s tariff regime has been found to be illegal.
The Department of Justice filed a notice of appeal at the Court of International Trade on Friday, signaling plans to challenge the ruling. The United States Court of Appeals for the Federal Circuit in Washington handles appeals from the Court of International Trade.
The small businesses that brought the suit — a spice company and a toy retailer — are represented by the Liberty Justice Center, the same group that helped argue the last successful tariff challenge before the Supreme Court.
Why It Matters
Tariffs have been the defining economic tool of the Trump second term, used to rebalance trade relationships, generate federal revenue, and project negotiating leverage with trading partners. Two major court defeats within months of each other have substantially eroded the administration’s legal footing, leaving the White House scrambling to find alternative authorities that can withstand judicial scrutiny. Each ruling narrows the range of options available to the president.
Trump and other White House officials have promised to employ other authorities to implement the tariffs, but none of these alternatives offer the flexibility and blunt-force dynamics that the original legal authority provided. They may not be able to replicate the full scope of his tariffs in a timely fashion, particularly as trading partners take note of the domestic legal constraints.
The timing is especially significant given the Beijing summit. Washington’s leverage has narrowed considerably ahead of the China talks. The Court of International Trade ruling last week struck down Trump’s 10 percent global tariffs, constraining the White House’s ability to enact the sort of coercive options that Trump has wielded during past trade negotiations. In other words, judicial setbacks at home are directly weakening the American hand abroad.
For American importers and consumers, the ongoing legal uncertainty creates its own costs. Businesses attempting to plan supply chains and pricing cannot predict with confidence what the tariff landscape will look like in six months, making investment decisions harder and fueling the kind of economic caution that slows growth.
Economic and Global Context
Based on updated estimates using Congressional Budget Office models, the Supreme Court’s ruling against tariffs imposed under the International Emergency Economic Powers Act will reduce federal revenue by approximately $1.7 trillion through fiscal year 2036, assuming collected tariffs are refunded. The Section 122 tariffs were in part an attempt to recover some of that projected revenue loss. With those also now in legal jeopardy, the fiscal consequences for federal finances are compounding.
Morgan Stanley estimated the United States would probably need to refund about $85 billion to affected parties from the first round of invalidated tariffs. Other analysts have placed the figure between $100 billion and $175 billion. The refund process is expected to roll out in phases, and the administration has taken steps that could delay or reduce the ultimate payout — but the liability exists and will weigh on budget projections.
The legal cases reflect some of the chaos and uncertainty around Trump’s economic policies, with frequent announcements of new levies last year even as importers scrambled to understand the latest policy changes. Importers are now able to apply for refunds for payments under tariffs that the Supreme Court struck down, but the process is expected to roll out in phases.
Global trading partners have been closely following the U.S. tariff litigation. Countries that adjusted their own trade policies in response to Trump’s levies now face fresh uncertainty about whether and how Washington will attempt to replace the invalidated tariffs, creating a period of cautious recalibration in capitals from Brussels to Tokyo to Beijing.
Implications
For the White House, the immediate priority is the appeal to the Federal Circuit. The administration needs to either secure a stay of the lower court’s ruling while the appeal proceeds or move quickly to enact tariffs under yet another legal authority. Treasury Secretary Scott Bessent and trade advisors are reportedly examining multiple alternative statutes, though none has yet been tested in court.
Analysts expect the administration to attempt further tariff escalation in response to the court ruling. “Given Trump’s public ire against previous court rulings and tariff criticisms, we would not be surprised to see a meaningful tariff escalation from the White House sooner rather than later,” wrote Chris Krueger of TD Cowen Washington Research Group.
For the Republican majority in Congress, the court defeats create an opportunity and a burden simultaneously. Lawmakers could move to grant the president explicit statutory authority to impose tariffs, which would insulate future levies from judicial challenge. However, doing so would require Congress to effectively vote to tax American importers, a politically difficult position in an election year when consumer prices and economic anxiety remain top voter concerns.
The broader implications extend to the administration’s credibility on economic policy. Trump built much of his political identity around the ability to use tariffs as a wieldy instrument of American power. Each court defeat chips away at that image and emboldens trading partners to resist American demands. How the White House responds legally, legislatively, and diplomatically to these setbacks will shape the economic landscape heading into the 2026 midterms and beyond.
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