Executive Summary 

• Two federal courts ruled against some of the administration’s tariff orders, though enforcement has been delayed​.
  
• Despite the recent court rulings, the administration still has many other tools at its disposal to reimpose tariffs if needed.
• In the near team, tariff uncertainty reduces U.S. negotiating leverage and may make trade deals harder to finalize.
• Rolling back tariffs would weaken a potential offset to the deficits embedded in the reconciliation bill advancing through Congress.
• Tariffs are likely to remain a feature of trade policy, but their scope and structure are still being shaped by both courts and policymakers.

The first federal court has ruled against recent tariff orders, though enforcement has been delayed

• Last week, the U.S. Court of International Trade ruled that the President lacked the authority to use emergency economic powers to enact reciprocal, universal baseline, Canada/Mexico, and China tariffs.
• Product-specific tariffs were not impacted by the current court ruling, as they were imposed under a separate legal framework.
• The administration promptly appealed, and the Federal Circuit Court of Appeals issued a stay order, stating more time is needed to review the case, leaving tariffs unchanged for now.​

Despite the recent court rulings, the administration still has many other tools at its disposal to reimpose tariffs

The information shown outlines legal provisions that grant the President and Congress authority to manage trade policy. The International Emergency Economic Powers Act of 1977 (IEEPA) authorizes the president to regulate international commerce after declaration of a national emergency or in response to threats to the U.S. The Trade Expansion Act of 1962: Section 232 delegates congressional authority to the President to impose import restrictions that threaten national security. The Trade Act of 1930: Section 338 grants the President the authority to impose tariffs of up to 50% on imports from countries that discriminate against the U.S. The Trade Act of 1974: Section 122 authorizes the President to address a balance of payments deficit or to prevent an imminent and significant depreciation in the dollar. The Trade Act of 1974: Section 301 authorizes the President to take appropriate action in response to unreasonable or discriminatory burdens to U.S. commerce. DOC refers to the Department of Commerce. USTR refers to the Office of the United States Trade Representative. The options shown are not exhaustive and actual trade actions taken may differ materially from those described.

• If the administration continues to face legal challenges related to its use of IEEPA, alternative measures are available to advance the tariff agenda.
• This includes implementing tariffs under Section 338 or Section 122, which provide different legal justifications for imposing trade restrictions as well as different tariff rate limits.
• Additionally, the administration may consider using Section 301, which requires investigations into trade practices before implementation and may be pursued in parallel as a contingency if other options prove unsuccessful.​​

The economic impact of tariffs may still be notable

Implemented Tariffs includes 30% China tariffs, 25% Canada/Mexico tariffs, 25% steel/aluminum/auto tariffs and 10% universal baseline tariffs with all applicable exemptions. Upside Case includes 10% China tariffs and 25%+ sectoral tariffs (steel, aluminum, autos, copper, lumber, pharmaceuticals, semiconductors, solar panels). Base Case includes 30% China tariffs, 25+% sectoral tariffs, 10% universal baseline tariffs and a quarter of the full announced program of reciprocal tariffs. Downside Case includes 60% China tariffs, 25% Canada/Mexico tariffs, 25%+ sectoral tariffs, 200% alcohol tariffs from the European Union, 10% universal baseline tariffs and the full announced program of reciprocal tariffs. All figures shown are projections as a share of nominal U.S. gross domestic product (GDP) and are subject to change. Actual results may differ materially from projections.

• While the legal challenges continue, tariffs are likely to remain in place, with the economic impact amounting to an estimated 1.1% headwind to GDP.
• Despite the court challenges, there are a range of potential outcomes from here, including an upside case that focuses solely on China and product-specific duties, a downside case that goes full throttle on a range of tariffs and a base case in between.​

The ongoing court challenges may throw a wrench in trade negotiations

Tariff revenue was a potential offset to the deficits resulting from upcoming reconciliation bill