US Court Strikes Down Trump's 10% Global Tariffs
The US Court of International Trade has ruled against the universal 10% tariffs imposed by President Trump in February. The judge determined that these tariffs lack legal justification under the Trade Act of 1974, which the administration had cited; the lawsuit was filed by a group of small businesses demanding a refund of the duties paid.
Analytical Note
May 10, 2026
Confidential
The Core: What's Really Happening
The US Court of International Trade's ruling on May 7, 2026, is not just a legal oddity or a routine headache for the administration. It marks the second time in three months that a federal court has declared Trump's tariff policy unlawful, and for the second consecutive time, the plaintiffs are not giants like Apple or Walmart but small businesses—this time Burlap & Barrel (a New York-based online spice retailer) and Basic Fun (a Florida-based toy manufacturer that produces Tonka Trucks and Care Bears). The choice of plaintiffs is no accident: small businesses do not face the same reputational risks as public corporations and can afford to sue the administration without fear of stock crashes or calls from the White House.
The key point that commentators miss: the court did not simply strike down the tariffs; it ruled that the administration used the 1974 law in a way it was never intended. Section 122, which Trump invoked, was enacted to respond to a specific historical crisis—the depletion of US currency and gold reserves in the early 1970s. A trade deficit is not the same as a balance of payments deficit, and the majority judge articulated this clearly. The administration essentially tried to pass off the current $1.2 trillion trade deficit as a "fundamental international payments problem"—a legal stretch the court rejected.
But the real drama of this ruling lies not in the past but in the future. The court struck down tariffs that were already set to expire on July 24, 2026, 150 days after their imposition. From the start, the administration viewed Section 122 as a temporary bridge to more durable tools—Section 301 investigations launched on March 11, 2026, against 16 countries for alleged excess capacity and against 60 more countries for forced labor. The court's ruling sets that bridge on fire—the administration now faces a tougher bargaining position with China when its primary tariff regime has been declared unlawful for the second time in a row.
Timeline and Context
The history of Trump's tariffs 2.0 is a chronicle of legal defeats masked by administrative maneuvers. On February 20, 2026, the US Supreme Court in Learning Resources v. Trump declared unlawful the tariffs imposed in April 2025 under IEEPA. Within hours of the ruling, Trump signed three executive actions: one repealing the IEEPA tariffs, one imposing new tariffs under Section 122, and one extending the de minimis suspension. The speed of the response suggests the administration expected this outcome and had prepared in advance.
May 8, 2026—the Court of International Trade declared the Section 122 tariffs unlawful as well.
The ruling was 2-1, which is significant—it is not a unanimous verdict, giving the administration grounds for appeal. According to sources, the government is already preparing an appeal, and as one lawyer put it, "they are signaling a willingness to fight."
Meanwhile, a massive process of refunding previously collected duties is unfolding. US Customs and Border Protection estimated in March that over 330,000 importers could claim refunds of $166 billion collected under the IEEPA tariffs. For context: $166 billion is roughly comparable to General Electric's market capitalization or Toyota's annual revenue. The refund process is just beginning, and the government is clearly in no hurry.
Who Wins and Who Loses
Winners:
- Small importers who joined the lawsuits. Burlap & Barrel, Basic Fun, and the state of Washington have already obtained a favorable ruling. For Basic Fun, whose CEO Jay Foreman reported $100,000 in duties paid under the struck-down tariffs, this money is not an abstraction but real cash flow the company was deprived of.
- Law firms specializing in trade law. Wiley Rein, Holland & Knight, Liberty Justice Center—all have received and continue to receive multi-million-dollar fees. Estimates suggest total legal costs in tariff cases have already exceeded $400 million, and this is just the beginning.
- China as a negotiating party. The court ruling strips a bargaining chip from Trump exactly one week before his meeting with Xi Jinping in Beijing. It's hard to threaten tariffs when courts consistently deem them unlawful.
Losers:
- The Trump administration. Two consecutive court defeats on a key element of the economic program are a political blow. The president is preparing for a meeting with the Chinese leader while his main leverage tool has been declared unlawful. "This raises fundamental questions about the administration's strategy of using old laws out of context," said Ed Gresser of the Progressive Policy Institute, a former trade official.
