Federal Trade Court Rules Trump's 10% Global Tariff Unlawful

On May 7, 2026, a three-judge panel at the U.S. Court of International Trade ruled 2-1 that President Trump's 10% global tariff — imposed under Section 122 of the Trade Act of 1974 — is unlawful [1][2]. The decision is the latest in a cascading series of judicial defeats for an administration that has cycled through multiple statutory authorities in its effort to maintain sweeping import duties on goods from nearly every country on earth.

The ruling came barely eleven weeks after the Supreme Court struck down the administration's earlier tariff regime under the International Emergency Economic Powers Act (IEEPA) in Learning Resources, Inc. v. Trump, a 6-3 decision issued on February 20, 2026 [3][4]. Within hours of that loss, President Trump signed a new proclamation invoking Section 122 — a 1974 statute that had never before been used to impose tariffs — as the replacement legal authority [5]. That backup plan has now been rejected too.

The Legal Argument — and Why the Court Didn't Buy It

Section 122 of the Trade Act of 1974 authorizes the president to impose import surcharges of up to 15% for a maximum of 150 days to address "large and serious" balance-of-payments deficits [6][7]. The provision was designed for the Bretton Woods era of fixed exchange rates, when countries faced genuine liquidity crises tied to their ability to maintain currency pegs.

The Trump administration's February 2026 proclamation cited a $1.2 trillion goods trade deficit, the first-ever negative balance on primary income in 2024, and a net international investment position of negative 90% of GDP as justification [8]. But the Court of International Trade majority found that the administration conflated trade deficits — which measure the gap between imports and exports of goods — with the distinct concept of balance-of-payments deficits as Congress understood the term in 1974 [2].

"The presidential proclamation putting the tariffs in place identifies no 'large and serious United States balance-of-payments deficits' as Congress understood that phrase," the majority wrote [1]. The court applied constitutional avoidance doctrine, reasoning that interpreting Section 122 to allow the president to choose freely "among the sub-accounts" of international payments would grant "nearly unlimited tariff authority," raising serious nondelegation concerns [9].

Judge Timothy Stanceu dissented, arguing that the president deserves broad deference in Section 122 determinations and that the majority's reliance on legislative history was flawed [9]. Stanceu did not, however, address the majority's nondelegation reasoning.

The administration's own prior legal positions complicated its defense. During earlier IEEPA litigation, government lawyers had stated that Section 122 does not have "any obvious application here, where the concerns the President identified in declaring an emergency arise from trade deficits, which are conceptually distinct from balance-of-payments deficits" [10]. The court's ruling effectively agreed with the administration's earlier assessment.

The Plaintiffs and the Scope of Relief

The consolidated lawsuits were brought by two small businesses — Burlap & Barrel, a New York spice vendor, and Basic Fun!, a Florida toy company — represented by the Liberty Justice Center, along with a coalition of 24 state attorneys general led by Oregon [1][11]. Despite finding the tariffs unlawful, the court granted relief only to the two companies and the state of Washington, which had demonstrated direct harm as an importer. The other 23 plaintiff states lacked standing because they did not show they were direct importers affected by the tariff [11].

This narrow scope means the tariffs remain in effect for most U.S. importers while the case proceeds through appeals. Minutes after the ruling, the Trump administration filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit [2]. By Thursday afternoon, the Federal Circuit granted a temporary stay, ordering the plaintiffs to respond by June 5 and the government by June 9 [2].

The Appellate Road Ahead

The case will follow the same path as the IEEPA tariff litigation: from the Court of International Trade to the Federal Circuit, and possibly back to the Supreme Court. That earlier case took roughly nine months from the CIT's May 2025 ruling to the Supreme Court's February 2026 decision [3][4].

The administration's strongest appellate argument draws on a long line of cases in which courts have deferred to executive determinations in foreign affairs and emergency economic powers. In Dames & Moore v. Regan (1981), the Supreme Court upheld broad presidential authority to settle claims with Iran, even without explicit congressional authorization [12]. And in the IEEPA context, the dissenting justices in Learning Resources — Justices Thomas, Alito, and Kavanaugh — argued that "regulate importation" plainly includes the power to tax imports [4].

