Federal Court Rules Trump Tariffs Illegal, Leaving Businesses in Uncertainty

Emma Mcilroy’s clothing company, Wildfang, has been working overtime to shift production away from China since the onset of the trade war initiated by President Trump. Securing another factory capable of producing jumpsuits and button-down shirts amid fierce competition among U.S. importers has placed significant strain on the company’s small team of 11.

However, when Mcilroy learned on Wednesday night that a federal court had declared most of Trump’s tariffs illegal, all progress abruptly stalled. She questioned whether the tariffs would be removed in time for her next shipment scheduled for August.

“I have no idea where this is headed. I’m learning in real time how to manage my business,” Mcilroy said on Thursday. “Yesterday, I would have said, ‘Absolutely, you’ll see me manufacturing in Vietnam.’ Today, I’m uncertain.”

American businesses are rapidly adjusting to the latest developments in the turbulent trade conflict, which has made planning beyond a few weeks nearly impossible. This uncertainty is particularly challenging for industries that place orders months in advance to cover entire seasons.

The Wednesday court ruling initially seemed to offer relief. A three-judge panel from the U.S. International Trade Commission found that the Trump administration had unlawfully used emergency powers to impose tariffs of 30% on Chinese goods, 25% on most products from Mexico and Canada, and 10% on all others. The court ordered the White House to halt the new tariffs within 10 days.

Yet hours later, a higher court suspended the ruling.

Had the initial decision stood, it would have prevented the reinstatement of higher “reciprocal” tariffs that Trump paused for 90 days in early April. It might also have allowed companies that paid emergency tariffs in recent months to seek refunds through Customs and Border Protection’s established processes.

Moreover, it could have reinstated the de minimis exemption for goods from China, which Trump had closed by eliminating the loophole that allowed shipments valued at $800 or less to enter duty-free.

For a brief moment, companies found some comfort in the idea that Trump’s authority to dictate trade terms had been checked. However, the administration quickly challenged the ruling and secured its suspension, keeping tariffs in place while the U.S. Court of Appeals for the Federal Circuit reviews the case. Appeals could potentially reach the Supreme Court.

As a result, few businesses are returning to normal operations.

Customs brokers and payment processors for importers reported that they would continue collecting the tariffs invalidated by the court. “Without official guidance from U.S. Customs, I advise maintaining the status quo,” said Adam Lewis, co-founder of Clearit, a customs brokerage firm.

The White House’s stance on judicial authority in other cases—such as its refusal to return Kilmar Abrego Garcia, a migrant sent to a prison in El Salvador despite a Supreme Court order—raises doubts about whether Customs and Border Protection would comply with the tariff ruling.

“I think about the Abrego Garcia decision and whether the executive branch listens to courts,” said Matt Hassett, CEO of Loftie, a company producing lamps and alarm clocks in China. “It’s not out of the question that they might ignore it or swiftly replace it with a tariff under a different authority.”

Hassett noted he had to raise prices significantly, which dampened sales, and he was preparing to pay up to 70% tariffs on an upcoming shipment. Loftie plans to continue relocating production outside China, anticipating trade barriers will return in some form.

The Retail Industry Leaders Association, representing large retailers, also warned members that the White House might attempt to impose tariffs through alternative means.

“The unpredictable nature of these tariffs has made business planning extremely difficult,” said Blake Harden, the group’s vice president of international trade.

Determining what to charge customers has been a challenge since Trump took office and remains so, executives noted during Thursday’s earnings calls.

While most acknowledged that tariff reductions would be beneficial, the ongoing legal battles have plunged their planning into further disarray.

“I’d say it’s a fluid situation, given last night’s and this morning’s news,” said Kohl’s CFO Jill Timm during the company’s earnings call. She added that a tariff pause could potentially be positive.

Others have given up trying to adjust prices and strategies with every tariff change.

“Last night, I decided the only thing I can do is tell customers, ‘This is the number. We’ll assume the risk,’” said Miriam Tuerk, CEO of Clear Blue Technologies, a Canadian solar equipment manufacturer. Profit margins for products destined for the U.S. remain uncertain.

“If things go better, we’ll refund them,” Tuerk said during a conference call. “That’s where we are. So the chaos and uncertainty will definitely cause problems. It’s not fun.”

ELF Beauty, a drugstore cosmetics brand that manufactures most of its products in China, had planned a $1 price increase in August—its third in 21 years—to partially offset tariffs that reached as high as 170% on a shipment arriving in April.

“We had no choice but to keep bringing in product; otherwise, shelves would be empty,” said CEO Tarang Amin.

Asked what would happen to price hikes if tariffs on China and other countries were effectively blocked, Amin said, “We would absolutely remove them.”

For many companies, the White House’s trade war has been damaging not only due to import taxes but also retaliatory tariffs imposed by other countries. The International Trade Commission’s ruling sparked hope that these retaliatory duties might eventually ease, though foreign governments currently have limited incentives to negotiate given the court’s constraint on U.S. trade policy.

Trim-Tex, a manufacturer of drywall accessories based in Lincolnwood, Illinois, and Miami, exports 20% of its products, including to Canada, which has imposed tariffs on a broad range of U.S. goods.

The company’s CFO, Matt Totsch, said sales have declined 10% year-over-year. He hopes the court’s decision will make international markets less wary of trading with U.S.-based manufacturers.

“Hopefully, in the short term, this shows countries that this is not the stance we represent,” Totsch said. “The U.S. needs to be known as a reliable partner globally, and hopefully, this helps demonstrate that.”