The New Legal Battle Over Trump’s Sweeping Tariffs

Reuters
By Yuval Rosenberg and Michael Rainey

Happy Thursday! Here's what we're watching while waiting to see if the New York Knicks can extend their season.

Trump's Sweeping Tariffs Temporarily Reinstated by Appeals Court

After a U.S. federal court on Wednesday evening rejected a key part of President Donald Trump's burgeoning trade war, halting many of the tariffs he imposed unilaterally on countries around the world, an appeals court on Thursday allowed the tariffs to remain in place while the issue is litigated.

In response to a suit brought by several small businesses and about a dozen Democratic-led states, the U.S. Court of International Trade ruled unanimously Wednesday that Trump exceeded his legal authority when he claimed that the International Emergency Economic Powers Act of 1977, known as IEEPA, gave him unlimited power to impose tariffs via executive order on virtually any country.

"The court does not read IEEPA to confer such unbounded authority and sets aside the challenged tariffs imposed thereunder," the three-judge panel said.

The trade court also ruled that the tariffs Trump imposed on China, Canada and Mexico due to supposed emergencies related to immigration and drug trafficking do not directly address those problems. Further, the persistent trade deficits the U.S. has with many countries are not "unusual and extraordinary" threats that would warrant new tariffs.

The ruling would have put most of Trump's new tariffs on hold within 10 days, including across-the-board tariffs imposed on dozens of countries on April 2, which Trump called "Liberation Day." But sector-specific tariffs on industries including steel and autos would remain in place, since they were imposed under a different legal authority.

On Thursday afternoon, the U.S. Court of Appeals for the Federal Circuit temporarily paused the trade court's ruling. The pause is of indeterminate length, but the court has laid out a briefing process that extends through June 9.

Fight, or adjust: White House Press Secretary Karoline Leavitt told reporters that the administration would take the case to the Supreme Court if necessary. "America cannot function if President Trump - or any other president, for that matter - has their sensitive diplomatic or trade negotiations railroaded by activist judges," she said.

Trump trade adviser Peter Navarro told Bloomberg that the administration is prepared for pushback from the courts. "If anybody thinks this caught the administration by surprise, think again," he said. "Nothing's really changed."

Trade experts say the Trump administration has a number of options at its disposal to reimpose tariffs to some degree if the trade court's ruling stands. Navarro cited Section 122 of the 1974 Trade Act, which empowers the president to impose tariffs of up to 15% for a duration of 150 days in order to address a "balance of payments deficit" or prevent a "significant depreciation in the dollar."

Alec Phillips, an analyst at Goldman Sachs, noted that Section 122 tariffs do not require any formal process to initiate, so the White House could impose 15% tariffs quickly. After 150 days, Congress would need to formally extend the tariffs, though it's not clear if the Trump administration could simply reinstate the tariffs after a brief hiatus without congressional approval.

Another option for the White House would be to double down on sectoral tariffs. "We already expect additional sectoral tariffs (pharmaceuticals, semiconductors/electronics, etc) and uncertainty regarding the IEEPA-based tariffs could lead the White House to put more emphasis on sectoral tariffs, where there is much less legal uncertainty," Phillips wrote in a research note.

Section 338 of the Tariff Act of 1930 - also known as the Smoot-Hawley Tariff Act - provides yet another option for the administration, empowering the president to impose tariffs as high as 50% on any trade partner that "discriminates" against the U.S. in a way that puts the country at a disadvantage relative to any other country. However, that legal maneuver has never been tried before.

**The bottom line: **Courts will determine the constitutional validity of Trump's tariff strategy, but no matter how the courts rule, the White House has plenty of options to maintain its trade war with much of the world.

Trump Met Privately With Powell, Criticized Him on Interest Rates

President Donald Trump met Thursday with Federal Reserve Chair Jerome Powell and repeated his call for the central bank to lower interest rates.

"The president did say that he believes the Fed chair is making a mistake by not lowering interest rates, which is putting us at an economic disadvantage to China in other countries and the president's been very vocal about that, both publicly and now I can reveal privately as well," White House Press Secretary Karoline Leavitt told reporters at her daily briefing.

The Fed confirmed the White House meeting in a statement that said the two men met at Trump's invitation "to discuss economic developments including for growth, employment, and inflation." The release went on to say that Powell did not discuss his outlook for monetary policy "except to stress that the path of policy will depend entirely on incoming economic information" and to emphasize that Fed officials will make their decisions "based solely on careful, objective, and non-political analysis."

