A U.S. appeals court ruled Friday that many of the tariffs imposed on dozens of countries by President Donald Trump are illegal, a decision that his administration said it will seek to appeal at the Supreme Court. The tariffs will remain in place until Oct. 14 to give the government time to appeal, but a loss at the top court would render the levies invalid. But even that wouldn’t mean Canada and other countries hit by U.S. are out of the woods on trade. The Financial Post takes a look at what happened and what it means for Canada.

What happened?

In a split decision, the U.S. Court of Appeals for the Federal Circuit upheld a lower court’s ruling that the sweeping tariffs imposed on a number of countries exceeded the president’s powers of emergency laws established in the late 1970s. Passed in 1977, the International Emergency Economic Powers Act (IEEPA) gives a U.S. president broad authority to step in and regulate economic transactions following a declaration of national emergency. However, in a 7-4 ruling, the appeals court ruled said tariffs fell outside these powers. “The statute bestows significant authority on the President to undertake a number of actions in response to a declared national emergency, but none of these actions explicitly include the power to impose tariffs, duties, or the like, or the power to tax,” the court ruled. “It seems unlikely that Congress intended, in enacting IEEPA, to depart from its past practice and grant the President unlimited authority to impose tariffs.”

What tariffs and goods does the ruling affect and what happens next?

The ruling affects a blanket 10 per cent base tariff imposed by the United States in April as well as a raft of higher “reciprocal” tariffs on goods from dozens of countries. It also affects the 35 per cent tariff imposed on Canadian goods — raised from 25 per cent in August — that the Trump administration imposed to stop the flow of fentanyl and illegal immigrants coming into the U.S. from Canada and Mexico. What the ruling will not affect are sectoral tariffs imposed on goods such as steel, aluminum, autos and copper, as those tariffs are imposed under a different statute —

Section 232 of the Trade Expansion Act of 1962. “This impacts most of President Trump’s tariffs, but not those applying to specific sectors such as tariffs on steel, aluminum, autos and copper, which are subject to a separate legal framework,” said William Pellerin, a partner in the international trade group at law firm McMillan LLP. The court decision also creates confusion in jurisdictions where new trade deals have been struck with the U.S.

— such as the United Kingdom, European Union and China — because each was based on tariffs imposed using emergency powers, said Clifford Sosnow, chair of the international trade and investment group at Fasken Martineau DuMoulin LLP.

What happens now and how will it affect Canada if the tariffs struck down by the court disappear?

The appeals court allowed all tariffs to remain in place until Oct. 14 so the government has a chance to appeal to latest ruling, preparations for which are under way, U.S. Treasury Secretary Scott Bessent told Reuters. If the U.S. Supreme Court refuses to hear the appeal or otherwise upholds the federal circuit decision, then the President’s IEEPA tariffs, including the 35 per cent tariff on most Canadian goods, would likely be eliminated, said Pellerin. “This would benefit Canadian exporters given that they still ship goods that are subject to that 35 per cent tariff. However, the impact would be quite muted because most Canadian exporters do not pay that 35 per cent,” he said, noting that most qualify for exemption under the Canada-U.S.-Mexico Trade Agreement. But that doesn’t mean the pain is over, as sector-specific tariffs don’t qualify for such exemptions and aren’t affected by the latest court ruling. “The more damaging tariffs imposed by the United States on Canada, including the steel, aluminum and autos tariffs, would remain,” he said.

Didn’t the U.S. include a fallback tariff for Canada if the fentanyl defence failed. What happens to that?

Yes, when the U.S. administration declared “Liberation Day” in April and rolled out tariffs on dozens of its trading partners, it did not add to the tariffs imposed on Canada and Mexico in February that relied on the fentanyl justification. However, the Liberation Day order Trump signed contemplated the possibility of the fentanyl justification being terminated or suspended, and included a trigger for a new 12 per cent levy if that occurred. Pellerin said that provision for a lower base tariff would also die if the Supreme Court upholds the ruling that the emergency powers act does not give Trump’s government authority to impose tariffs. “That fallback is also based on IEEPA and would therefore also be struck down,” he said.

Has this dented Trump’s intent on using tariffs to advance his agenda?

It doesn’t seem so. Bessent told Reuters he is confident the Supreme Court will reverse the lower court’s ruling. Even if that doesn’t happen, he pledged to use other means to address trade imbalances with the United States and to crack down on fentanyl. “(T)here are lots of other authorities that can be used,” he told Reuters. Without specifying what they are, he said they were “not as efficient, not as powerful.” In any case, it appears the trade war initiated by Trump is far from over.

“Even if the Supreme Court strikes down the IEEPA tariffs, the decision would not have a big impact on Canada since the sectoral tariffs would remain, and the U.S. government would very likely find a way to use alternative legal authorities to maintain a number of tariffs,” Pellerin said.

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