America’s Courts Weigh In on Trump’s Tariffs

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And just like that, the Trump administration’s Liberation Day tariffs were dead. Or were they? After the US Court of International Trade (CIT) declared all the tariffs enacted under the International Emergency Economic Powers Act (IEEPA) illegal and void, the administration appealed, and the Federal Appeals Court issued a stay on the ruling while the legal process plays out. So while we think the CIT’s ruling is a major step in the right direction from a market perspective, it isn’t an immediate gamechanger and doesn’t ease uncertainty hanging over US stocks much—which we think markets’ muted reaction demonstrates.

On its own, the court’s ruling—which we discussed as a possibility in the immediate wake of April 2—is a big deal. The CIT isn’t an in-house court like the Federal Trade Commission’s tribunals—it is a full-fledged US Federal Court, with appeals rolling up to the Appellate Court for the Federal District and the Supreme Court. In the wake of the ruling, the administration argued it is an “activist” court striking down tariffs on partisan grounds, but that dog doesn’t hunt, in our view. Its three judges, which ruled unanimously, were appointed by Presidents Reagan, Obama and Trump. Heck, the Trump administration pushed to have challenges to the tariffs consolidated and heard there, believing this improved its chances.^[i] But in the end, the judges ruled the fentanyl-related tariffs don’t relate sufficiently to the declared national fentanyl emergency, while the reciprocal and blanket tariffs fall entirely outside IEEPA’s scope.

For now, this curbs the Executive Branch’s ability to broadly regulate trade and taxation using emergency powers. In addition to giving US businesses and consumers relief presently, should it stand, it is also a powerful precedent against future attempts. So if you liked the tariffs and are disappointed, consider that it also puts guardrails up against an administration you don’t agree with doing things you don’t like so much. In the long run, this would create more certainty for businesses and US stocks, a positive.

But we aren’t there yet, because that ruling is not the final word. The appeals process could take a year or more, if judges don’t expedite the case. The administration believes this will all play out in its favor, with tariffs remaining in force, as National Economic Council director Kevin Hassett stated Thursday. He noted, as the CIT ruling did, that there are other means the administration can use to enact most of its tariffs, but said those are on the backburner pending the appeal. But if the appeal is unsuccessful, the administration could pursue these alternate means.

In that case, tariffs would come back, albeit with more friction. For example, Section 122 of the Trade Act of 1974 lets the president adopt a blanket tariff of up to 15% to address balance of payments deficits, with the caveat that Congress must authorize extensions beyond 150 days. Hence, it would be nearly half a year before Congress gets the chance to weigh in. Or, the administration could use the same provisions allowing its first-term China tariffs and the targeted levies on autos, steel and aluminum, which CIT didn’t strike down. These would require official studies and investigations in accordance with the relevant sections of the Trade Act, which Hassett alluded to as taking “a couple of months,” but they remain possible.^[ii]

Or, the administration could do a 180 and use this as an offramp to ditch tariffs during the appeals process, bowing to political pressure ahead of next year’s midterms. Polls continue to show tariffs are deeply unpopular (surprise, people hate regressive tax hikes) and present a major risk to the GOP’s slim House and Senate majorities in November 2026. Some 63% of respondents to a recent Marquette Law School poll disapproved of tariffs.^[iii]

In short, we have no idea what will happen. No one does, which we think explains stocks’ muted reaction. It does seem clear we aren’t rapidly returning to the world as it stood before April 2, a world with minimal tariffs and minimal uncertainty. Most of the uncertainty post-Liberation Day hangs over US stocks, which you can see in their continued underperformance. In US dollars, non-US stocks are back above pre-correction levels and clocking new highs. US stocks, meanwhile, are now slightly positive for the year but remain below their mid-February high. Tariffs always hit the imposing nation hardest, so tariff uncertainty will always be a larger headwind for the imposer than the targets. After all, the targets can continue trading with one another outside the reach of US taxes on trade.

So the court ruling doesn’t change our outlook. We are still bullish, believing markets overshot pricing in worst-case tariff scenarios, but we think the greatest potential lies with stocks in the rest of the developed world.