Courts Keep Striking Down Tariffs. Why Aren’t Prices Dropping Too?

A federal court delivered another setback to President Donald Trump’s trade agenda, ruling against the 10% tariff he imposed to replace tariffs struck down by the Supreme Court — but consumer prices are still unlikely to fall as the Iran war carries on and the administration looks for other ways to implement tariffs.

The Court of International Trade ruled 2-1 on May 7 that Trump’s February decision to use Section 122 of the Trade Act of 1974 to impose the 10% levy was unlawful. Although the two judges in the majority prohibited the administration from collecting these tariffs from Washington state and two companies who also sued over the policy, they will remain in place for most importers until the appeals process plays out.

U.S. Trade Representative Jamieson Greer confirmed May 8 the administration plans to appeal the ruling and is hopeful about its chances.

“President Trump is focused on having tariffs to protect our economy,” Greer told Fox Business Network’s “Mornings with Maria.” “We’ll obviously follow the law and do what courts tell us to do, but his policy is not changing.”

Boston College economics professor Brian Bethune thinks the appeal is a long shot.

“They tried that with the IEEPA tariffs. It didn’t work,” Bethune said, referring to previous tariffs implemented under the International Emergency Economic Powers Act. “It’s a real low probability Hail Mary in this case because the conditions for the Section 122 simply just don’t apply whatsoever.”

Why Tariffs Aren’t Over

Either way, the administration still has several other avenues to implement tariffs — a cornerstone of Trump’s economic policy. One path includes using Section 301 of the same 1974 act, which requires investigations but allows an administration to levy tariffs in response to foreign government actions that burden or restrict U.S. commerce. Greer previously announced Section 301 investigations into several countries and the European Union.

When the appeals process and investigations resolve, it’s unclear whether the effective tariff rate will be lower, higher, or on par with the levels seen last year after Trump issued tariffs on nearly every U.S. trading partner using the International Emergency Economic Powers Act. The Supreme Court in February ruled those tariffs illegal.

Drew DeLong, head of corporate statecraft in Kearney Foresight, an internal think tank at global management consulting firm Kearney, said if the Section 301 investigations play out as the administration intends, the effective tariff rate at the end of this year should be close to its level at the end of 2025 and possibly higher.

Why a Court Ruling Against Tariffs Might Not Mean Lower Prices

In a win for importers who paid IEEPA duties, court-ordered refunds resulting from the ruling that struck down previous tariffs are set to begin this month. Still, it’s no guarantee prices will come down just because importers are seeing refunds.

“Time will tell, but I think businesses are wary of the constantly shifting tariff landscape and will proceed cautiously as a result,” attorney and founder of Grayhawk Law Matthew Seligman told USA TODAY.

While tariffs have “no doubt” driven inflation higher than it otherwise would be today, they aren’t the only things pushing up prices, according to John Groton, a sector lead for energy, materials and utilities at Thrivent.

Oil shocks stemming from the Iran war have already caused pain at the gas pump for American drivers, but Groton said supply chain disruptions for fertilizers, metals, and freight risk making groceries, housing, and other consumer goods more expensive the longer the conflict drags on.

“Gasoline gets a lot of attention. That [price increase] happens right away. Unless you have an EV or are buying gas once a week, it’s super visible,” Groton said. “Most other areas take time to bleed through.”

Meanwhile, the University of Michigan’s May 8 preliminary results from its Survey of Consumers revealed its measure of consumer sentiment had fallen to 48.2 — a new record low.

“About one-third of consumers spontaneously mentioned gasoline prices and about 30% mentioned tariffs,” Surveys of Consumers Director Joanne Hsu said. “Taken together, consumers continue to feel buffeted by cost pressures, led by soaring prices at the pump.”

Analysts expect inflation rose again in April. The Labor Department’s Consumer Price Index report, due out May 12, will tell whether those predictions are correct.

Reporting by Rachel Barber, USA TODAY / USA TODAY Network via Reuters Connect