Trump tariff faces legal challenge as businesses push back
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Legal pressure is mounting against President Donald Trump’s temporary 10 percent global tariff, with a new lawsuit from two businesses intensifying scrutiny over the administration’s use of trade powers.
The case, filed in the Court of International Trade, argues that the administration is improperly using Section 122 of the Trade Act of 1974 to impose tariffs that may not meet the statute’s legal threshold. The challenge comes days after more than 20 states launched a similar lawsuit, signalling a broadening coalition against the policy.
At the centre of the dispute is whether the administration can justify the tariffs as a response to a balance of payments deficit, a requirement under Section 122. Plaintiffs argue that the current economic environment does not meet that standard, raising questions about the legal foundation of the measure.
Businesses challenge the legal basis of the tariff
The lawsuit was brought by Burlap and Barrel, a spice importer, and Basic Fun, a toy company whose brands include Tonka and Care Bears. Both companies argue that the tariff places disproportionate pressure on businesses that rely on global sourcing.
Burlap and Barrel states that many of its imported spices are not available from domestic producers, making it impossible to shift sourcing to the United States. As a result, the company says the tariff will directly increase costs while limiting its ability to invest in growth.
Basic Fun presents a similar argument from a manufacturing perspective. The company says domestic production capacity is insufficient to support large scale toy manufacturing, leaving it exposed to tariff driven cost increases. At the same time, its ability to pass those costs on is constrained by large retail customers with significant negotiating power.
The filing notes that in some cases the company must continue fulfilling orders even when tariffs erode or eliminate profit margins, in order to maintain shelf space and relationships with major retailers. This dynamic highlights how tariff policies can create downstream pressure across supply chains, particularly for smaller firms operating within larger retail ecosystems.
Section 122 under scrutiny
Section 122 allows a president to impose tariffs of up to 15 percent for a limited period to address balance of payments deficits. The administration has used this provision to justify the current 10 percent tariff.
However, the plaintiffs argue that the legal criteria are not being met. They claim it is economically implausible for the United States to face a balance of payments deficit under the current global currency system. In their view, the administration is incorrectly equating a trade deficit with a balance of payments deficit.
The lawsuit also points to earlier legal arguments made by the administration itself. According to the filing, officials previously stated that Section 122 did not apply in similar circumstances, instead relying on the International Emergency Economic Powers Act to justify earlier tariffs.
Following a Supreme Court decision that invalidated those earlier measures, the administration is now accused of turning to Section 122 as an alternative route to achieve the same policy outcome. The plaintiffs argue this represents a contradiction that undermines the legal credibility of the current tariffs.
Another point of contention is how the tariffs are being applied. Section 122 requires uniform implementation, with limited exceptions. The lawsuit claims that current carve outs for certain trading partners go beyond what the statute allows and reflect policy choices rather than legal necessity.
Wider implications for trade and supply chains
The legal challenge carries broader implications for trade policy and supply chain planning. If the courts determine that the administration has overstepped its authority, the tariffs could be blocked, creating further uncertainty for businesses that have already begun adjusting to higher costs.
The situation mirrors earlier disputes over tariff authority, where legal challenges from states and companies ultimately led to court rulings against the administration. Those cases established limits on the use of emergency powers for trade measures, and the current challenge may further define the boundaries of presidential authority.
For supply chains, the uncertainty is as significant as the tariffs themselves. Companies must decide whether to absorb costs, adjust pricing or reconfigure sourcing strategies, all while the legal status of the policy remains unresolved.
Smaller businesses appear particularly exposed, given their limited ability to shift production or negotiate pricing. The cases brought by Burlap and Barrel and Basic Fun illustrate how tariff policy can have uneven effects across different parts of the economy.
As the legal process unfolds, the outcome is likely to shape not only the future of the current tariffs but also how aggressively trade tools can be used in the years ahead. The dispute underscores a growing tension between trade policy objectives and the legal frameworks that govern their implementation.
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