Trump's Plan B After Trade Court Setback

0:05There's a squat, boxy building in New York City, a relatively unimposing courthouse tucked into lower Manhattan. It's called the U.S. Court of International Trade. And you'd be forgiven if you've never heard of it. Neither had our legal reporter, James Finelli. You know what? I had not heard of it until these tariffs and potential legal challenges to them started percolating. A trade lawyer I spoke to about this court said that, you know, most people graduating law school had probably never heard of it. The court is obscure, but when it comes to matters of trade, it's powerful. This court has national jurisdiction.

0:47So that means that, you know, it can hear cases all over the country involving any kind of trade dispute. And when they issue a decision, it can affect everything.

1:04And this week, it did. Tonight, a three-judge panel ruling that the emergency declared by President Trump to impose those sweeping tariffs, quote, exceeds any tariff authority delegated to the president. The trade court ruling is a big deal. That's a big deal. If this ruling stands, then Trump will have to find a new way to impose tariffs. He wouldn't be able to declare a national emergency and then enact these broad levies around the world.

1:39Welcome to The Journal, our show about money, business, and power. I'm Annie Minoff. It's Friday, May 30th.

1:52Coming up on the show, how an obscure court upended Trump's trade agenda.

2:12On April 2nd, Trump imposed his Liberation Day tariffs and kicked off a global trade war. The president announced goods from every nation we trade with will be subject to import taxes. A 34 percent tax on imports from China that's on top of the 20 percent tariff already imposed, 24 percent on Japan and 20 percent on the European Union. He's also announcing 10 percent at least tariffs on all countries. How soon after Trump began imposing sweeping tariffs did people in your world, the legal world, start asking, wait a second, can he do that? I think they started asking that question fairly quickly.

2:57And the question that they focused on was whether he had the full reach of the Constitution to be allowed to make these sweeping tariffs. Typically, Congress regulates tariffs. But in this case, Trump argued that he could do it. His administration invoked a 1970s-era law, the International Emergency Economic Powers Act, AIPA for short. And he said that I can impose these sweeping tariffs on basically every nation in the world because there's this emergency happening where the U.S. has a trade deficit. And it's affecting our supply chain. It's affecting our domestic manufacturing. And it's affecting our military.

3:42Chronic trade deficits are no longer merely an economic problem. They're a national emergency that threatens our security.

3:55When President Trump invoked the Emergency Economic Powers Act, had we ever seen anything like that before? How new was that? It was brand new. This law had never been used in this way before. No previous president had ever tried to impose tariffs under IEPA. It was a first, and the move raised eyebrows. Some academics and legal groups started looking into whether the tariffs could be challenged in court. That led to a few lawsuits, including one brought by a libertarian nonprofit law firm called the Liberty Justice Center. That suit brought together a group of small businesses to sue the government.

4:35There was five in total, including a New York-based wine importer. There was a fishing tackle retailer in Pennsylvania. There was a women's cycling apparel brand based in Vermont, a Utah manufacturer of plastic pipes, and a company called MicroKits, which was a Virginia-based maker of educational electronic kits. That is quite a motley assortment of businesses. Yes, you're right. And they chose those five because I think all those five businesses, they had stuff that they were importing from like over 30 different countries around the world. So they could really cover their ground with these five companies.

5:14So they could cover their ground. That's right. Yes. A few weeks ago, James visited the Court of International Trade, that obscure court in lower Manhattan. He was there to watch as the plaintiffs in the Trump administration made their case before a panel of three judges.

5:31And what argument did those five businesses make? The plaintiffs argued that this law, that Trump's use of AIPA, had never been used before by any other president. It was the first time that any president had ever said that, oh, I can impose tariffs on another country based on this emergency that I believe is happening. They said that the AIPA does not grant any kind of ability for the president to impose tariffs. That's the job of Congress. And Congress created this law, and they argued that there was no language in that law that said that Trump had the ability to impose tariffs. The businesses also disputed Trump's claim that the country is in the middle of an emergency.

6:15The plaintiff's argument was that this wasn't an emergency. There's been a trade deficit for decades, and this definitely wasn't some unusual and extraordinary threat. And what did the government argue in response to that? The government argued that this was an emergency, that in the last five years the trade deficit had ballooned, and that cumulatively this was affecting domestic manufacturing and was affecting our military supply chain. But there was also a larger argument that the government wanted to make, an argument about executive power.

6:57The main argument for the Justice Department was that Trump had this power to unilaterally impose these tariffs. And that the court had a very limited role in even reviewing his use of that authority. They said that the court didn't have any right to decide whether or not Trump's emergency was a real emergency or not. And that was something that was left up for him to decide and that Congress could potentially review his actions, but it wasn't the court's role. That seems like a hard argument to make to a bunch of judges that you have no place here. It's a hard argument to make. And, you know, I think even during some of the hearings, they, you know, were very skeptical of that argument and were even wondering aloud, like, well, what role should the court have?

