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On May 29, the U.S. Court of International Trade issued a ruling intended to end the global “Liberation Day” tariffs. A subsequent ruling by a federal judge in a separate (but related) case also found many of the recent tariffs were unlawful. While this may appear to be a blow to the administration’s current trade policies, it remains likely that the administration will continue to pursue its trade agenda. In fact, the administration has already appealed the ruling, and additional courts appear likely to weigh in on this matter in the weeks ahead. The administration could use other avenues beyond the International Emergency Economic Powers Act (IEEPA), which was used as the basis for the Liberation Day tariffs and challenged in court. For example, tariffs enacted under section 232 will remain in place (covering steel and aluminum), and the administration could use this as a roadmap to cover additional sectors under section 232. There are other ways in which they could apply tariffs, which we have outlined below. Please keep in mind that as economists, we are not in the business of interpreting legal frameworks. In what follows, we have done are best at interpreting the historic trade legislation, and these appear to be the administration’s most likely options:

• Section 122 (Trade Act of 1974) – Balance-of-Payments Authority: Emergency power for economic crises (includes large trade deficits, currency crises, capital flight, unsustainable foreign debt, etc.). It allows temporary tariffs up to 15% for 150 days to address payment imbalances but requires specific economic triggers and congressional extension beyond the 150-day limit.

• Section 232 (Trade Expansion Act of 1962) – National Security Authority: Allows unlimited tariffs on imports threatening “national security” (broadly defined). It requires Commerce Department investigation (270 days) but has no time limits on tariffs once imposed. It has been used for steel and aluminum tariffs (and could be expanded to include additional industries).

• Section 301 (Trade Act of 1974) – Unfair Trade Practices Authority: Allows U.S. Trade Representative to impose unlimited tariffs against countries with unfair trade practices. It requires investigation (up to 12-18 months). Tariffs expire after 4 years unless renewed and is subject to court review as agency action (this section has the most established court review standards).

• Section 338 (Trade Act of 1930) – Discrimination Authority: The oldest and most flexible authority, it allows tariffs up to 50% or complete import bans against countries discriminating against U.S. commerce. It has no time limits or procedural hurdles and minimal oversight requirements.

The rulings today will add to uncertainty headwinds. For us, this means we expect this period of uncertainty to extend beyond this summer (following the conclusion of the 90-pause on China) and continue to weigh on global economic activity. In the U.S., businesses and consumers are likely to proceed cautiously when making decisions about large investments, purchases, or other significant economic decisions. (Hard) economic data in the coming months will be jerky, making it difficult to identify meaningful spending trends following the Q1 (tariff front-loading) import surge. The silver-lining is if Liberation Day tariffs are removed, core inflation has an easier path back to 2.0%, although we still expect it would end the year slightly above at 2.5% (see chart below). That would make for a clearer decision from the Fed to lower interest rates in September (our current call) if the labor backdrop continues to weaken. The risks to labor will likely mount as uncertainty weighs on trade-related sectors – we expect to see job losses in wholesale and retail trade, truck transportation, and warehousing as the volume of U.S. goods imports falls later this year. As the Fed may shift their focus to the labor side of the mandate (should these rulings hold up in court), we will closely watch next week’s job report for any signs of emerging weakness.

Labor could emerge as the Fed’s focus

Prices will still likely remain above the Fed’s target

Mike Reid is a Senior U.S. Economist at RBC. He is responsible for generating RBC’s U.S. economic outlook, providing commentary on macro indicators, and producing written analysis around the economic backdrop.

Carrie Freestone is a member of the macroeconomic analysis group and is responsible for examining key economic trends including consumer spending, labour markets, GDP, and inflation.