In a significant blow to President Donald Trump’s trade agenda, the U.S. Court of Appeals for the Federal Circuit ruled on August 29, 2025, that most of his sweeping tariffs, imposed under the International Emergency Economic Powers Act (IEEPA), are illegal. The 7-4 decision, which upheld a May ruling by the U.S. Court of International Trade, declared that Trump overstepped his authority by invoking IEEPA to impose “reciprocal” tariffs on nearly every country and additional levies on China, Canada, and Mexico.
However, the court allowed the tariffs to remain in place until October 14, 2025, giving the Trump administration time to appeal to the U.S. Supreme Court. This ruling raises critical questions about executive power, national security, and the economic implications of tariffs, while highlighting the tension between Congress and the presidency.
The Court’s Ruling and Its Authority Over the Executive Branch
The Federal Circuit’s decision centered on the IEEPA, a 1977 law that grants the president authority to address “unusual and extraordinary” threats during a declared national emergency. Trump justified his tariffs—10% baseline duties on most countries, up to 50% on nations like India and Brazil, and specific levies on China, Canada, and Mexico—by citing trade imbalances and fentanyl trafficking as national emergencies.
The court, however, ruled that IEEPA does not explicitly authorize tariffs, which are taxes and thus a “core Congressional power” under the Constitution. The majority opinion emphasized that Congress, not the president, holds the authority to impose tariffs, and any delegation of that power must be explicit and limited.
Does the Federal Circuit have power over the executive branch? Yes, as a federal appeals court, it can review the legality of executive actions, particularly when they are challenged as exceeding statutory or constitutional authority. In this case, the court found Trump’s use of IEEPA to impose tariffs to be an overreach, reinforcing the judiciary’s role in checking executive power. However, the stay until October 14 ensures the tariffs remain in effect pending a potential Supreme Court appeal, reflecting the judiciary’s caution in immediately disrupting a major policy with global economic implications.
SCOTUS and the Tariffs
The Supreme Court has not yet ruled on this specific case, as the Trump administration is expected to appeal the Federal Circuit’s decision. However, the court’s recent jurisprudence provides clues about its potential stance. In 2023, the Supreme Court blocked President Joe Biden’s student loan forgiveness plan, citing the “major questions doctrine,” which requires explicit congressional authorization for executive actions with significant economic or political impact. Critics of Trump’s tariffs argue this precedent supports their case, as IEEPA does not clearly grant tariff authority. Conversely, the Trump administration may argue that national security and foreign policy—key justifications for the tariffs—fall within the president’s broad authority, especially given the Supreme Court’s historical reluctance to interfere in such matters.
Are Trump’s Tariffs Illegal?
The Federal Circuit’s ruling declares the tariffs illegal under IEEPA, but Trump and his supporters argue they are justified for national security and economic reasons. Trump has claimed that trade deficits, which reached $1.2 trillion for goods, threaten U.S. manufacturing and defense capabilities, necessitating tariffs to protect domestic industries. Additionally, tariffs have generated significant revenue—$142 billion by July 2025, more than double the previous year—bolstering the Treasury amid Trump’s tax cuts.
However, the argument that tariffs could replace income taxes, as America relied on them for revenue before the 16th Amendment in 1913, faces significant hurdles. The IRS and Federal Reserve, entrenched institutions, are unlikely to cede power, and modern economic complexity makes tariffs an unreliable substitute for income taxes. Trump himself has acknowledged this, framing tariffs primarily as a tool to boost manufacturing and negotiate trade deals rather than a long-term revenue replacement. The court’s ruling underscores that without congressional approval, such expansive tariff policies lack legal grounding, regardless of their economic intent.
Tariffs as a Negotiating Tactic
Trump’s tariffs were often short-lived and strategically deployed as leverage in trade negotiations. The “reciprocal” tariffs, announced on April 2, 2025, as “Liberation Day,” imposed a 10% baseline duty on most countries, with higher rates for specific nations. These were paused for nearly all countries except China within days, as Trump sought to negotiate trade deals. For example, the administration temporarily reduced China’s tariffs from 30% to 10% in May 2025 to facilitate talks, reflecting a pragmatic approach to maintaining the critical U.S.-China trade relationship.
The strategy yielded mixed results. While Trump secured framework agreements with the EU, UK, and Japan, these deals lack the detail of full-fledged trade pacts, and some partners, like Japan, resisted demands (e.g., buying more U.S. rice). The tariffs disrupted global markets, increased costs for U.S. businesses, and complicated supply chains, with companies like V.O.S. Selections Inc. and Plastic Services and Products reporting severe financial strain. The National Retail Federation noted that unpredictable tariff policies made forecasting costs nearly impossible. Ultimately, the tariffs provided some leverage but fell short of delivering transformative trade victories, as many countries resisted or delayed compliance.
Exemptions and the U.S.-China Trade Relationship
The Trump administration made significant exemptions, particularly for China, to avoid catastrophic disruptions to the U.S.-China trade relationship, which supports millions of jobs and vast supply chains on both sides. The February 2025 tariffs on China, Canada, and Mexico, aimed at curbing fentanyl trafficking, were softened after negotiations, with China’s rate lowered to 10% until August 2025. This reflects the reality that crushing tariffs would harm U.S. businesses reliant on Chinese imports and risk retaliation that could destabilize global markets. For instance, the “de minimis” exemption, which allowed tariff-free imports under $800, was eliminated in August 2025, but broader exemptions for China preserved trade stability.
The IRS, Federal Reserve, and the Income Tax Reality
Trump’s vision of tariffs replacing income taxes is more rhetorical than practical. Historically, tariffs funded the U.S. government before the income tax was established, but the modern economy relies on the IRS and Federal Reserve to manage fiscal and monetary policy. These institutions wield significant influence, and dismantling the income tax system would require congressional action—an unlikely prospect given political and economic realities. Even Trump’s allies recognize that tariffs, while revenue-generating, cannot fully offset income taxes without causing inflation and consumer price spikes. The court’s ruling reinforces this, emphasizing that only Congress can authorize such a fundamental shift in taxation policy.
What’s Next?
The Federal Circuit’s stay until October 14, 2025, keeps the tariffs in place, but a Supreme Court appeal is imminent. If the Supreme Court upholds the ruling, Trump could lose significant tariff authority, forcing reliance on alternative laws like Section 232 of the Trade Expansion Act (used for steel and aluminum tariffs) or Section 301 of the Trade Act of 1974, which require lengthier processes. This could slow his trade agenda and weaken his negotiating leverage. Refunding collected tariffs—potentially billions—could also strain the Treasury and trigger legal challenges from businesses. Conversely, a Supreme Court reversal could embolden Trump to expand tariffs further, though global markets and U.S. consumers would bear the cost.
In conclusion, the Federal Circuit’s ruling marks a critical check on executive power, affirming Congress’s authority over tariffs while exposing the limitations of Trump’s trade strategy. As the case heads to the Supreme Court, the outcome will shape U.S. trade policy, economic stability, and the balance of power between the branches of government. For now, the tariffs remain a contentious tool, with exemptions and short-lived implementations reflecting their role as a negotiating tactic rather than a sustainable economic solution.