But the majority in Learning Resources anchored its reasoning in Article I's assignment of taxing power to Congress, and the current Section 122 case raises a different question: not whether the president can impose tariffs at all, but whether the factual predicate (a balance-of-payments deficit) actually existed. Courts have historically been more willing to review factual predicates than to second-guess broad delegations of authority [9].

The Major Questions Doctrine — which the Supreme Court has applied with increasing frequency to strike down executive actions of vast economic significance without clear congressional authorization — looms over the appeal. A 10% tariff on virtually all global imports, imposed under a statute never previously used for tariffs, fits the doctrine's concern about agencies (or presidents) claiming authority in areas of major economic and political significance based on ambiguous statutory text [12].

$166 Billion in Refunds: The IEEPA Aftermath

While the Section 122 case proceeds, the government faces a separate fiscal crisis from the earlier IEEPA ruling. The Supreme Court's February 2026 decision invalidated tariffs that had collected an estimated $166 billion from approximately 330,000 importers [13][14]. That outstanding balance accrues roughly $650 million in interest each month — about $22 million per day [14].

On March 4, 2026, Senior Judge Richard Eaton of the Court of International Trade ordered in Atmus Filtration, Inc. v. United States that "all importers of record" who paid IEEPA-based duties are "entitled to the benefit of" the Learning Resources decision [13]. On April 20, U.S. Customs and Border Protection launched the Consolidated Administration and Processing of Entries (CAPE) portal, through which businesses can request refunds [14]. As of the portal's launch, over 56,000 importers had enrolled, accounting for roughly 82% of IEEPA-related entries and approximately $127 billion in tariff deposits [14].

The government estimates processing approved applications will take 60 to 90 days, though the operational scale makes that timeline uncertain [14]. The government's deadline to appeal the nationwide refund order runs through early June 2026 [13].

Source: Penn Wharton Budget Model / CRFB

Data as of Apr 15, 2026CSV

The Revenue Picture

U.S. tariff revenue surged during fiscal year 2025, reaching $195 billion — a 150% increase over FY2024 collections of $77 billion [15][16]. For FY2026, the pace accelerated further: through February alone, customs duties reached $144.3 billion, more than 300% higher than the same period in the prior fiscal year [16]. Full-year FY2026 projections, before the IEEPA refund obligations, had exceeded $300 billion [15].

The IEEPA refunds could erase a substantial portion of those gains. Penn Wharton Budget Model economists estimated IEEPA-based tariff collections at $175 billion to $179 billion [17]. Secondary markets have emerged where hedge funds purchase importers' refund claims at a discount, and consumer class-action lawsuits are pressuring businesses to share refund proceeds with the customers who ultimately bore the cost [14].

Manufacturing Jobs: Protection or Pretense?

The tariffs were sold as a tool to protect and create American manufacturing jobs. The record is mixed at best. Manufacturing employment declined by approximately 59,000 jobs after the April 2025 tariff announcements, with durable goods manufacturers bearing the heaviest losses [18]. By December 2025, the sector had shed 72,000 positions overall [18].

The Yale Budget Lab estimated that 2025 tariff policies cost the average American household $1,800, with apparel prices rising 17% and food prices climbing 2.8% due to tariffs alone [19]. The Tax Foundation calculated the tariffs amounted to the largest U.S. tax increase as a percentage of GDP since 1993 [19].

An American Enterprise Institute analysis found that any manufacturing jobs created by tariff protection came at a cost far exceeding the wages those jobs paid [20]. The Kansas City Federal Reserve concluded that higher tariffs "created headwinds to employment growth in 2025," with businesses reluctant to commit to expensive, multi-year manufacturing investments in a policy environment characterized by sudden reversals [18][21].

Equitable Growth research found that construction, manufacturing, mining, and repair industries — employing nearly 13 million people in manufacturing and over 8 million in construction — faced disproportionately large input-cost increases from tariffs on imported materials [22]. The tariffs raised costs for the very industries they were supposed to help.

