Federal Appeals Court Reinstates Trump’s 10 Percent Global Tariff During Pending Litigation
In a significant legal victory for the Trump administration, the US Court of Appeals for the Federal Circuit issued a per curiam order on Thursday, effectively staying a lower court’s injunction that had shielded three specific importers from the President’s controversial 10 percent global tariff. The order ensures that the government can continue collecting these duties while the broader legal battle over the administration’s trade policy makes its way through the appellate process.
The surcharge, imposed under Section 122 of the Trade Act of 1974, represents an unprecedented use of executive power—a “balance-of-payments” provision that had remained dormant for over half a century until its recent invocation. As the litigation intensifies, the Federal Circuit’s decision underscores the high stakes involved in defining the limits of presidential authority over international trade.
The Legal Landscape: Understanding the Section 122 Surcharge
The current trade dispute centers on the interpretation of Section 122 of the Trade Act of 1974. President Trump implemented the 10 percent surcharge on February 20, 2026, as a direct response to a Supreme Court ruling (Learning Resources, Inc. v. Trump) which held that the International Emergency Economic Powers Act (IEEPA) did not provide the President with the authority to unilaterally impose tariffs.
By pivoting to Section 122, the administration sought a new statutory foundation for its protectionist agenda. This provision allows the President to impose surcharges during periods of large and persistent balance-of-payments deficits. However, the interpretation of what constitutes such a deficit—and whether the President’s unilateral action satisfies the statute’s technical requirements—remains a point of fierce contention.
On May 7, 2026, the US Court of International Trade (CIT) ruled that the administration had exceeded its statutory authority. The court granted a permanent injunction to three specific plaintiffs: the state of Washington (acting on behalf of the University of Washington), spice importer Burlap and Barrel, and toy manufacturer Basic Fun. For these entities, the injunction meant a temporary reprieve from the 10 percent tax. Thursday’s appellate order has effectively nullified that relief for the duration of the appeal.
Chronology of the Trade Conflict
To understand the complexity of the current litigation, one must look at the sequence of events that brought the American trade apparatus to its current state of flux:
- February 20, 2026: The US Supreme Court delivers a landmark ruling in Learning Resources, Inc. v. Trump, effectively stripping the administration of its ability to use IEEPA for tariff collection. On the same day, President Trump invokes Section 122 of the Trade Act of 1974 to implement a new 10 percent global tariff.
- February 24, 2026: The Section 122 tariffs officially take effect.
- March 2026: A coalition of 24 states files a lawsuit challenging the legality of the Section 122 surcharge, arguing it infringes upon congressional authority over revenue and commerce.
- May 7, 2026: The Court of International Trade rules in favor of three plaintiffs, finding the surcharge an unlawful exercise of executive power, and issues a permanent injunction for those parties.
- Late May 2026: The federal government files an emergency motion to stay the injunction, arguing that the lower court’s decision creates a destabilizing precedent.
- June 2026 (Present): The Federal Circuit grants the government’s motion to stay, reinstating the tariff on the three plaintiffs while the appellate merits panel prepares its review.
Applying the Nken v. Holder Standard
The Federal Circuit’s decision to grant the stay was predicated on the four-factor test established in Nken v. Holder. The court’s analysis provides a window into how the appellate judges currently view the government’s position.
1. Likelihood of Success on the Merits
The court expressed significant skepticism regarding the CIT’s narrow interpretation of “balance-of-payments deficit.” The lower court had argued that the term was limited to three specific technical measures: liquidity, official settlements, and the basic balance. The appellate court noted that legislative history suggests a broader intent, signaling that the government’s argument has enough merit to warrant a stay.
2. Irreparable Harm to the Government
The government argued that if the injunction remained, it would trigger a flood of follow-on litigation from other importers seeking identical relief. The court credited this argument, noting that at least two such cases have already been filed. The court reasoned that the government faces a “harm to uniformity” in trade policy that cannot be easily undone once the precedent is set.
3. Injury to Other Parties
While acknowledging that the three plaintiffs would face financial strain, the court reasoned that any harm caused by the tariff is purely economic and therefore compensable. Should the plaintiffs ultimately prevail on the merits, the government can refund the duties with interest, mitigating the long-term damage to their businesses.
4. The Public Interest
The court found this factor to be neutral. While the public has an interest in ensuring that executive actions stay within the bounds of the law, there is also a competing public interest in the stability and consistent application of national trade policy.
Official Responses and Stakeholder Implications
The implications of this ruling extend far beyond the three plaintiffs. For the business community, the stay creates a period of continued uncertainty. Importers, who had hoped the CIT ruling would spark a broader retreat from the 10 percent surcharge, are now faced with the reality that the policy will remain in force at least until the expiration date of July 24, 2026, or until a further ruling is issued.
The coalition of 24 states, led by state attorneys general, has characterized the tariffs as a "stealth tax" on American consumers and educational institutions. By targeting the University of Washington, the litigation highlights the impact of these tariffs on public research institutions, which rely on global supply chains for scientific and academic equipment.
Conversely, the administration has framed the Section 122 measure as a vital tool for economic national security. In its filings, the Department of Justice argued that the judiciary must defer to the executive branch’s expertise in matters of foreign trade, particularly when the nation faces significant macroeconomic imbalances.
Future Outlook: What Lies Ahead?
The Federal Circuit was careful to note that its order is nonprecedential. The judges explicitly stated they were not offering a final interpretation of Section 122, nor were they signaling how the eventual merits panel would rule.
“Without prejudicing the ultimate disposition of these consolidated appeals by a merits panel, we conclude based upon the papers submitted that a stay is warranted under the circumstances,” the order stated.
Potential Outcomes
- Legislative Intervention: With the tariff set to expire on July 24, 2026, Congress could theoretically intervene. However, given the current political climate, legislative action remains unlikely, leaving the resolution of this conflict to the judiciary.
- Appellate Ruling: The Federal Circuit’s merits panel will now be tasked with interpreting the legislative intent behind the 1974 Trade Act. If they agree with the lower court, the tariffs could be struck down nationwide. If they agree with the government, the President’s power to manage trade via Section 122 will be significantly bolstered, creating a powerful new tool for future administrations.
- Supreme Court Review: Given the magnitude of the constitutional questions regarding the separation of powers, many legal observers anticipate that this case will eventually return to the Supreme Court, providing the justices with another opportunity to delineate the boundaries of presidential trade authority.
As the litigation continues, the primary takeaway for the market is that the “status quo of collection” remains the law of the land. For importers, the reprieve was short-lived, and the focus now shifts to the substantive arguments to be heard in the coming months. The case stands as a definitive test of the 1974 Trade Act and a defining moment in the ongoing power struggle between the White House and the federal courts over the American economy.
