April 30, 2025 – The tariff drama will soon enter a new phase, as 13 states have filed suits to challenge Trump’s tariffs. The goal is to reverse the President’s tariffs and limit the White House’s power to unilaterally impose tariffs without going through Congress. The outcome of the lawsuits can have the potential to substantially move markets in either direction. If the courts ruled in favor of the states, it could invalidate most reciprocal tariffs. If it is ruled in favor of Trump’s White House, it could solidify the president’s power to almost unilaterally dictate trade policy. Practically, that means either a possible massive rally or renewed pressure on stocks. As such, I want to make sure you’re familiar with what’s happening on the legal front, understand what’s coming next, and how it could move markets.
What’s Happening: Trump’s Tariffs Are Being Challenged in Court.
Thirteen states have filed two separate lawsuits aimed at overturning most of Trump’s recent tariffs. The thirteen states include AZ, CO, CT, DE, IL, ME, MN, NV, NM, NY, OR, and VT. These twelve states have filed suit against the Trump administration, while California (CA) has filed a separate lawsuit. The general basis for both is the same, however, namely that President Trump doesn’t have the legal authority to impose tariffs in the manner that he did over the past several months.
President Trump is utilizing the International Emergency Economic Powers Act (IEEPA) to justify tariffs. On April 2nd (Liberation Day), Trump declared a national economic emergency to “increase our competitive edge, protect our sovereignty, and strengthen our national and economic security.” That declaration then triggered IEEPA, which grants the president sweeping economic powers. The plaintiffs (the 13 states) challenge that IEEPA does not justify the use of tariffs, providing the basis for the lawsuit.
IEEPA is an offshoot of the Trading with the Enemy Act of 1917, a law passed during World War I that gives the president broad powers to wage economic war against our adversaries by allowing sanctions, seizing assets, and conducting other irregular economic measures. But IEEPA requires some oversight of the presidential power to declare a national economic emergency, to ensure the president explains to Congress why it’s been declared (which Trump never did). IEEPA is more frequently used as justification for sanctions against governments and specific terrorist groups. No president has ever used IEEPA to levy tariffs against trading partners.
So, what happens next? Both suits were filed with the United States Court of International Trade, which is a part of the Federal judiciary. Typically, cases are tried by a single judge appointed by the chief judge, but given these suits deal with constitutionality, they will be heard by a three-judge panel. Notably, of the 14 judges on the court, only three have been appointed by President Trump. The chief judge (Mark Barnett) was appointed by President Obama and the court was evenly divided, with seven judges appointed by Republican presidents and seven by Democratic presidents. Decisions by the court are final, although they can be appealed to the U.S. Court of Appeals and, ultimately, the Supreme Court (which may be where all this is headed).
If the court rules in favor of the states and decides tariffs are not permitted under IEEPA, I would expect a massive rally in stocks. Essentially, that would mean an end to the trade war. I say this for several reasons: First, it’d reduce any inflation impacts from tariffs. Second, the Fed could proceed with cutting rates. Third, it’d remind our trade partners that the rule of law still dominates in the United States. Bottom line, the court invalidating Trump’s tariffs likely would result in a substantial rally.
If the court rules against the states and tariffs stay in place, expect a continued stiff headwind. The Dollar Index and Treasuries should also decline due to the continued risk of tariff-driven inflation, combined with eroding international confidence in the U.S. economy due to policy chaos.
What Comes Next? The lawsuits were just filed recently, so we would all have to wait for the schedule for the preliminary hearings to be released. But given the severity of the issues, we may see the hearing schedule accelerated. In the near term, there won’t be any change to Trump’s unchallenged power to impose tariffs. But starting later this summer, we should begin hearing more about these challenges and they will have the potential to move markets. We’ll be watching.
Our clients rely on us for timely information, and our job is to deliver.
What’s Developing on the Tariff Front: Legal Challenges to Trump’s Tariffs
By John Lau, CPA, CFP®
April 30, 2025 – The tariff drama will soon enter a new phase, as 13 states have filed suits to challenge Trump’s tariffs. The goal is to reverse the President’s tariffs and limit the White House’s power to unilaterally impose tariffs without going through Congress. The outcome of the lawsuits can have the potential to substantially move markets in either direction. If the courts ruled in favor of the states, it could invalidate most reciprocal tariffs. If it is ruled in favor of Trump’s White House, it could solidify the president’s power to almost unilaterally dictate trade policy. Practically, that means either a possible massive rally or renewed pressure on stocks. As such, I want to make sure you’re familiar with what’s happening on the legal front, understand what’s coming next, and how it could move markets.
What’s Happening: Trump’s Tariffs Are Being Challenged in Court.
Thirteen states have filed two separate lawsuits aimed at overturning most of Trump’s recent tariffs. The thirteen states include AZ, CO, CT, DE, IL, ME, MN, NV, NM, NY, OR, and VT. These twelve states have filed suit against the Trump administration, while California (CA) has filed a separate lawsuit. The general basis for both is the same, however, namely that President Trump doesn’t have the legal authority to impose tariffs in the manner that he did over the past several months.
President Trump is utilizing the International Emergency Economic Powers Act (IEEPA) to justify tariffs. On April 2nd (Liberation Day), Trump declared a national economic emergency to “increase our competitive edge, protect our sovereignty, and strengthen our national and economic security.” That declaration then triggered IEEPA, which grants the president sweeping economic powers. The plaintiffs (the 13 states) challenge that IEEPA does not justify the use of tariffs, providing the basis for the lawsuit.
IEEPA is an offshoot of the Trading with the Enemy Act of 1917, a law passed during World War I that gives the president broad powers to wage economic war against our adversaries by allowing sanctions, seizing assets, and conducting other irregular economic measures. But IEEPA requires some oversight of the presidential power to declare a national economic emergency, to ensure the president explains to Congress why it’s been declared (which Trump never did). IEEPA is more frequently used as justification for sanctions against governments and specific terrorist groups. No president has ever used IEEPA to levy tariffs against trading partners.
So, what happens next? Both suits were filed with the United States Court of International Trade, which is a part of the Federal judiciary. Typically, cases are tried by a single judge appointed by the chief judge, but given these suits deal with constitutionality, they will be heard by a three-judge panel. Notably, of the 14 judges on the court, only three have been appointed by President Trump. The chief judge (Mark Barnett) was appointed by President Obama and the court was evenly divided, with seven judges appointed by Republican presidents and seven by Democratic presidents. Decisions by the court are final, although they can be appealed to the U.S. Court of Appeals and, ultimately, the Supreme Court (which may be where all this is headed).
If the court rules in favor of the states and decides tariffs are not permitted under IEEPA, I would expect a massive rally in stocks. Essentially, that would mean an end to the trade war. I say this for several reasons: First, it’d reduce any inflation impacts from tariffs. Second, the Fed could proceed with cutting rates. Third, it’d remind our trade partners that the rule of law still dominates in the United States. Bottom line, the court invalidating Trump’s tariffs likely would result in a substantial rally.
If the court rules against the states and tariffs stay in place, expect a continued stiff headwind. The Dollar Index and Treasuries should also decline due to the continued risk of tariff-driven inflation, combined with eroding international confidence in the U.S. economy due to policy chaos.
What Comes Next? The lawsuits were just filed recently, so we would all have to wait for the schedule for the preliminary hearings to be released. But given the severity of the issues, we may see the hearing schedule accelerated. In the near term, there won’t be any change to Trump’s unchallenged power to impose tariffs. But starting later this summer, we should begin hearing more about these challenges and they will have the potential to move markets. We’ll be watching.
Our clients rely on us for timely information, and our job is to deliver.
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