Markets don't see the Fed cutting rates again until September as it looks to balance the potential inflationary effects of Trump's trade policies with its mandate to also support the job market, which has shown signs of cooling. Powell has insisted that the Fed can afford to wait and see how the current economic uncertainty plays out before deciding whether to continue a rate-cutting campaign it launched late last year. Trump has repeatedly pressed for lower rates and has attacked Powell in personal terms. He reportedly also considered trying to fire Powell only to back off the idea at the urging of his economic advisers, who feared it would result in massive market turmoil.

Cost Estimate for GOP Tax Cuts Raised to $3.94 Trillion

The tax portions of the Republican megabill passed by the House last week would cost $3.94 trillion over 10 years, up from an earlier estimate of $3.8 billion, according to an updated analysis released Wednesday by Congress's Joint Committee on Taxation.

The difference is largely due to the deal cut by blue-state Republicans and House Speaker Mike Johnson to raise the cap on state and local tax deductions from the current $10,000 to $40,000 a year. The GOP plan initially included a $30,000 cap. That change adds about $129 billion to the projected cost of the package.

On the other hand, changes to further limit a clean energy tax credit will generate savings of nearly $172 billion, up from an earlier projection of $155 billion.

Cost estimates for other elements of the plan stayed the same, including:

  • about $2.2 trillion for the extension of the 2017 tax rates;
  • $1.3 trillion to extend and expand the increase in the standard deduction;
  • $124 billion for the elimination of taxes on overtime wages through 2028;
  • $72 billion for an enhanced deduction for seniors through 2028;
  • $40 billion for the elimination of taxes on tips through 2028;
  • $58 billion to eliminate taxes on some car loans through 2028.

Trump Administration Cancels Nearly $600 Million Contract for Pandemic Vaccines

The Trump administration has notified drugmaker Moderna that it is canceling a nearly $600 million contract signed by the Biden administration for the company to develop vaccines against influenza viruses that could potentially trigger pandemics, including the H5N1 bird flu.

The move is seen as a blow to U.S. pandemic preparedness, but it was not a surprise given that Trump's Department of Human Services under Secretary Robert F. Kennedy Jr. had notified the company in February that it was reviewing the contract. Kennedy has questioned the safety of mRNA technology, which has been the subject of skepticism and conspiracy theories.

"After a rigorous review, we concluded that continued investment in Moderna's H5N1 mRNA vaccine was not scientifically or ethically justifiable," HHS Communications Director Andrew Nixon said in a statement to news outlets. "This is not simply about efficacy - it's about safety, integrity, and trust. The reality is that mRNA technology remains under-tested, and we are not going to spend taxpayer dollars repeating the mistakes of the last administration, which concealed legitimate safety concerns from the public."

Moderna said in a statement Wednesday that its mRNA vaccine showed promise in a study involving about 300 healthy adults. The company said it would "explore alternative paths" to continue its vaccine program and CEO Stéphane Bancel defended the mRNA technology.

Experts criticized the administration's move as politically motivated and warned that other technologies for vaccine development can't match the speed at which mRNA shots can be produced or modified. After the Covid pandemic, there are also mountains of safety data available on the mRNA technology.

"Unless there is a clear reason for terminating the funding, not only will we be left less prepared, potentially risking the lives of millions, but vaccine and other innovators will question the reliability of U.S. government investments and partnerships, and may think twice about engaging in public health efforts for which there is no clear reward in terms of a marketed product," Jesse Goodman, a former chief scientist at the Food and Drug Administration, told STAT.

Dr. Amesh Adalja, an infectious disease physician and senior scholar at the Johns Hopkins Center for Health Security, offered The New York Times blunt criticism of the administration's move: "Canceling this contract makes the world less safe."

US Economy Shrank 0.2% in First Quarter of 2025

Economic growth was negative in the first three months of 2025, but it wasn't quite as bad as first reported. Updated data from the Commerce Department shows that the economy shrank at a rate of 0.2% in the first quarter, a tenth of a point better than the initial estimate of negative 0.3%.

Overall, though, the economic story is largely the same as it was with the initial estimate. President Trump's tariff threats played a major role in the contraction, as businesses and consumers raced to secure supplies from overseas ahead of new import taxes; money spent on imports is not counted domestically, so the import surge drags on the growth numbers.

Consumers have been more cautious with their spending, too, worried about higher prices and the potential for a trade war-driven slowdown. "You are seeing consumers that have slowed consumption," Citi analyst Andrew Hollenhorst told the Financial Times. "That kind of aligns with what we've been hearing, especially from hotels and airlines, that services spending has been slowing."

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