The US Court of International Trade ruled on Wednesday that President Trump wrongly invoked the International Emergency Economic Powers Act (IEEPA) to apply reciprocal tariffs on a long list of countries and other tariffs on Mexico, Canada and China targeting fentanyl smuggling.

The ruling instructs the administration to remove the 10% global tariff, the 25% tariffs on Canada and Mexico and the 30% tariffs on China within ten days. Tariffs on steel, aluminum, vehicles and automotive parts will remain in effect as they are not based on the IEEPA.

The White House is appealing the decision and could ask the Supreme Court to keep the tariffs in place during the lengthy appeals process.

If tariffs are suspended, the administration could seek to restore or apply tariffs through other trade laws – like Section 301 used to apply tariffs on China in Trump’s first administration, and Section 232 used in 2018 and for steel, aluminum and vehicle tariffs this year – though these could take more time and can require congressional approval.

For supply chains, the development adds even more uncertainty to the mix, but may not drastically change the recent trade war-driven trends in logistics.

US importers had already started frontloading peak season goods since the China-US deescalation on May 12th saw tariffs on China drop to 30%, pushing transpacific ocean volumes and rates up. And with no guarantee that these tariffs won’t be restored or other tariffs introduced soon, shippers are likely to keep frontloading – or even increase shipping activity – while they know tariffs are low.

For air cargo, the ruling likely will nullify the US’s May 2nd suspension of de minimis eligibility for Chinese goods which has led to a big drop in B2C e-commerce volumes moving from China to the US via air cargo. If the ruling restores de minimis for China we may see some rebound in these volumes.

But as there was bi-partisan support for limiting de minimis for China even before Trump took office, this exemption is likely to be closed to China at some point by other means. And as platforms like Temu and Shein have already increased their ocean logistics and domestic fulfillment capabilities for the US market, we may not see a full reversal of the drop in air cargo volumes even in the interim.

Timelines and Tariff Alternatives

The administration paused its reciprocal tariffs in early April and set a July 9th deadline after which – if the US does not reach trade agreements with the targeted countries – those tariffs would be restored. Similarly, on May 12th the US reduced tariffs on China from 145% to 30% and set an August 14th deadline to come to new trade terms with China, after which it could raise tariffs once again.

The court’s decision reduces the likelihood that these deadlines are still valid and the White House’s leverage in these negotiations. And even though only the UK had come to a tentative agreement with the US so far in any case, the ruling could slow the progress in negotiations even further. At the same time, the aluminum, steel and auto tariffs that remain in effect could motivate countries where the manufacture of these goods plays a significant role in their economies – like Canada, Mexico, Japan and the EU – to continue negotiations in any case.

A Supreme Court emergency order could quickly reinstate the tariffs canceled by the trade court’s decision. But barring a Supreme Court intervention the appeals process that could potentially restore the IEEPA tariffs would be lengthy. The process would start in federal appellate court and, if that court upholds the ruling, it could continue to the Supreme Court.

In the meantime, there are other trade acts at the White House’s disposal that could be used to introduce tariffs. But none are quite as broad as those attempted via the IEEPA, and each requires processes that would make it hard for new tariffs to be introduced immediately.

The other avenues to tariffs include Section 232 which Trump used to tariff steel and aluminum in his first administration and to tariff these as well as vehicles and automotive parts this year. Trump relied on Section 301 for 7.5% to 25% tariffs on nearly $400B of Chinese imports in 2018 and 2019 and could potentially use this law again, and the president used Section 201 for tariffs on washing machines in 2018.

Each of the above laws require some form of an investigation of the trade issue by a federal agency, and often a comment or review period before the president can take action. For some, congressional approval is also required once the president decides to introduce tariffs.

Other options include Section 122 which can be used to apply 15% tariffs on imports for 150 days to address issues related to payments and currencies, and Section 338 which allows the introduction of 50% tariffs on a specific country, but has not been used since the 1940s.

However, though most of these options usually take weeks or months, Trump has already requested and received reports from federal agencies for most of the trade issues that the IEEPA tariffs were being used to address.

Trump directed agencies to research and make recommendations on trade imbalances, fentanyl smuggling and other issues on his first day in office and again in March, with most of those findings meant to be delivered in April. He has also already initiated seven other investigations looking into the state of US trade in lumber, minerals and pharmaceuticals.

Using the above trade acts take time and are likely more difficult to leverage for rapid tariff introductions or levies on 100% of a target country’s exports. But the fact that many investigations that could support new tariff roll outs are already complete or underway, could shorten the timeline for implementation.

Implications for Freight

Ocean Freight

The May 12th deescalation between China and the US has driven a sharp rebound in ocean freight demand that had slumped while US tariffs on China were at 145%. In the last two weeks, many shippers were already starting to pull peak season orders forward to move goods before the deescalation’s August expiration date.

Hapag-Lloyd estimates that China-US container demand dropped by 20% from early April to mid-May. By last week, volumes had already rebounded by 50% from April/May lows, pushing container levels to low double digit percentage gains compared to before the April tariff rollout – even before the court’s ruling.

The combination of April’s canceled or paused shipments and a build up of goods manufactured during that stretch is contributing to the speed at which container demand has picked up, though estimates of ready-to-load containers in China range widely from 180k to as much as 800k TEU. And Freightos Baltic Index transpacific benchmark saw container rates increase by about 25% since the May 12th tariff reduction.

This week’s ruling may therefore intensify but not change current trends in the container market too drastically. If the IEEPA tariffs indeed remain suspended during the appeals process shippers may still prefer to frontload now when these tariffs are removed, instead of waiting until more typical start of peak season territory of July or August by which time those tariffs could be restored on appeal or through the use of other trade acts. Likewise, the decision could increase the strength of the pull forward and recent jump in container demand as some shippers deterred by 30% tariffs start frontloading as well.

Air Cargo

For air cargo, the ruling likely will remove the US’s suspension of de minimis eligibility for Chinese goods. The suspension, which has been in place since May 2nd, has led to a big drop in B2C e-commerce volumes moving from China to the US via air cargo.

We’re likely to see some rebound in these volumes and in transpacific freighter capacity if the ruling restores de minimis eligibility for Chinese goods, and the tariff reduction may also spur some increase in demand and rates in the spot market from general cargo as well.

But as there was bi-partisan support for reducing or closing the de minimis avenue to Chinese imports even before Trump took office – the USTR under the Biden administration announced proposed rule changes to de minimis at the very end of Biden’s term – this exemption is likely to be closed to China at some point by other means, and possibly soon.

And as platforms like Temu and Shein have already started to shift away from air cargo by increasing their ocean logistics and domestic fulfillment capabilities for the US market, we may not see a full reversal of the drop in air cargo volumes in the interim.