US-China Trade War: Court Blocks Trump’s Liberation Day Tariffs; What’s Next?

US-China Trade War: Court Blocks Trump’s Liberation Day Tariffs

The US-China trade war took an unexpected turn on Wednesday, May 28, when the New York-based Court of International Trade delivered a heavy blow to Trump’s trade strategy. CN Wire reported:

“A U.S. federal court on Wednesday blocked President Donald Trump’s “Liberation Day” tariffs from going into effect, ruling that the president overstepped his authority by imposing across-the-board duties on imports from nations that sell more to the United States than they buy.”

The Court of International Trade reportedly emphasized that the US Constitution gives Congress, not the US President, powers to regulate trade. It concluded that emergency powers do not override congressional authority on commerce.

This ruling is a serious setback for President Trump, who has been pressuring China, the EU, Japan, and others into US-favorable trade deals. The case is reportedly one of seven legal challenges against Trump’s tariffs. Thirteen US states and other small business groups are also contesting Trump’s policies.

The injunction immediately halts the implementation of the tariffs. While the Trump administration may appeal this decision in higher courts, the ruling prevents enforcement unless an appellate court grants an emergency stay. An emergency stay would allow the administration to continue imposing Liberation Day tariffs until the end of an appeal.

The court’s decision challenges Trump’s use of the International Emergency Economic Powers Act (IEEPA), stating it cannot be used to impose tariffs without congressional approval.

The bigger question is whether this ruling could affect Trump’s tariffs imposed before Liberation Day. In February and March, President Trump imposed fresh tariffs on China, raising levies on selected Chinese imports. Markets must monitor US court rulings and Trump’s reaction to assess whether earlier tariffs will be removed pending a potential appeal.

Market Reaction to the Court Ruling

Markets welcomed the court ruling. On Thursday, May 29, US futures surged in response to the court ruling. The Dow Jones mini jumped 424 points, while the Nasdaq 100 and S&P 500 futures rose 81.5 and 358 points, respectively. The removal of tariffs also drove US dollar demand, lifting the US Dollar Index (DXY) by 0.45% to 100.321.

In the Asian markets, Mainland China’s CSI 300 and Shanghai Composite Index rose 0.05% and 0.01%, respectively, reducing the year-to-date deficits to 2.46% and 0.34%. The Hang Seng Index was the main beneficiary of the ruling, rising 0.54%. The morning gains took the Index’s year-to-date gains to 16.6%.

Meanwhile, gold fell 0.58% in early trading to $3,267, while USD/JPY rallied 0.8% to 145.971, reflecting an easing in safe-haven demand.

China Still in Focus

While the court ruling on tariffs will offer market relief, Trump continues to impose measures aimed at curbing China’s economic expansion. He reportedly ordered US chip designers to stop selling to China and suspend chip software and jet engine technology exports. The US government also announced plans to aggressively revoke visas of Chinese students.

Court Ruling and China’s Five-Year Plan

The overnight US court ruling coincides with increasing focus on China’s upcoming 15th five-year plan. This week, China’s 15th five-year plan took center stage as Beijing considers strategies for economic growth. President Xi Jinping reportedly said that central leadership was preparing a 15th five-year plan draft proposal. China’s President added that it would need a Plenary session endorsement.

The US and China’s battle in the tech and trade space could feature heavily in discussions. Recent data has raised doubts about China’s 5% GDP target for 2025. However, a potential end to the US-China trade war may boost China’s consumer sentiment, consumption, and exports.

Outlook

Trade headlines will continue to influence market trends. Investor sentiment could deteriorate if the courts grant a government request for an emergency stay pending an appeal. Increased uncertainty about the outcome of an appeal may also test demand for risk assets. Conversely, risk appetite could get a boost if the court rejects any request for an emergency stay. Such a ruling would leave the outcome of an appeal to decide market trends.

Beijing’s reaction to the court ruling could be pivotal. Will Beijing reintroduce the 125% tariff on US goods or seek to improve relations with the US?

Follow our coverage as US-China tech tensions reshape global markets.