Federal Circuit Stays Enforcement of Ruling Against Trump’s Section 122 Tariffs

Today, the US Court of Appeals for the Federal Circuit imposed a stay blocking enforcement of the Court of International Trade’s ruling against Donald Trump’s massive Section 122 tariffs (which impose a 10% tariff on most imports from countries around the world). The Court of International Trade had previously rejected a similar motion for a stay, but that is now overruled. The stay will continue until the appeals process concludes. The case involves two consolidated lawsuits: one  filed by the Liberty Justice Center (the same public interest group that I worked with on the earlier case that led to the invalidation of Trump’s IEEPA tariffs by the Supreme Court) on behalf of two small-business importers, and one brought by 24 state governments led by the state of Oregon.

Today’s decision isn’t a ruling on the merits of the case, and the panel that issued it likely will not be the same one that hears the merits. But it’s problematic, nonetheless.

One of the standards for determining whether a stay of an injunction is warranted is likelihood of success on the merits. Section 122 of the Trade Act of 1974 authorizes the president to impose up to 15% tariffs for up to 150 days in response to “fundamental international payments problems” that cause “large and serious United States balance-of-payments deficits” or “an imminent and significant depreciation of the dollar,” or create a need to cooperate with other countries in addressing an “international balance-of-payments disequilibrium.” The Court of International Trade concluded that there is no “balance-of-payments deficit” of the kind required to use the statute.

Today’s Federal Circuit ruling states that “Although we do not offer our own interpretation of Section 122 at this stage, we are persuaded by the federal government’s argument that the CIT majority’s interpretation—that ‘balance-of-payments deficit[ ]’ is limited to deficits measured by liquidity, official settlements, or basic balance—may be incorrect.” The panel offers little analysis to support this point, and simply ignores extensive evidence that “balance-of-payments deficit” refers to conditions that can only exist under a fixed exchange rate system of the kind in force prior to 1973 (I summarized that evidence in the amicus brief I wrote on behalf of myself and the Cato Institute). The ruling also overlooks the key point that accepting the government’s interpretation of this statute would give the president virtually unlimited power to impose Section 122 tariffs anytime he wants.

That, in turn – as the CIT pointed out – leads to serious constitutional nondelegation problems (I outlined those in detail in Part III of the amicus brief). The Federal Circuit panel dismisses those concerns, saying that “There is merit to the federal government’s argument that Section 122 already contains the guardrails required by the nondelegation doctrine such that it is not necessary to set out precise “balance-of-payments deficit[ ]”
measurement methods for the statute to survive challenge.” The problem is there are no such “guardrails” if a balance-of-payments deficit must be assumed to exist at virtually all times. For reasons noted in our brief, the 15% cap on tariff rates isn’t enough, and the 150 day time limit could – if the court accepts the government’s interpretation of the law – easily be circumvented.

In addition to flubbing the nondelegation issue, the panel also completely ignored the issue of the major questions doctrine. As argued by the plaintiffs, and in greater detail in Part II of my amicus brief, this rule – which played a key role in the IEEPA litigation – weighs heavily against the government’s position.

Another key factor in determining whether a stay is warranted is whether a stay would result in “irreparable harm.” As I have pointed out previously, importers forced to pay illegal tariffs suffer a variety of harms that cannot be made good by after-the-fact refunds, such as lost sales, disrupted supplier relationships, lost investment, and more. Last year, when the Federal Circuit stayed the injunction against the IEEPA tariffs, the resulting nearly year-long collection of illegal taxes caused grave harm of that type on a large scale. The CIT seems to have learned from that mistake. This Federal Circuit panel did not.

The Federal Circuit ruling holds that these effects can be ignored because “those alleged harms do not necessarily stem from the stay but rather are a consequence of accounting for the undisputed risk that plaintiffs may ultimately owe the tariffs.” This argument makes little sense. If tariffs are being collected on each transaction right now, that cannot help but increase prices (leading to lost sales), disrupt supplier relationships, and so on, to a greater extent than a mere possibility that tariffs may be owed later – especially given that the legal case against the tariffs is very strong.

In addition, the Federal Circuit should have learned from the painful experience of the IEEPA tariff refund system. Even now, almost four months after the Supreme Court ruling, only about $20.6 billion of the $166 billion in illegally collected IEEPA tariff have been sent out for disbursement. And the government is trying to avoid repaying much of the remainder. This sorry state of affairs shows that the Federal Circuit panel should not trust the Trump Administration’s assurances that, if they lose the case, any harms will be made good by prompt refunds.

Today’s ruling does not necessarily prefigure a decision on the merits. The court’s analysis of the substantive issues is cursory and tentative, and does not consider a number of key points at all. Moreover, the merits issue is likely to be heard by a different set of judges. Stay motions in the Federal Circuit are heard by a special motions panel, whose members’ identities are not publicly revealed. So the merits issue may be considered by an entirely different panel. Alternatively, it might be heard en banc by all 11 active Federal Circuit judges (as happened with the IEEPA case).

As I have noted before, the injunction today’s ruling stayed would not have completely blocked collection of the Section 122 tariffs, because  – for technical reasons – it only applied to tariffs paid by the state of Washington and the two private importers represented by the LJC. Even so, this decision makes it unlikely that Section 122 tariff collection will be stopped or significantly limited until the appellate process concludes – which could potentially take another several months (or longer, if the case reaches the Supreme Court).

Despite its limited nature, this is a troubling and problematic ruling. The court misanalyzed a number of key issues, especially in failing to properly consider the sweeping nature of the government’s claim to tariff authority. Hopefully, the panel that considers the case on the merits won’t repeat those mistakes.