7:50The judges were also a little skeptical about, you know, how do you measure what is a national emergency? And, you know, one of the judges, I think maybe she did it in a tongue-in-cheek kind of manner, she posed this scenario. What about if there was this shortage of peanut butter? So she wanted to know, like, where the president's— Yeah, what's the line between, you know, a national emergency and just, you know, some kind of inconvenience to some people. The government's lawyer responded that IEPA set out clear boundaries for exercising presidential power. The court issued its ruling on Wednesday night.

8:32Its verdict? Trump did not have the authority to impose tariffs under the Emergency Economic Powers Act. In response to the ruling, a White House spokesman said, quote, it is not for unelected judges to decide how to properly address a national emergency, unquote. Lawyers for the Trump administration immediately appealed the court's decision. They also requested a stay that would keep the tariffs in place temporarily. Yesterday, they got that stay, which will remain in place as the case works its way through the courts. And I think a lot of legal experts feel like this case is eventually going to end up in the Supreme Court and will be decided there.

9:13I would say it has the potential to be a big loss for Trump. But in the meantime, the Trump administration does have a plan B. That plan is after the break.

9:40So, could you start by introducing yourself? Yeah, I'm Gavin Bade. I'm the trade and economic policy reporter here at The Wall Street Journal, based in Washington, D.C. So you're not busy at all? Not at all. It's been a quiet start to the year for me, a quiet start to the Trump administration. Gavin has been tracking the administration's moves in the aftermath of the International Trade Court's decision. Gavin, the administration is in the middle of trade negotiations right now. With the European Union, with China, how could this ruling impact those talks? Well, the administration has said it doesn't impact them at all, right?

10:17That the trading partners are calling up and still eager to do deals. We've heard Jameson Greer, the trade representatives, say that. All the other countries I'm dealing with in negotiations are treating this as just kind of a bump in the road rather than any fundamental change. So I feel pretty confident about the case. That contrasts a little bit with their position in court, their actual court filings. In their petition for the stay, the administration was very clear that they thought that putting these tariffs on hold would undermine their leverage in all of these trade talks. They said really jeopardize everything that they were trying to do.

10:52So they're kind of talking out of both sides of their mouth here.

10:58So was the administration right in that court filing? Does this decision make it less likely that countries will want to make a deal? I do think a number of countries will still be eager to do a deal with the U.S. because maybe they will feel that they have a little more leverage in these negotiations now. And I think that they see that they may have a little bit more time as well. All of these court proceedings kind of throw into question the deadline that Trump had set to complete all of these trade negotiations. That was actually on July 9th. So if you're going to do a deal with the U.S., you just got a little bit more breathing room and you got a little bit of leverage in these negotiations.

11:34Maybe Trump can't drive as hard of a bargain as he would have otherwise. The Trump administration will continue to pursue the case through the courts. But according to people Gavins talked to, the administration is also working on a potential plan B. This plan wouldn't rely on IEPA. It would rely on yet another law from the 1970s, the Trade Act of 1974.

12:01It's a different law and actually a much more commonly used law, both by the Trump administration in its first term and numerous presidents. This is a really tried and tested law. And so the plan is kind of twofold. The first part would be utilizing what's called Section 122 of the Trade Act. This section, the first part of the plan, allows the president to put tariffs in place for 150 days. And this is specifically to address what the law calls balance of payment issues with the other countries. This is kind of like the trade deficit that Trump always... It's the trade imbalance that Trump has been talking about.

12:37Yeah, that he always harps on, that he's always hated, right? So the advantage of that is that you can put that in place immediately. You don't have to do a notice and comment, period. And Trump likes that. He wants to be able to put things in place. Wants to move fast. Wants to move fast. The problem, of course, is that those tariffs would be temporary, unless they're reauthorized by Congress. And so that's where the second part of the plan comes in. The second part is during those 150 days, he would prepare action under a different section of the law. This is Section 301, and this is designed to combat unfair trade practices in other nations.

13:16Trump has actually used this section of the law before. He used it to impose tariffs on China during his first term. But implementing tariffs this way takes time and work. You need to do a lengthy notice and comment period. You need to have hearings. And the idea is they would tailor these 301 tariffs, as they're called, for each and every major trading partner that he wanted to hit with tariffs. Oh, man. So you've got to do this individually, country by country. Exactly. Exactly. And it's a lengthy, you have to do a lengthy fact finding investigation. You've got to notify the other countries.

13:49You've got to give industries time to comment. It takes a long time. But they could do that if these emergency tariffs get thrown out in court. That could help them get back to basically the same place where they're at now. So Gavin, where does this all leave Trump's signature economic policy of these sweeping tariffs? Very much in limbo now, right? I think uncertainty has reigned for months on this tariff front. I think it only deepened this week, right? If you're a company trying to think about, am I going to invest in the U.S.? Can I get maybe components that I need from another nation? What is the tariff going to be?

14:29That situation is cloudier than ever. The waters are murkier than ever. And I think that you see foreign governments just kind of scratching their head at us. I think it's just, you know, another day rolling with the punches here. We're just trying to, you know, kind of take it as it comes here. But there's really no end to the drama in sight.

14:56That's all for today, Friday, May 30th. The Journal is a co-production of Spotify and The Wall Street Journal.

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