CIT Invalidates 10% Tariffs, Appeal Tests Administration's Legal Limits

The US Court of International Trade ruled 2-1 on May 7 that the administration exceeded Section 122 authority, invalidating 10% tariffs on most imports and granting injunctive relief to three plaintiffs.

"Other importers likely will now ask for a broader remedy that applies to more companies," Dave Townsend, trade lawyer at Dorsey & Whitney, said.

The majority held that the administration's economic justification — trade deficits and current account deficits — does not satisfy the "large and serious balance-of-payments deficits" requirement under Section 122 of the Trade Act of 1974. The court dismissed other state claims for lack of standing and declined to issue a universal injunction, so the tariffs continue to apply to importers not party to the litigation. The administration has appealed to the US Court of Appeals for the Federal Circuit and asked the court to withhold refunds until all appeals are exhausted.

The ruling follows the Supreme Court's Feb. 28 decision striking down broader tariffs imposed under the International Emergency Economic Powers Act, which triggered roughly $166 billion in refunds to businesses. The administration has since pivoted across multiple trade statutes — including Section 301 and the never-before-enforced Section 338 of the Tariff Act of 1930 — to maintain at least 10 percent duties on most global goods.

Basic Balance: A 1976 Statistic Revived

In its appeal, the administration introduced a new rationale. White House economists published a paper reviving an obscure economic statistic called "basic balance" — a measure the federal government abandoned in 1976 after concluding it was unreliable. The administration's own economists acknowledge the original measure cannot be re-created with today's data, so they built a rough approximation and assigned it the same name. The administration now argues this newly contrived measure shows the tariffs were lawful all along.

The legal strategy has drawn criticism. "Our legal system requires lawyers to comply with a duty of candor and defend their actions based on an honest account of their reasoning — not creative new theories developed after a judge rejects the old ones," J. Marc Wheat, general counsel of Advancing American Freedom, wrote in the Wall Street Journal. The group filed friend-of-the-court briefs in the case.

The Tariff Whack-a-Mole Continues

The Section 122 tariffs were set to expire July 24, but the administration has not slowed its pursuit of tariff revenue. The Office of the US Trade Representative opened Section 301 investigations into 16 trading partners — including China, the European Union and Japan — over alleged overproduction. It also found forced labor practices by roughly 60 economies accounting for 99 percent of US imports, triggering 10 percent to 12.5 percent duties on most goods from those countries.

Days before the Section 122 tariffs expired, Trump announced he would use Section 338 of the Tariff Act of 1930 — a Depression-era provision never before enforced — to impose a 50 percent duty on most Canadian imports. The US has delayed the start of those tariffs as talks with Canada continue.

The court's refusal to issue a universal injunction means companies not party to the litigation face a choice: continue paying the tariffs or file their own lawsuits. "We fought back today and we won, and we're extremely excited," Jay Foreman, CEO of Basic Fun!, one of the plaintiff companies, told reporters.

For businesses, the stakes are substantial. The Supreme Court's IEEPA ruling triggered roughly $166 billion in refunds, and the Section 122 tariffs represent another layer of costs that importers have been absorbing since their imposition. The Federal Circuit's decision on the appeal — and whether the administration's new "basic balance" rationale survives judicial scrutiny — will determine whether those costs are refunded or remain permanent. If the administration can keep changing its legal rationale after each court loss, no tariff is truly settled until the Supreme Court weighs in.

This article is for informational purposes only and does not constitute investment advice.