Story Highlights
- The Court of International Trade voted 2–1 that Trump’s 10 percent Section 122 tariffs exceeded presidential authority under the Trade Act of 1974.
- The Federal Circuit Court of Appeals issued an administrative stay on May 12, keeping the tariffs in effect while the government appeals.
- The administration is pursuing alternate tariff authorities under Section 232 and Section 301 to maintain its broader trade agenda.
What Happened
On May 7, 2026, a divided three-judge panel of the U.S. Court of International Trade held that President Donald Trump exceeded his statutory authority under Section 122 of the Trade Act of 1974 when he imposed a 10 percent global tariff on most imported goods. The ruling came in two consolidated cases — one brought by 24 state governments led by Oregon, and another filed by a pair of small businesses, spice seller Burlap & Barrel and toy company Basic Fun.
Section 122 authorizes the president to impose duties of up to 15 percent for up to 150 days to address “large and serious United States balance-of-payments deficits.” The statute was passed in 1975 in response to strains on the post-World War II global financial system. The Trump administration argued it had broad discretion to determine what counted as a balance-of-payments problem, citing the overall U.S. trade deficit, the current account deficit, and a weakening net international investment position.
The majority held that Section 122 is not a broad license to impose tariffs whenever imports exceed exports, and that the administration’s reliance on those particular metrics was inconsistent with the statute’s original intent. Because the White House relied on those measures rather than the balance-of-payments deficits Congress specifically contemplated, the court concluded the proclamation was unlawful.
On May 8, the Trump administration announced it had appealed the ruling. U.S. Trade Representative Jamieson Greer criticized the court’s reasoning, saying judges were “apparently just hell-bent on importing from China” and expressed confidence that the administration would prevail on appeal.
On May 12, the Federal Circuit entered an administrative stay, suspending the lower court’s order while the appeal proceeds. That means most importers are still paying the 10 percent tariff while litigation continues.
Why It Matters
The ruling is the second successive legal defeat for the Trump administration’s tariff architecture. Earlier, in February 2026, the Supreme Court ruled 6–3 that the International Emergency Economic Powers Act does not authorize tariffs, striking down the sweeping IEEPA-based import levies that had been the cornerstone of Trump’s trade war. The administration turned to Section 122 as a bridge measure following that Supreme Court defeat, and now that authority too has been challenged in court.
For American businesses, the uncertainty is costly. Importers must keep paying the tariff during the appeal, but face a potential future refund order if the administration ultimately loses — a paradox that makes supply chain planning difficult. Companies that import raw materials, consumer goods, and industrial parts cannot reliably forecast landed costs, complicating pricing decisions at every stage of the supply chain.
The administration has framed Section 122 as a temporary bridge, with plans to replace it with new tariffs under Section 301 of the Trade Act of 1974 and expanded Section 232 national security authorities, with half a dozen Section 232 investigations currently ongoing. That roadmap suggests the broader trade agenda will survive even if Section 122 tariffs are eventually nullified — but each new legal authority will face its own round of challenges.
The political stakes are also significant. With midterm elections approaching in November, Democrats have seized on the tariff turmoil as evidence that the administration’s trade strategy is legally incoherent and economically disruptive. Republicans, meanwhile, argue that courts are overstepping and that presidential trade authority must be robust to address the nation’s structural trade imbalances.
Economic and Global Context
Trump’s tariff moves lifted the average U.S. tariff rate to nearly 17 percent from less than 3 percent at the end of 2024, according to the Yale Budget Lab, with the levies generating roughly $30 billion a month in revenue for the U.S. Treasury. The global economy has been recalibrating to this new baseline throughout 2025 and into 2026.
China’s trade surplus defied Trump’s tariffs to surpass $1 trillion as it diversified away from the U.S. market, moved its manufacturing sector up the value chain, and leveraged its dominance in rare earth minerals to push back against American and European pressure. That dynamic has complicated the administration’s core argument that tariffs would reduce the trade deficit and bring manufacturing back to American shores.
Financial markets have absorbed the tariff news with relative calm compared to the initial shocks of 2025. The Federal Reserve has been navigating between elevated import prices, which push inflation higher, and softer consumer demand, which pulls it lower. Any significant rollback of tariffs — whether by court order or congressional action — would represent a deflationary force that could give the Fed more room to maneuver on interest rates.
Trading partners, particularly in Europe and Asia, have been watching American legal proceedings closely. A definitive ruling from the Federal Circuit or the Supreme Court will shape whether they continue pursuing negotiated trade frameworks with Washington or accelerate their own efforts to diversify away from U.S.-centric supply chains.
Implications
Even if the Section 122 tariffs are fully unwound, the administration retains other measures, including Section 232 tariffs and new Section 301 investigations targeting 16 economies for structural excess manufacturing capacity and 60 countries for forced labor enforcement failures. These alternative authorities may ultimately prove more durable in court because they rest on different statutory foundations with a longer history of legal interpretation.
For Congress, the tariff litigation raises a fundamental question: how much trade authority the legislative branch has delegated to the executive, and whether lawmakers should step in to clarify those boundaries. Some Republicans have quietly supported asserting greater congressional oversight over tariff decisions, even as they decline to publicly challenge the president.
American importers and small businesses face the most immediate pain. Those that can demonstrate direct harm from Section 122 tariffs may now pursue their own litigation before the Court of International Trade, citing the Oregon and Burlap & Barrel precedent. Companies that lack the resources to mount legal challenges must continue paying duties and hope for eventual relief through the appeals process.
Looking ahead, the Federal Circuit’s review will be closely watched as the definitive next step. If the appeals court upholds the lower court’s ruling, the administration may seek Supreme Court review — setting up a third major high-court confrontation over presidential trade power in two years. The outcome will determine not just the fate of the Section 122 tariffs, but the lasting shape of executive trade authority for administrations of both parties.
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