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What happens next after Trump tariffs ruled illegal?

A US appeals court has ruled that most of Trump’s tariffs are illegal - so what happens now?

Getty Images

Getty Images

A federal appeals court has ruled that most of Donald Trump's tariffs are an overreach of his use of emergency powers as president.

The so-called reciprocal tariffs - imposed on nearly every country the US trades with - are being illegally imposed, the US Court of Appeals said on Friday.

The decision upholds a ruling in May from the Court of International Trade, which also rejected Trump's argument that his global tariffs were permitted under an emergency economic powers act.

Many of the tariffs that would be affected by the ruling stem from an announcement in April of a flat 10% rate on imports from all countries, which Trump said would even out "unfair" trade relations with the US.

The court did not halt the tariffs but instead said they would remain in place until mid-October, setting up a further legal challenge in the US Supreme Court.

There are still a lot of unknowns, but here's what we understand so far about the ruling - and what it could mean for the US president's flagship policy. 

What did the appeals court say?

In its 7-4 decision, the appellate court backed a lower court's finding that Trump did not have the authority to impose global tariffs.

This was largely because of the law Trump used to justify the policies, the International Emergency Economic Powers Act (IEEPA), which the judges said did not grant "the power to impose tariffs, duties, or the like, or the power to tax".

The US Court of Appeals rejected Trump's argument that the tariffs were permitted under his emergency economic powers, calling the levies "invalid as contrary to law".

Trump immediately criticised the judgement, taking to Truth Social in the hours after it landed to call the appeals court "highly partisan" and the ruling a "disaster" for the country.

"If allowed to stand, this Decision would literally destroy the United States of America," he wrote.

What is the IEEPA?

The decades-old act, which has repeatedly been deployed by Trump during both his terms in office, grants a US president significant authority to respond to a national emergency or a major threat from overseas.

The 1977 law states that a president can pull a number of economic levers "to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy or economy".

It's been used by both Presidents Barack Obama and Joe Biden, who invoked the act to impose sanctions on Russia after the illegal annexation of Crimea in 2014, and then again after the full-scale invasion of Ukraine eight years later.

But the appeals court stated in its decision that the emergency law "did not give the president wide-ranging authority to impose tariffs".

The IEEPA "neither mentions tariffs (or any of its synonyms) nor has procedural safeguards that contain clear limits on the president's power to impose tariffs", they said.

Trump argued when he unveiled his global tariffs that a trade imbalance was harmful to US national security, and was therefore a national emergency.

But the court ruled that imposing tariffs is not within the president's mandate, and "the power of the purse (including the power to tax) belongs to Congress".

Why is this important?

Outside of being a significant setback to a centrepiece of Trump's agenda, the federal appeals court ruling could have an immediate impact on the US economy, with knock-on effects felt in global markets.

Tariffs are taxes companies have to pay for importing certain goods from foreign countries - so they can have an affect on sales and profit margins.

"Businesses are going to be subject to uncertainty," Dr Linda Yueh, an economist at Oxford University and the London Business School, told BBC Radio 4's Today programme.

Tariffs are aimed at deterring domestic firms from buying foreign goods, in turn affecting international trade.

As countries wait to see if the US Supreme Court will take up the case - which seems likely - they could decide to hold off on conducting business with the US.

If this happens, Dr Yueh said, it could "dampen down economic activity".

There are also significant ramifications that could be felt within the political sphere.

For instance, if the Supreme Court reverses the federal appeals court decision and sides with the Trump administration, it could set a precedent that emboldens the president to use the IEEPA more aggressively than he has done so far.

What happens next?

The case will now most likely proceed to the highest US court, a challenge that Trump signalled on Truth Social.

"Tariffs were allowed to be used against us by our uncaring and unwise Politicians," Trump wrote. "Now, with the help of the United States Supreme Court, we will use them to the benefit of our Nation, and Make America Rich, Strong, and Powerful Again!"

The conservative majority on the US Supreme Court could potentially make it more likely to side with the president's view.

Six of the nine justices were appointed by Republican presidents, including three who Trump selected during his first term in the White House.

But the court has also been more critical of presidents when it seems they're overreaching on policies not directly authorised by Congress.

During Joe Biden's presidency, for example, the court expanded on what it called the "major questions doctrine" to invalidate Democratic efforts to use existing laws to limit greenhouse gas emissions by power plants and to forgive student loan debt for millions of Americans.

What if the tariffs are ruled illegal?

The federal appeals court was divided 7-4 in its decision that Trump's nearly universal tariffs are illegal. It has now given the US administration until mid-October to appeal to the US Supreme Court on a case with implications for both the US economy and its trade relationship with the rest of the world.

If the Supreme Court affirms the decision, it could trigger uncertainty in financial markets.

There will be questions over whether the US will have to pay back billions of dollars that have been gathered by import taxes on products.

It could also throw into question whether major economies - including the UKJapanand South Korea - are locked into the individual trade deals they secured with the US ahead of the August deadline. Other trade deals currently being negotiated could also be thrown into chaos.

If allowed to stand, the appeals court decision would also be a tremendous blow to Trump's political authority and reputation as a dealmaker. But if it were overturned by the Supreme Court, it would have the opposite effect.

Are there still tariffs in place?

This ruling affects Trump's "reciprocal tariffs", which includes a patchwork of different rates on most countries around the world, including taxes slapped on products from China, Mexico and Canada.

Those levies on nearly all goods from nearly every country with which the US conducts trade will remain in place until mid-October.

After 14 October, they will no longer be enforceable, the appeals court has said.

Separately, the tariffs on steel, aluminium and copper, which were brought in under a different presidential authority, will remain intact and unaffected by the court's ruling.

Author: Johanna ChisholmBBC News

Source: BBC News:

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