By Dietrich Knauth
NEW YORK, April 10 (Reuters) – A panel of trade court judges challenged the legality of President Donald Trump’s 10% tax on most imports, suggesting a large trade deficit might not be a sufficient reason to impose broad-based tariffs.
The U.S. Court of International Trade heard arguments on Friday in lawsuits by 24 mostly Democratic-led states and by small businesses challenging the tariffs, which took effect on February 24.
Those states argue Trump’s move was an attempt to sidestep a landmark U.S. Supreme Court decision four days earlier that struck down the Republican president’s 2025 tariffs imposed under the International Emergency Economic Powers Act (IEEPA).
Those tariffs upended corporate trade throughout much of 2025, reducing business investment as billions of dollars in levies went into the federal coffers, before being overturned by the nation’s highest court in February.
Even with those tariffs – many of which exceeded 10% – the trade deficit was $901.5 billion in 2025, little changed from a year earlier.
In his February order, Trump invoked Section 122 of the Trade Act of 1974, which allows for duties for up to 150 days to correct serious “balance of payments deficits” or head off an imminent depreciation of the dollar.
TOUGH QUESTIONS FROM JUDGES
The states and small businesses opposing Trump said that law was meant only to address short-term monetary emergencies, and routine trade deficits do not match the economic definition of “balance-of-payments deficits.”
Trump has made tariffs a central pillar of his second-term foreign policy, claiming sweeping authority to issue tariffs without input from Congress. No U.S. president before Trump had used Section 122 or IEEPA to impose tariffs.
During three hours of arguments, the three-judge panel weighed how “balance of payments deficits” should be defined.
Judge Timothy Stanceu, an appointee of Republican President George W. Bush, questioned the Trump administration’s argument that a trade deficit, which occurs when a country imports more goods than it exports, could be the sole reason to invoke the 1974 law.
“We’re not quite sure how to translate 1974 into 2026, but we do know that the ‘balance of trade deficit’ was not the same thing as the ‘balance of payments deficit,'” Stanceu said.
Brett Shumate, a Department of Justice lawyer, responded that the U.S. trade deficit contributed to a broader “balance of payments” deficit, and created a “large, serious” international payments problem for the country.
STATES URGE JUDGES TO BLOCK TARIFFS
Lawyers for the states and small businesses argued that the tariffs were based on obsolete efforts to protect the U.S. dollar from sudden depreciation in the 1960s and early 1970s, when dollars could be exchanged for gold reserves held in Fort Knox, Kentucky.
Brian Marshall, a lawyer for the state of Oregon, noted there is now no risk that foreign holders of dollars would trigger a gold run. The United States ended the international convertibility of gold to the dollar in 1971.
Marshall urged the judges to block the 10% tariffs rather than let them expire on the normal 150-day timeline, to keep Trump from invoking a variety of laws to keep them in place indefinitely.
“[If] we have a successive series where there’s always tariffs in place, that’s a problem,” Marshall said.
The trade court did not say when it will rule.
The latest lawsuits did not challenge other Trump tariffs made under more traditional legal authority, such as recent levies on steel, aluminum and copper imports.
(Reporting by Dietrich Knauth; Editing by Noeleen Walder, Lisa Shumaker, Franklin Paul, David Gregorio and David Gaffen)
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