A US court has blocked Trump’s tariffs. What does that mean for China?

The court order is a setback for US President Donald Trump’s agenda, but is unlikely to stop his tariff roll-out for long, analysts said

A US court order blocking President Donald Trump’s “Liberation Day” tariffs marks a setback for the US leader, but is unlikely to provide China and other American trading partners with more than a temporary reprieve, analysts said.

The Trump administration has already filed an appeal to stop the tariff block with a Federal Circuit court, and even if that effort fails he could potentially reinstate the tariffs using other methods, they added.

A three-judge panel at the New York-based US Court of International Trade said in a joint verdict on Wednesday that Trump had overstepped his authority by using an emergency act to impose sweeping so-called “reciprocal” tariffs on dozens of countries on April 2.

Twelve US states and five American businesses filed lawsuits to block the executive actions, which were used to raise duties on Chinese goods by an eye-watering 145 percentage points after a series of tit-for-tat exchanges with Beijing.

The Trump administration later suspended most of the “reciprocal” tariffs – including those aimed at China – for 90 days pending negotiations with the target countries, but some stayed in effect and the threat of another hike in duties remained.

Wednesday’s ruling gives the US administration 10 days to quit collecting tariffs, though it does allow for refunds on duties already collected.

But if a US government motion filed late on Wednesday to “stay” the block order is granted, officials will be able to continue collecting tariffs throughout the appeals process, said T. Augustine Lo, a partner at the Dorsey & Whitney international law firm in Seattle.

Analysts said they were unsure how long the appeals process will take.

“This will be a bit of a respite while we catch our breath,” said Jayant Menon, a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore, referring to countries and observers in Asia. “This nullifies the reciprocal tariffs and their pause if and until the appeal reverses the decision.”

In addition to the April 2 tariffs, the block order also applies to the levies placed on China, Mexico and Canada in February and March – which the administration said were related to the fentanyl drug crisis – as well as a presidential executive order allowing the US to raise tariffs on China past the level set on “Liberation Day”.

But it does not affect sectoral tariffs, such as the ones covering steel, aluminium and electric vehicles, Goldman Sachs analysts led by Jan Hatzius said in a research note.

Trump is expected to find new ways to impose wider tariffs, which he sees as a way to address America’s large trade deficit, rebuild the country’s manufacturing sector, and gain leverage in trade negotiations with other governments.

A US administration can impose across-the-board tariffs and country-specific tariffs using non-emergency legal clauses, Goldman Sachs said.

Goldman Sachs expects the White House to announce an across-the-board tariff of up to 15 per cent, which it can do to address balance-of-payment deficits. Those tariffs may last up to 150 days – or longer if Congress grants an extension.

“This ruling represents a setback for the administration’s tariff plans and increases uncertainty but might not change the final outcome for most major US trading partners,” the New York-based investment bank’s note said.

If the Trump administration loses the appeal, I’d expect them to take this all the way to the Supreme CourtStephen Olson, former US trade negotiator

Lynn Song, chief Greater China economist at Dutch financial services firm ING, said Trump may look for “loopholes” to collect tariffs while other countries test the bargaining table.

China’s tariff truce with the United States is set to expire on August 12, while the US’ pause on its “reciprocal” tariffs affecting dozens of other countries is due to end on July 9.

“It feels like many Asian countries have already been on course to seek an extension on the negotiation periods,” Song said. “It’s possible the block could help buy more time if the Trump administration needs to redirect its energy inward to address the block.”

There is a “decent chance” that Trump will go ahead and try to reimpose tariffs after the 90-day pauses expire in spite of the court ruling, Song said.

“If he really wants to, he could probably continue to use those powers, including still bringing ‘reciprocal’ tariffs back at those deadlines, though the optics could be more challenging if he’s seen as defying the courts,” he said.

But the court order may also make Trump more likely to use non-tariff measures to pressure other countries, said Charles Chang, a professor of finance at Shanghai’s Fudan University.

“Education decoupling”, data security rules and “other tools” could all potentially come into play, he said.

The US Department of State said on Wednesday it would “aggressively” revoke visas for Chinese students, including those with Communist Party connections or “studying in critical fields”.

When asked about the US court order on Thursday, China’s Ministry of Commerce spokeswoman He Yongqian urged the US government to “face the international community and all rational voices in the United States” and scrap the “wrong method” of declaring unilateral tariffs.

Even if the court order is upheld, export-intensive Asian economies such as Taiwan and South Korea will still face “really big issues” because of the sectoral tariffs, said Nick Marro, principal economist for Asia at the Economist Intelligence Unit.

Trump’s administration could appeal as high as the US Supreme Court if needed.

“If the Trump administration loses the appeal, I’d expect them to take this all the way to the Supreme Court, which has taken a pretty generous view of the executive authority of the president,” scholar and former US trade negotiator Stephen Olson said.

“This process could take a while to play out, and there will definitely be complications for the Trump administration’s tariff policies, but this ruling is not a definitive rebuke,” Olson said.