Déjà Vu at the CIT: Court Strikes Down Another Round of Trump Tariffs

This decision represents another major blow to the president’s trade agenda following the US Supreme Court decision on February 20 of this year striking down the tariffs imposed under the International Emergency Economic Powers Act (IEEPA). The government has already filed an appeal.

The court’s injunction applies narrowly to three plaintiffs — the State of Washington (through the University of Washington) and importers Burlap and Barrel, Inc. and Basic Fun, Inc. While it appears that the Section 122 tariffs will remain in effect for all other importers for the time being, the court’s reasoning in invalidating the proclamation imposing the tariffs casts some doubt as to their continued validity. 

Below, we break down the court’s opinion in more detail and what importers and companies impacted by these tariffs need to know as the case heads toward appeal.

Background

After the Supreme Court struck down the use of IEEPA to impose tariffs in Learning Resources, Inc. v. Trump, President Trump turned to Section 122 of the Trade Act of 1974, signing Proclamation No. 11012 on February 20. The proclamation imposed a temporary 10% surcharge on virtually all imports, which will expire on July 24, unless US Congress acts to extend the surcharge. 

Section 122 authorizes the president to impose temporary import surcharges (up to 15% for no more than 150 days) to address “large and serious United States balance-of-payments deficits.” Although the statute refers to surcharges, these are in fact tariffs. To justify the tariffs, the president pointed to a $1.2 trillion goods trade deficit and a current account deficit of 4.0% of gross domestic product, among other metrics. Twenty-four states and two private importers sued, and the cases were consolidated before a three-judge panel. 

The Court’s Decision

The majority (Chief Judge Mark A. Barnett and Judge Claire R. Kelly) concluded that the president exceeded his authority because the economic metrics cited in the proclamation — trade deficits and current account deficits — are not “balance-of-payments deficits” as Congress understood that term when it enacted Section 122 in 1974. The majority explained that the term “balance-of-payments deficits” is a term of art, with a defined meaning and subject to judicial review. 

Relying on the legislative history, the court found that Congress had three specific measurement methodologies in mind — liquidity, official settlements, and basic balance — none of which the proclamation invoked. The court rejected the government’s argument that the meaning of “balance-of-payments deficits” should evolve over time, noting that an expansive reading would raise constitutional concerns about how much power Congress delegated to the president.

The majority acknowledged the plaintiffs’ argument that balance-of-payments deficits “cannot occur” under a floating exchange rate — which would effectively render Section 122 a dead letter. However, the majority reframed the issue by focusing on what Congress meant by ‘balance of payment deficits’ in 1974. Regardless of whether its reading of the statute would render Section 122 a nullity, the court’s role was to faithfully discern and apply the correct meaning of the statutory text. The court went on to observe that “even if it is unlikely that ‘large and serious balance-of-payments deficits’ within the meaning of Section 122 could occur today,” the other provisions of Section 122 which authorize the imposition of surcharges (i.e., preventing depreciation of the dollar or cooperating with other countries to correct disequilibrium) “remain operative.”

Judge Timothy C. Stanceu dissented, arguing that the majority relied too heavily on a single table in the Senate Report and that the legislative record also supports treating the current account balance as a valid measure of the balance of payments. He also warned that binding the statutory language to 1974-era measurement methods could render Section 122 effectively unusable if those methods are no longer published.

Scope of Relief

Importantly, only three plaintiffs that directly import goods had standing to sue: the State of Washington (through the University of Washington), Burlap and Barrel, and Basic Fun. The remaining 23 state plaintiffs were dismissed because they suffered only indirect harm from the tariffs. 

The court permanently enjoined tariff collection only as to those three plaintiffs and ordered refunds of any Section 122 duties they have already paid. The court did “not decide whether the CIT is authorized” to grant a universal injunction, in light of the Supreme Court’s decision in Trump v. CASA, Inc. — the case where the Supreme Court limited the ability of district courts to issue universal injunctions. The court reasoned that plaintiffs with standing had not made arguments for a universal injunction or assumed that the court would find standing for all state plaintiffs (which it did not). But, while declining to explicitly rely on CASA, the court seemed to align with CASA’s reasoning by declining to provide relief beyond what was necessary to make the plaintiffs who had standing whole. 

At the same time, CIT Judge Richard K. Eaton has previously indicated in the IEEPA tariff refund case Atmus Filtration v. United States that CASA’s holding on universal injunctions did not apply to orders issued by the CIT, which was provided with “national geographic jurisdiction.” The court’s decision in sidestepping the CASA issue leaves open the door to a potential future challenge on these grounds. 

Appeal

Predictably, the government has already appealed the CIT’s ruling to the Federal Circuit on May 8. The government’s opening brief is currently due on July 7, but that date may change. Indeed, so far this case has followed a similar expedited trajectory as the challenge to President Trump’s IEEPA tariffs. We will be watching to see whether the case continues on that path, including whether the government seeks a stay of the CIT’s order. 

What’s Next

Whether all other importers will obtain relief will depend on what happens upon appeal, which could once again head to the Supreme Court before a final decision is rendered. Several key developments bear watching.

Ultra Vires Declaration and the Appeal

While the CIT’s injunction is limited to three plaintiffs, the court declared Proclamation No. 11012 “ultra vires” and “invalid” — an action taken without legal authority. If that determination is upheld on appeal (which could ultimately require Supreme Court review), the proclamation would be void as a matter of law, meaning the tariffs should not have applied to anyone, regardless of the injunction’s narrow scope. As with the IEEPA tariffs, that would likely mean refunds for all importers.

Refund Process

If affirmed, we expect the government to roll out a Section 122 refund process mirroring what was built for IEEPA (potentially using the same refund portal), though the court’s references to “significant delays” in Atmus Filtration and Euro-Notions Florida suggest importers should not expect immediate relief.

Section 301 Is the End Game

The Section 122 surcharge was always meant to be a 150-day stopgap. The Administration has already launched two Section 301 investigations — one on excess capacity across 16 economies, another on forced labor across 60 trading partners — on an accelerated timeline designed to conclude before the surcharge expires. Section 301 tariffs have a strong litigation track record (the Federal Circuit upheld the Lists 3 and 4A China tariffs in HMTX Industries, with a cert petition now pending). Companies should be planning for a new round of Section 301 tariffs regardless of what happens to Section 122.

For more information, please contact the authors of this article or your ArentFox Schiff relationship attorney.