US court blocks Trump’s tariffs: What does it mean for global trade, markets?

A United States federal court ruling has delivered a setback to US President Donald Trump’s expansive tariff strategy, challenging the core of his administration’s unilateral trade actions.

The decision by the Court of International Trade in New York created fresh uncertainty around US import policy and also resulted in ripples across global markets.

Why the court knocked Trump’s tariffs down

On Wednesday, a three-judge panel from the US Court of International Trade blocked Trump’s latest attempt to impose sweeping tariffs on virtually all foreign imports.

The court concluded that Trump overstepped his legal bounds by invoking emergency powers under the 1977 International Emergency Economic Powers Act (IEEPA), which he used to justify a declaration of national emergency over longstanding US trade deficits and illicit border activity.

Trump had announced on April 2 a two-tiered tariff system: a baseline 10 per cent duty on nearly all foreign imports and a higher 50 per cent “reciprocal tariff” on goods from nations with which the United States maintained a trade deficit.

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While the reciprocal component was temporarily paused for 90 days to allow for negotiations, the baseline tariffs remained in place.

The US president also justified earlier levies on China, Mexico and Canada by citing drug trafficking and illegal immigration, claiming these constituted an emergency requiring immediate executive action.

In its judgment, the court disagreed with the administration’s legal rationale and scope of authority under IEEPA. The panel said the law did not support such far-reaching and broad economic interventions and found that the measures were not adequately linked to the issues they were supposed to address.

The judges pointed out that US trade deficits have existed for nearly five decades across both economic booms and downturns, and therefore do not represent a sudden emergency.

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The legal challenge combined lawsuits from five small US businesses and a coalition of 12 states.

While the court’s ruling halts the April 2 tariffs, it leaves intact prior tariffs on steel, aluminium and automobiles that were enacted under a different statute — the Trade Expansion Act of 1962 — which requires a national security review by the US Commerce Department.

How Trump reacted

The White House responded swiftly, filing a notice of appeal within minutes of the court’s decision. The administration is prepared to escalate the case through the US Court of Appeals for the Federal Circuit and, if necessary, the Supreme Court.

Analysts note that while the recent ruling challenges Trump’s use of IEEPA, it does not cover other legal tools the administration might still utilise to advance its trade agenda.

“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,” said Alec Phillips of Goldman Sachs in a client note.

Historically, courts have shown deference to the executive branch on national security-related trade actions.

The administration attempted to cite precedent from US President Richard Nixon’s use of tariffs in 1971 under the 1917 Trading With the Enemy Act, but the court found the comparison insufficient.

How markets reacted to the news

The legal block on the tariffs triggered a broad-based rally across financial markets. The US dollar strengthened notably against major currencies, particularly the yen and Swiss franc.

After the announcement, the dollar index climbed back above 100, its highest level in a week, buoyed by relief from concerns over inflation and economic stagnation caused by trade tensions.

“It’s almost impossible to know if the tariffs will be completely unwound by this. But in the hypothetical situation that they are, it’s natural to see dollar appreciation,” Reuters quoted Yunosuke Ikeda, head of macro research at Nomura.

He added, “Trump’s tariffs will lead to stagflation pressure on the US economy, so reversing those tariffs would be a positive for the dollar.”

The greenback rose 0.64 per cent against the yen, trading at 145.77 after touching a two-week high of 146.2. It also gained 0.67 per cent against the Swiss franc, reaching 0.83245. The euro slipped by 0.4 per cent to $1.12445, while the British pound edged down to $1.344.

However, not all analysts expect the momentum to sustain. Hirofumi Suzuki, chief FX strategist at SMBC, noted, “There’s an initial reaction of a stronger dollar and weaker yen. However, considering judicial processes like appeals, I don’t expect a continuous rise in the dollar.”

US 10-year Treasury yields rose slightly, reflecting a modest sell-off in longer-term debt.

Investors had been growing cautious amid weaker demand for US bonds and growing concerns about fiscal deficits. Earlier this month, Moody’s downgraded the US credit rating, citing a deteriorating fiscal outlook.

How global stocks and commodities reacted

Asian and European equity markets mirrored the optimism. Japan’s Nikkei gained 1.7 per cent, and South Korea’s benchmark rose 1.8 per cent to a nine-month high.

The MSCI Asia-Pacific index excluding Japan added 0.5 per cent, with China’s blue chips up 0.6 per cent. European futures also surged, with EUROSTOXX 50 gaining 1.3 per cent, the FTSE up 0.8 per cent, and Germany’s DAX rising 1.1 per cent.

S&P 500 futures advanced by 1.6 per cent, while Nasdaq futures soared 2 per cent, also helped by strong earnings reports from major tech firms such as Nvidia.

Domestic Indian indices followed suit. The BSE Sensex rose 476 points, or 0.59 per cent, to 81,791 early in the session, and the Nifty50 climbed 118 points, or 0.49 per cent, to 24,871.

Gains later moderated slightly, with the Sensex up 221 points at 81,534 and the Nifty50 higher by 55 points at 24,808 around mid-morning.

On the commodity front, gold prices slid to a more than one-week low, reflecting reduced safe-haven demand amid the market rally. Spot gold declined 0.5 per cent to $3,273.37 an ounce, while US gold futures fell 0.7 per cent to $3,270.80.

“The US court’s decision is the key news driver leading to a rally in the dollar, which subsequently pushed gold prices lower,” Reuters quoted Nicholas Frappell, global head of institutional markets at ABC Refinery.

Meanwhile, silver, platinum, and palladium saw modest gains. Spot silver rose 0.6 per cent to $33.19 an ounce, platinum increased by 0.6 per cent to $1,080.90, and palladium gained 1.3 per cent to $974.69.

Oil prices also rebounded as markets reacted positively to the reduced likelihood of disruptive tariffs on global trade. Brent crude futures climbed 1.25 per cent to $65.71 a barrel, while US West Texas Intermediate added 1.34 per cent to $62.62.

What this means for Trump’s agenda

The ruling has complicated the Trump administration’s economic narrative. Trump has leaned heavily on aggressive trade policy and executive actions to confront trade imbalances and what he calls unfair foreign competition.

The decision may also affect ongoing and future negotiations with trading partners. Some countries may now choose to delay or recalibrate their engagement with Washington, preferring to wait for a more definitive judicial outcome.

“It’s long been suggested that the emergency powers Trump has used to implement tariffs were unconstitutional and that the power to enact tariffs sits with Congress,” said Kyle Rodda, a senior financial analyst at Capital.com.

“Should the markets get their way, the courts could delay and then deny these tariffs, removing one massive risk and undoubtedly stoking risk appetite.”

At the same time, the US Federal Reserve is carefully watching inflation and employment trends. Minutes from its May 6–7 meeting revealed concerns about the simultaneous rise of inflation and unemployment, a dynamic that could make future rate decisions particularly complex.

With GDP and core Personal Consumption Expenditures data due soon, markets are bracing for further clues on whether the US Fed will lean toward easing or tightening monetary policy.

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With inputs from agencies