(Bloomberg) -- For months, President Donald Trump has boasted that his most sweeping tariffs amount to powerful leverage to win trade concessions from Beijing to Brussels.
His hand just got weaker.
This week’s ruling by the US Court of International Trade effectively tossed out the bulk of Trump’s second-term tariffs — and, along with them, the president’s best bargaining chips as he pressures other countries to lower their own levies and scrap other policies that constrain the sale of US goods abroad.
A US appeals court has temporarily stayed that decision, though the initial ruling — along with a separate court order declaring some of Trump’s levies unlawful — already sent a message ricocheting around the world that the president’s tariff threats may now be more bark than bite.
Trump’s bargaining posture hinged on his ability to cause economic pain for trade partners if they didn’t bend to his will. The credibility behind those threats has now been diminished, since it’s no longer clear he can follow through on them.
The legal blows — coming right as Trump pushed countries to cut deals before a July 9 deadline to ratchet up his so-called “reciprocal” tariffs — immediately injected a fresh jolt of uncertainty into the trade talks.
“Foreign governments are under no pressure to do anything before July 9,” said James Lucier, managing director at the research firm Capital Alpha Partners. “They are not going to care about a brief stay now. They are going to note the two negative rulings with every sign of more to come.”
The Trump administration warned the trade court’s ruling risks compromising ongoing talks, arguing in a legal filing dated Wednesday the decision “jeopardizes ongoing negotiations with dozens of countries by severely constraining the President’s leverage and undermining the premise of the ongoing negotiations.”
Other Trump aides struck a far different tone as they sought to downplay the court decisions’ impact.
“We’ve already heard from countries around the world today who will continue to negotiate in good faith with the United States so we can cut good trade deals on behalf of the American people,” White House Press Secretary Karoline Leavitt told reporters Thursday.
Trade partners see the administration has appealed the ruling and “is going to win,” and they “know that the president reserves other tariff authorities,” Leavitt said.
Despite the legal uncertainty, Trump has shown little evidence he’s backing down, insisting Friday that China had reneged on some of its trade commitments and warning in a social media post, “So much for being Mr. NICE GUY!”
Trump grounded his speedy, maximalist tariffs on assertions that drug trafficking and trade imbalances represent national emergencies, warranting the use of special authorities under a 48-year-old law.
While Trump’s use of the International Emergency Economic Powers Act offered speed, it lacked legal durability, at least in the eyes of the international trade court, whose ruling has sent Trump advisers searching for new options under other laws.
GLOBAL REACT: Court Nixes Two-Thirds of Trump Levies For Now
“If you’re a foreign government official, you see there will be tariffs and you probably do still negotiate, but I think you probably slow things down and don’t put major offers or concessions on the table now. You wait to see how the US domestic side of things plays out for a bit,” said Peter Harrell, a lawyer who served as senior director for international economics in former President Joe Biden’s White House.
For countries that had been cowed into offering trade proposals, the immediate economic threat has diminished. Already, there are signs some countries feel emboldened.
India now plans to insist the US abandon all of its reciprocal tariffs on the South Asian nation, even the 10% baseline Trump has repeatedly said will remain in place, according to people with knowledge of the matter. The country also will be pushing back on proposed rules of origin as it toughens its negotiating stance in the wake of Trump’s legal defeats.
And while Japan’s top trade negotiator Ryosei Akazawa is still embarking on a fourth round of talks with the US on a potential deal, he made clear the ruling will loom over negotiations.
“I will refrain from making any premature comments on the impact this may have on Japan-US negotiations,” Akazawa said Thursday. “But we intend to thoroughly examine the content of the ruling and its implications and respond appropriately.”
US Trade Representative Jamieson Greer acknowledged a legal cloud is now hanging over talks, telling CNBC on Friday that while negotiations are on track, it’s important to get through appeals “so our partners have a better understanding of the landing zone.”
Many nations are likely to move carefully, mindful Trump’s tariffs could be revived by another court or under other authorities. They’re also unlikely to be willing to cross Trump — who as president has shown a willingness to wield obscure US laws and unilateral powers to secure policy changes or target his political opponents.
Cautious Approach
Other European nations signaled they were still working toward some kind of framework agreement with the US. European Union trade chief Maros Sefcovic said Friday he held another call with US Commerce Secretary Howard Lutnick.
“There’s a will from Europe to find an agreement,” on tariffs, Italian Premier Giorgia Meloni told reporters in Kazakhstan. “There is lots to discuss, we have to understand what we have to agree on. We’ll probably have to find a framework agreement first and then drill into the detail. But this is a responsibility of the Commission.”
Trump had lowered most of his so-called reciprocal tariffs to 10% during a 90-day pause meant to give countries time to negotiate deals with the US. When that expires July 9, the president has threatened to impose his own rates.
Analysts said the court defeats strip the July 9 deadline of its force — and limit Trump’s ability to threaten big escalations, like his since-paused Friday vow to hit the EU with 50% levies. Even if new tariffs are imposed under other statutory authorities, they’ll be under legal scrutiny too and generally will only come after complicated, slow-moving investigations.
Foreign countries will be mindful that “unless this gets reversed on appeal, the July 9 deadline kind of goes away,” Harrell said.
It’s unquestionably a blow to Trump, who prides himself as the nation’s dealmaker in chief and boasted about his skill as a negotiator in a May 16 interview on Fox News: “Nobody uses leverage better than me.”
--With assistance from Brendan Murray, Yoshiaki Nohara, Shruti Srivastava, Ruchi Bhatia and Donato Paolo Mancini.