Economy

Can Trump’s Tariffs Survive? Court Ruling Challenges Unlawful Trade Actions

Court: Trump’s tariffs unlawful, violating the law. Tariffs restricted without legislative backing.

byEditorial Staff

August 30, 2025, 9:36 AM

An illustration of a cargo ship with an American flag sailing with a trade route line pointing to a dollar sign.

A digital illustration representing international trade routes and the flow of money in the global economy. By MDL.

Executive Summary

A federal appeals court ruled that most of President Trump’s tariffs were imposed unlawfully, upholding an earlier decision by the Court of International Trade.

The court found that President Trump’s use of the 1977 International Emergency Economic Powers Act (IEEPA) to declare an “economic emergency” and unilaterally set tariff rates violated the law.

The ruling restricts the president’s ability to impose tariffs without legislative backing, and if ultimately overturned, could force the government to refund $142 billion in collected import taxes.

The Story So Far

President Trump’s ambition to fundamentally alter U.S. trade policy led him to unilaterally impose tariffs by declaring an “economic emergency” under the 1977 International Emergency Economic Powers Act, bypassing Congress. A federal appeals court has now ruled this method unlawful, upholding a previous decision that his use of IEEPA to set tariff rates without legislative approval was illegal, thereby challenging the executive branch’s authority in trade matters.

Why This Matters

The federal appeals court ruling significantly curtails President Trump’s ability to unilaterally impose tariffs under the IEEPA, thereby limiting executive authority in trade policy and requiring greater legislative backing for future actions. This decision carries substantial financial implications, as the government could face demands to refund billions in collected import taxes if the tariffs are ultimately overturned, a scenario the Justice Department warned could lead to “financial ruin.” Moreover, the ruling complicates President Trump’s ambition to reshape U.S. trade policy and sets the stage for a potential Supreme Court appeal, prolonging uncertainty regarding the executive branch’s trade powers and global market relationships.

Who Thinks What?

A federal appeals court ruled that President Donald Trump’s method of imposing most tariffs was unlawful, citing his use of the 1977 International Emergency Economic Powers Act (IEEPA) without congressional approval.

President Trump views tariffs as a strategic tool to pressure trading partners into favorable deals and generate revenue, and he intends to appeal the court’s ruling to the Supreme Court.

The Justice Department warns that if the tariffs are ultimately overturned, requiring the refund of collected import taxes, it could lead to “financial ruin” for the United States.

A federal appeals court ruled on Friday that most of President Donald Trump’s tariffs were imposed unlawfully, upholding an earlier decision by the Court of International Trade. This significant legal challenge complicates President Trump’s ambition to fundamentally alter decades of U.S. trade policy, with a Nobel Prize-winning economist describing the situation as a “self-inflicted disaster.”

Court Upholds Unlawful Tariff Imposition

The court’s decision found that President Trump’s method of imposing tariffs violated the law. Specifically, it cited his use of the 1977 International Emergency Economic Powers Act (IEEPA) to declare an “economic emergency” and unilaterally set tariff rates without congressional approval.

Paul Krugman, who received the Nobel Prize in Economic Sciences in 2008, commented on the ruling in a blog post. He stated that President Trump is facing a “completely self-inflicted disaster” and suggested that while he “probably could have gotten Republicans in Congress to vote for insane trade policy,” he was impatient and sought to act unilaterally.

Implications for Trade Policy

The ruling does not outlaw tariffs themselves but restricts the president’s ability to impose them without legislative backing. While President Trump has other legal tools, such as provisions in the 1974 Trade Act, these authorities are narrower and limit the speed and severity of presidential action.

President Trump’s tariff policy has generated significant global market volatility and strained relationships with U.S. allies and trading partners. Concerns have also been raised regarding potential increases in consumer prices and a slowdown in economic growth.

Tariffs as a Strategic Tool

Despite the challenges, tariffs have been central to President Trump’s trade strategy. He has utilized them to pressure entities like the European Union and Japan into what he has characterized as favorable trade deals. Additionally, he has claimed that tariffs have channeled tens of billions of dollars into the U.S. Treasury, offsetting the sweeping tax cuts enacted earlier.

Krugman highlighted a perceived inconsistency in President Trump’s justification for the tariffs. He argued that President Trump undermined his own legal case for emergency tariffs by simultaneously insisting the economy was strong while declaring an “economic emergency” to justify them.

Economic Context and Potential Financial Repercussions

The U.S. economy experienced a slight contraction in the first quarter of 2025, with GDP falling at an annual rate of 0.3 to 0.5 percent, according to McKinsey & Company and the Bureau of Economic Analysis. This followed 2.4 percent growth at the end of 2024. The economy has since rebounded, with GDP growing at an annual rate of 3.3 percent between April and June.

Should the tariffs ultimately be overturned, the government could face substantial financial consequences. It may be required to refund import taxes already collected, which totaled $142 billion by July—more than double the amount from the previous year. The Justice Department has argued in court filings that eliminating these levies could lead to “financial ruin” for the United States.

Future Legal Challenges

President Trump has indicated an intention to appeal the ruling to the Supreme Court. Krugman suggested that the Supreme Court might side with President Trump, though he also noted a possibility that even the justices might “draw a line” on the issue.

The federal appeals court’s decision represents a significant legal hurdle for President Trump’s trade agenda, challenging the executive branch’s authority to unilaterally impose tariffs and potentially setting the stage for further legal battles and economic repercussions.