International Fallout

Trading partners moved quickly to retaliate when the tariffs were first imposed. China responded with tariffs on more than $106 billion worth of U.S. goods [23]. The EU, Canada, Japan, South Korea, and others entered framework negotiations with the United States between April and December 2025, with the U.S. and China reaching a tariff reduction agreement in May 2025 that was extended through November 2026 [23][24].

At the WTO, China, Canada, the EU, India, South Korea, Mexico, Norway, Russia, Switzerland, and Turkey have filed dispute settlement complaints against U.S. tariff measures [25]. The United States has responded by invoking Article XXI of the GATT — the national security exception — and reasserting its long-standing position that security measures are "political matters not susceptible of review or capable of resolution by WTO dispute settlement" [25].

The practical impact of WTO complaints remains limited. The WTO's Appellate Body has been non-functional since 2019 because the United States has blocked the appointment of new judges, meaning panel rulings cannot be enforced through the normal appeals process [26]. Any WTO ruling, even if issued, would lack binding enforcement power in the current institutional framework.

The Court of International Trade's May 7 ruling prompted cautious optimism from trading partners. But retaliatory measures already in place — including Chinese tariffs on U.S. agricultural exports and EU countermeasures — are unlikely to be rolled back automatically even if the Section 122 tariff is ultimately vacated, because they were adopted under those countries' own domestic legal authorities [23].

The Lobbying Surge

The tariff regime generated a lobbying boom. Firms reported earning more than $14.6 million from tariff-related lobbying in 2025, up from roughly $2.1 million in 2024 — a nearly sevenfold increase and the highest annual lobbying revenue ever recorded for tariff issues [27]. The number of organizations lobbying on trade and tariffs tripled from 120 in 2024 to 382 by late 2025 [27].

Source: OpenSecrets

Data as of Mar 1, 2026CSV

Research from Lehigh University found that politically connected corporations received more exemptions from tariffs on Chinese imports, with a one-standard-deviation increase in lobbying expenditures boosting exemption approval chances by 2.15 percentage points [28]. The pattern of exemptions — concentrated among well-connected firms while smaller importers like the plaintiffs in the Section 122 case bore the full burden — raises administrative-law concerns separate from the constitutional questions [28].

Total federal lobbying expenditures reached an unprecedented $5.08 billion in 2025, driven substantially by trade policy uncertainty [27].

What Comes Next

The administration faces a narrowing set of options. Section 122 authority expires by its own terms on July 24, 2026 — 150 days after the February proclamation — and can only be extended by an act of Congress [7]. Even if the Federal Circuit reverses the CIT ruling, the statutory clock keeps ticking.

The remaining tariff authorities are more limited. Section 232 tariffs on steel, aluminum, and automobiles — imposed on national security grounds through Commerce Department investigations — survived the IEEPA ruling and remain in effect [3][5]. Section 301 tariffs on Chinese goods, which predate the current administration, also remain undisturbed [23]. But neither provision supports a blanket 10% tariff on all global imports.

Congress could act to grant new tariff authority, but the political landscape is fractured. Republican trade hawks support aggressive tariffs, while business-aligned Republicans and most Democrats oppose broad unilateral tariff power. Tariff-related legislation has surged: a Congress.gov search shows multiple bills introduced in 2025 and 2026 addressing presidential tariff authority, though none has advanced to a floor vote [6].

The administration has signaled it will continue to fight. White House Deputy Chief of Staff Stephen Miller called the original IEEPA ruling a "judicial coup," and trade adviser Peter Navarro stated the administration would pursue tariffs through other means regardless of court decisions [29]. But the judiciary has now rejected both IEEPA and Section 122 as vehicles for blanket global tariffs, and the constitutional principle underlying both rulings — that the power to tax imports belongs to Congress, not the president — leaves little room for a third attempt under existing law.

For importers, the immediate picture is one of continued uncertainty: the Section 122 tariffs remain in effect for most businesses pending appeal, IEEPA refunds are slowly being processed through the CAPE portal, and the cost of goods continues to reflect tariff-inflated prices that courts have twice ruled were illegally imposed.