Commentary: Trump's trade war backfires

Yahoo

29-05-2025

President Trump started his second term eager to hammer out trade deals with dozens of other nations. He forgot to negotiate with his own judiciary first.
Trump's plan to reshape worldwide trade through aggressive use of tariffs is a mess following the unanimous ruling by the US Court of International Trade (CIT) that his rationale for many tariffs is unconstitutional. Trump has imposed most of his tariffs this year by claiming a "national emergency" exists in the form of large and persistent trade deficits that warrant tariffs.
Several businesses and other groups sued to block those tariffs, claiming that Trump's use of a 1977 law to justify the tariffs is invalid. On May 28, the CIT agreed. The three-judge panel unanimously blocked all the tariffs Trump has imposed on an emergency basis, which is most of them. The Trump administration has 10 days to stop collecting new import taxes, and it must refund those collected so far.
The Trump trade war is far from over. The Trump White House has appealed the court ruling, which will likely end up at the Supreme Court, perhaps quickly. Legal analysts place roughly 50-50 odds on whether the Supreme Court will uphold or overturn the CIT's blockage of the emergency tariffs. If the Supreme Court upholds the decision, Trump still has several other ways of imposing tariffs.
Read more: What Trump's tariffs mean for the economy and your wallet
Even so, Trump has clearly bungled his effort to strong-arm other nations into making trade concessions while weakening his own future leverage to strike deals. "The damage has been done," James Lucier of Capital Alpha Partners explained in a May 29 analysis. "No trade deals are likely with any country as long as an authoritative court has held not only that the basic policy is unlawful but that its implementation must be terminated immediately. Trump's credibility as a trade negotiator has been badly damaged."
There are at least four other legal avenues Trump can use to justify tariffs. Trump took the novel approach of basing his tariffs on the claim of a national emergency because it gave him maximum flexibility. Were the courts to find it legal, Trump could impose any tariff of any amount on any product at any time he chose. The whole reason Trump thinks tariff is "the most beautiful word" is probably that he thinks it gives him unchecked power to micromanage the economy and punish any country, company, or even individual with a custom-made tariff.The implications, however, border on ridiculous. Very few economists think a trade deficit represents anything close to a "national emergency," since a trade deficit only means that Americans exchange dollars for foreign-made products they want. Before Trump started imposing tariffs, the US economy was arguably the world's most dynamic. It gets sillier still when Trump threatens tariffs on specific products, such as Apple smartphones, because they're not made in the United States, as if building them overseas would let China or India control the phones Americans use.
The emergency justification also let Trump bypass a lot of procedural maneuvering that can take months and impose tariffs in real time. Trump recently threatened to impose a 50% tariff on products from Europe, starting June 1, for instance. The emergency justification would have allowed Trump to do that, giving the threat teeth.
The courts, for now, have taken that leverage from Trump. The block on emergency tariffs covers Trump's 10% "baseline" tariff on most imports, along with an additional 20% tariff on Chinese imports. It also covers new Trump tariffs on imports from Canada and Mexico. So if the ruling survives appeals, those tariffs will go away, and Trump will not be able to impose any new tariff based on his claim of an emergency.
Still in place are a variety of new Trump tariffs imposed under different legal justifications, including a 25% tax on imported cars and car parts, plus steel and aluminum. Trump is also reportedly working on tariffs on imported computer chips and pharmaceuticals, which wouldn't be affected by the ruling on emergency tariffs.
If the Supreme Court upholds the ban on emergency tariffs, Trump will, in many ways, have to start over in his quest for widespread tariffs. Other legal avenues may not allow Trump to levy something as wide-ranging as a "baseline" tariff on all imports from everywhere. Tariffs would have to be more targeted, with extensive documentation justifying the need, in order to survive inevitable court challenges.
The CIT ruling may also embolden trading partners such as China and Europe that aren't eager to cave to Trump's demands on trade. Those nations are already slow-rolling Trump to some extent by playing coy while Trump contends with the damage tariffs do to his own economy back home. In several cases, Trump has backed down on his most severe tariff threats amid stock market sell-offs, rising interest rates, and other signs of stress in US markets. Traders now dub this the "TACO" trade, as in "Trump Always Chickens Out."
Trading partners in Trump's crosshairs now see that Trump can't even persuade courts in his own country to support his tariffs. That will make them far more likely to wait for him to clear legal wickets in his own country before they make any of the concessions Trump is after, such as making it easier to sell US products in foreign markets. The trade war will continue, but the aggressor won't be quite as fearsome.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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