Markets react swiftly after court rules 'Liberation Day' tariffs unlawful
Photo: Gage Skidmore from Peoria, AZ, United States of America, CC BY-SA 2.0, via Wikimedia Commons
A US federal trade court has delivered a sharp rebuke to President Donald Trump’s expansive tariff regime, ruling that his administration overstepped legal bounds by imposing sweeping levies under emergency economic powers.
The decision, which could reshape the contours of American trade policy and executive authority, was handed down by a three-judge panel of the US Court of International Trade earlier today.
The court declared the so-called ‘Liberation Day’ and ‘Reciprocal’ tariffs unlawful, stating they exceeded the president’s statutory authority under the International Emergency Economic Powers Act (IEEPA) of 1977.
The Trump administration had invoked the legislation to justify tariffs on a broad array of countries, including key allies such as Canada and Mexico, citing a trade deficit as a national emergency.
“The Worldwide and Retaliatory Tariff Orders exceed any authority granted to the President,” the judges concluded, asserting that the imposition of duties under IEEPA constituted an “improper abdication of legislative power” by Congress.
While the administration has already signalled its intent to appeal, the ruling marks a blow to Trump’s second-term trade agenda and his broader assertion of executive autonomy.
In recent weeks, White House officials had pitched the tariffs as essential leverage in negotiations with over a dozen nations, claiming the US trade imbalance posed an “unusual and extraordinary threat” to national security and economic stability.
Legal analysts say the verdict raises major constitutional questions about the separation of powers and the limits of executive action in economic policy.
Prior to Trump’s presidency, no US leader had attempted to invoke IEEPA as a basis for levying tariffs. But the administration defended its approach by arguing that persistent trade deficits – particularly those with China and Mexico – were harming American manufacturing and supply chains, warranting emergency intervention.
Business and state challenges prevail
The legal challenge was brought by a coalition of small businesses and 12 states, including Oregon and New York. Plaintiffs contended that the tariffs had caused significant financial hardship and that the president lacked the legal authority to impose them without congressional input.
“This is a major victory for working families, businesses, and the rule of law,” said New York Attorney General Letitia James following the verdict.
One of the lead plaintiffs, New York-based wine importer V.O.S. Selections, argued that Trump’s actions amounted to a power grab, with Jeffrey Schwab, the company’s counsel, asserting that the administration’s interpretation of IEEPA would permit the president to “impose tariffs on any country at any rate at any time.”
During the hearings, government counsel conceded the court could interpret the statute’s language, but insisted it was not within the judiciary’s remit to determine whether an actual emergency existed.
The judges ultimately disagreed, noting that the trade deficit, long a feature of the US economy, did not meet the criteria of “unusual and extraordinary” required under the law.
Market reactions and political ramifications
Financial markets responded positively to the ruling. US stock index futures surged in after-hours trading, with the S&P 500 and Dow Jones Industrial Average climbing by more than 1%. Major Asian indices, including Japan’s Nikkei 225 and South Korea’s Kospi, followed suit.
The White House, meanwhile, remained defiant. “It is not for unelected judges to decide how to properly address a national emergency,” said spokesperson Kush Desai in a statement. “President Trump pledged to put America First, and the administration is committed to using every lever of executive power to address this crisis and restore American Greatness.”
Critics in Congress, particularly from the Democratic Party, hailed the decision as a much-needed check on executive overreach. Senator Ron Wyden of Oregon said the tariffs had inflated consumer prices and disrupted essential supply chains.
Legal experts caution that Wednesday’s decision may not be the final word. The administration is expected to pursue an emergency stay and could turn to alternative statutes such as Section 301 of the Trade Act of 1974 – previously used during Trump’s first term to target Chinese goods – as a more stable legal footing for future tariffs.
The road ahead
The US court decision invalidating Trump’s global tariffs may seem like a distant legal drama, but it could carry indirect yet meaningful consequences for the Australian property market. Here’s how the ripple effects might unfold:
1. Calming global markets could support investor sentiment
If the appeal process does not reinstate the tariffs, it could reduce trade tension and uncertainty that had been weighing on investment decisions. A more stable global environment tends to boost confidence among institutional investors, including those with exposure to Australian real estate and infrastructure.
International capital flows into Australia – especially from Asia – could remain robust, providing continued support to commercial and residential property values, particularly in cities like Sydney and Melbourne.
2. Easing cost pressures
The construction sector in Australia is grappling with cost blowouts tied to global supply chain disruptions and material price inflation – many of which were worsened by global trade disputes.
If Trump’s tariffs are ultimately struck down and not replaced with new duties under different legal provisions, global supply chains may begin to normalise, lowering the cost of imported construction inputs. This could help ease pressure on Australian developers and contractors already battling slim margins.
3. Australian exports may benefit from greater stability
Australia’s economic health is closely tied to exports, especially minerals, energy and agricultural products. While the ruling does not directly affect Australian exports, any reduction in trade frictions between the US and China (Australia’s two largest trading partners) is welcome news.
Improved trade sentiment and reduced uncertainty could bolster demand for Australian exports, supporting GDP growth, employment, and household income – all key drivers of housing demand.
4. Currency movements and mortgage rates
Global risk sentiment affects the Australian dollar and bond yields, which in turn influence mortgage rates.
If global tensions ease further, and markets shift toward “risk-on” behaviour, the Australian dollar could strengthen slightly. However, if US interest rates fall on the back of slower growth without tariff support, global yields could follow – putting downward pressure on Australian mortgage rates as well.
