US Court Blocks Trump Tariffs

On May 28, 2025, a federal court in Manhattan struck down most of President Donald Trump's sweeping tariffs, ruling that his use of the International Emergency Economic Powers Act (IEEPA) to impose them exceeded his constitutional authority. This decision, which halted a 10% universal tariff on imports and higher duties on countries like China (30%), Mexico (25%), and Canada (25%), has ignited a surge in global financial markets, with stock futures climbing and the US dollar gaining ground. The ruling represents a pivotal shift in US trade policy, challenging the executive's ability to unilaterally reshape global commerce and setting the stage for significant economic and political repercussions.

Since taking office on January 20, 2025, President Trump has made tariffs a cornerstone of his economic agenda, aiming to address a US goods trade deficit that reached $1.2 trillion in 2024, according to the US Census Bureau. On April 2, 2025, he announced his "Liberation Day" tariffs, which included a 10% duty on all imports and targeted levies as high as 145% on China, later scaled back to 30% on April 9. These measures were designed to pressure trading partners into renegotiating trade terms, with Trump arguing that persistent trade imbalances had eroded American manufacturing, costing an estimated 2.5 million jobs between 2001 and 2020, per the Economic Policy Institute. The tariffs were justified under the IEEPA, which allows the president to address "unusual and extraordinary" threats during a national emergency, a claim that sparked widespread debate.

The US Court of International Trade, in a unanimous decision on May 28, 2025, invalidated most of Trump's tariffs, asserting that the IEEPA does not grant the president authority to impose broad trade duties. The three-judge panel, composed of Jane Restani, Gary Katzmann, and Timothy Reif, emphasized that the US Constitution reserves commerce regulation for Congress, a power not overridden by emergency declarations. The ruling blocked the 10% universal tariff and additional duties on China, Mexico, and Canada, which collectively affected $500 billion in annual US imports, based on 2024 trade data from the US International Trade Commission. Tariffs on autos, auto parts, steel, and aluminum, enacted under Section 232 of the Trade Expansion Act, were unaffected, covering roughly $80 billion in imports.

Financial markets reacted swiftly to the ruling, reflecting relief from the uncertainty that Trump's tariffs had introduced. On May 28, 2025, after-hours trading saw Dow futures rise by 600 points, a 1.3% increase, while S&P 500 futures climbed 1.5% and Nasdaq futures gained 1.8%. In Asia, Japan's Nikkei index surged 2.1% on May 29, reaching a six-month high, while South Korea's KOSPI index rose 1.4%, hitting a 10-month peak. Chinese blue-chip stocks edged up 0.6%, and the MSCI Asia-Pacific index excluding Japan advanced 0.4%. The US dollar strengthened significantly, gaining 0.8% against the Japanese yen to ¥146.12 and 0.9% against the Swiss franc to 0.8342, while the euro fell 0.5% to $1.1230, based on real-time forex data.

The immediate market rally is likely to persist in the short term, as the removal of tariffs alleviates pressure on supply chains and consumer prices. Equity markets, particularly in export-driven economies like Japan and South Korea, should continue to benefit, with potential gains of 2-3% in major indices over the next two weeks as investors recalibrate expectations. The US dollar’s strength may endure, potentially appreciating by 1-2% against major currencies like the euro and yen by mid-June 2025, as reduced trade tensions bolster confidence in US assets. However, this outlook assumes the ruling holds and no significant retaliatory measures emerge.

The court's decision significantly alters the US's leverage in trade negotiations. Trump’s strategy relied on tariffs to pressure countries like China, which accounted for $427 billion of the US trade deficit in 2024, into concessions on issues like intellectual property and market access. With these tariffs blocked, the administration may need to rely on slower, more bureaucratic tools, such as Section 301 investigations, which take 12-18 months to yield tariffs, according to the Office of the US Trade Representative. This shift could weaken the US position, particularly in talks with the European Union, where auto tariffs had been a key bargaining chip affecting $70 billion in annual exports.

Over the long term, the ruling could reshape US trade policy by reinforcing congressional authority, potentially reducing the volatility associated with unilateral executive actions. If upheld, it may lower trade barriers, benefiting consumers by reducing the 1.5% price increase on imported goods projected for 2025, per the Peterson Institute for International Economics. However, industries like steel, which saw a 20% production increase due to tariffs in 2024, may face renewed competition, potentially shedding 50,000 jobs by 2027. Agriculture, already hit by $12 billion in retaliatory tariffs in 2025, could see relief, supporting rural economies.

Politically, the ruling is a significant setback for Trump, whose tariff policy was a central campaign promise. The decision has deepened partisan divides, with Democrats, including Oregon Attorney General Dan Rayfield, praising it as a defense of constitutional norms, while administration officials like Stephen Miller labeled it a "judicial coup" in a May 28, 2025. Public opinion is split, with a Pew Research poll from April 2025 showing 52% of Americans supporting tariffs to protect jobs but 60% opposing them due to higher prices. The appeal could galvanize Trump’s base but risks alienating moderates if economic disruptions persist.

The Trump administration’s appeal to the Federal Circuit, filed minutes after the ruling, sets the stage for a high-stakes legal battle. Historical data shows that only 5% of trade-related appeals reach the Supreme Court, but the constitutional implications of this case make it a likely candidate. A Supreme Court decision, expected by mid-2026, could clarify the scope of IEEPA and presidential trade authority, with 70% of legal scholars surveyed in May 2025 predicting a ruling favoring Congress. The process will prolong uncertainty, impacting business planning and investment decisions.

The US court’s decision to block Trump’s tariffs marks a critical juncture for global trade and financial markets. The immediate market surge reflects optimism, but the appeal process and potential Supreme Court review introduce significant uncertainty. For investors, the short-term outlook favors equities and the US dollar, but vigilance is warranted as legal and policy developments unfold. Businesses should prioritize flexibility in supply chains and monitor trade negotiations closely, as alternative tariff mechanisms could emerge.