Trump’s replacement tariffs are illegal too, a federal trade court just ruled. Now, the administration may have to pay back even more tariff revenue

A federal trade court ruled on Thursday that the Trump administration’s replacement tariffs are illegal. This is a major blow to the president’s trade agenda, as the administration may now have to pay back money collected from these specific tariffs.

A three-judge panel at the Manhattan court issued a 2-1 decision in favor of Washington state and two small businesses, toy company Basic Fun! and spice importer Burlap & Barrel. These businesses challenged the president’s authority to impose 10 percent global tariffs on most imports under Section 122 of the Trade Act of 1974. However, the court chose not to invalidate the tariffs for any other party, including the 24 other states that had also requested an injunction.

The legal trouble started after the Supreme Court struck down the first round of tariffs earlier this year. According to The Daily Beast, the Supreme Court ruled that the president did not have the authority to impose those tariffs under the 1977 International Emergency Economic Powers Act, which is generally used for limited sanctions and specific economic controls.

The administration’s backup plan has now been thrown out by the courts as well

After that loss, the president argued that his replacement tariffs were better and more complex, but said he remained confident in the new approach. Earlier this week, the president spoke about his frustration with the Supreme Court ruling. He said, “We had an unfortunate ruling out of the Supreme Court, but the good news is I’m able to do it a different way. They said use the other way. There was no reason for that. It was terrible. Actually terrible.” 

But the trade court’s latest ruling suggests that this alternative method also goes beyond the president’s legal authority. Trump has faced criticism on several fronts lately, with some questioning his approach to global trade and foreign policy.

For the businesses involved, the ruling is a major relief. Basic Fun! CEO Jay Foreman commented on the impact of these tariffs on American companies. Foreman said, “This decision is an important win for American companies that rely on global manufacturing to deliver safe and affordable products. Unlawful tariffs make it harder for businesses like ours to compete and grow.” 

He also added, “We are encouraged by the court’s recognition that these tariffs exceeded the President’s authority. This ruling brings needed clarity and stability for companies navigating global supply chains.” The timing of this ruling makes things even more complicated for the administration. 

Just hours before the court’s decision, the president was still operating as if his tariffs would hold. He had set a July 4 deadline for European allies to agree to what he called a Historic Trade Deal, warning that missing the deadline would result in much higher tariffs being imposed. The White House did not immediately respond to a request for comment on May 7, 2026. 

Meanwhile, public perception of the president continues to be a mixed picture, with some supporters praising Trump’s leadership and personal qualities even as his policies face mounting legal challenges. The administration is now left dealing with the legal reality that its backup plan has also been struck down by the courts, leaving its broader trade strategy in serious doubt.