- Large public corporations that chose not to sue. FedEx paid $1 billion in tariffs in 2025, hitting profits by 16%, but the company was not among the plaintiffs. Now they watch as small businesses get judicial relief while their own payments remain unreimbursed.
- The US budget. The process of refunding $166 billion is not a technical procedure but a direct hole in the federal budget. The administration will likely delay payments as much as possible.
What the Media Isn't Saying
First non-obvious insight: the May 7 ruling is not so much about Section 122 as it is about laying the groundwork for a new round of cases against Section 301 tariffs. Trade attorney Timothy Brightbill of Wiley Rein, commenting on the verdict, called it a "decisive rejection of Section 122 tariffs." But Section 301 is a completely different legal mechanism with a different history of judicial review. During Trump's first term, Section 301 tariffs on China withstood several legal challenges. However, back then they were imposed after months-long USTR investigations—now the administration launched investigations on March 11-12, aiming for expedited results. This very haste will be the target of future lawsuits. Lawyers at Liberty Justice Center are already looking into it.
Second point: no one is discussing what is happening with tariff rates "on the ground" right now. The court only halted tariff collection for the plaintiffs, not imposing a universal injunction. This means thousands of other importers continue paying the 10% duty that has been declared unlawful—a paradoxical situation, legally absurd but commercially real. Jeffrey Schwab of Liberty Justice Center explicitly said that "it is unclear whether the government will continue collecting Section 122 tariffs from other companies." If it does, new lawsuits will follow, and the floodgates will open.
Third: no one noticed the symbolic date. The administration announced plans to replace Section 122 tariffs with new ones—presumably based on Section 301 investigation results—by July. But July 24 is not just a deadline under the 1974 law. It is the height of the campaign season ahead of the November midterm congressional elections. If new tariffs are not ready by then, the administration will be left without a tariff tool during the most politically sensitive period. If they are ready, they will immediately become targets for new lawsuits and election criticism. Either way, July 2026 promises to be a month of maximum turbulence in US trade policy.
Forecast: Next 30 Days and 90 Days
Next 30 days (through June 10):
- The administration will appeal the Court of International Trade ruling. The Federal Circuit Court of Appeals, known for its conservative reputation, may take the case on an expedited basis. No decision before July-August.
- New lawsuits from companies that were not plaintiffs but want similar judicial relief from Section 122 tariffs. Expect 30-50 new lawsuits in the coming weeks. Collectively, they could cover up to $400-600 million in duties.
- Trump's meeting with Xi Jinping in Beijing takes place next week. The court ruling objectively weakens the US negotiating position, but Trump will use rhetoric like "I'll get my way through Section 301 anyway." The Chinese side understands this perfectly, and no concessions are expected.
- US Customs and Border Protection will face a growing wave of refund claims. The bureaucratic machine is overwhelmed, and the process will drag on.
Next 90 days (through August 10):
- Key date: July 24, when the 150-day period for Section 122 tariffs expires.
- Scenario A (55% probability): The administration completes at least some Section 301 investigations by then and imposes new tariffs on a different legal basis. They will be more targeted (by specific countries and sectors), but rates could be significantly higher than 10%.
- Scenario B (35% probability): Section 301 investigations drag on, and on July 24 the tariffs simply expire without replacement. This would be a political catastrophe for the administration.
- Scenario C (10% probability): Congress extends Section 122 tariffs, but this is unlikely given the current composition and upcoming elections.
- Meanwhile, IEEPA tariff refunds will be in full swing. By August, of the $166 billion, I estimate no more than $20-25 billion will be returned—the government will delay the process by all available means.
- Small businesses will continue to sue. Basic Fun has already paid $7 million in tariffs for 2025, and CEO Jay Foreman has made it clear he won't stop. These "small" cases, when aggregated, create a legal avalanche that makes the administration's tariff policy increasingly vulnerable.
The key indicator for the next two weeks is not appeals or political statements, but the behavior of the USTR. If the Office of the US Trade Representative announces the completion of the first Section 301 investigations by the end of May, it means the administration expects to meet the July deadline. If not, prepare for a tariff vacuum and a political storm in the midst of the midterm campaign.
— Editorial Team
