The Court of International Trade (CIT) has dealt another blow to President Donald Trump’s tariff regime, ruling that his latest 10 percent tariffs, like the “reciprocal” duties that came before them, are unlawful.

Trump levied the tariffs on Feb. 24, days after his International Emergency Economic Powers Act (IEEPA) duties were struck down by the Supreme Court. Imposed under Section 122 of the Trade Act of 1974, the administration justified the duties by saying that America’s prolific trade imbalance with global trade partners amounts to a balance-of-payments issue, which the law addresses.

The CIT did not agree, siding with small businesses Burlap and Barrel, a New York spice importer, and Basic Fun!, a Florida-based toy company, which collectively filed suit under Burlap and Barrel, Inc. v. Trump. The panel of three judges ruled 2-1. Oral arguments in the case were delivered on April 10.

The Liberty Justice Center, which represented the plaintiffs in the lawsuit (and represented the IEEPA plaintiffs in V.O.S. Selections, Inc. v. Trump), argued successfully that while Section 122 authorizes the president to impose tariffs, the power is constrained to specific circumstances that weren’t met in this instance.

“Congress authorized the President to impose tariffs where the United States experienced fundamental international payments problems and needed to respond to large and serious balance-of-payments deficits,” said Jeffrey Schwab, senior counsel and director of litigation at the Liberty Justice Center on Thursday.

“That is not the situation here,” he added. “The United States has a trade deficit, not a balance-of-payments deficit, and does not have international payments problems. The President cannot impose these tariffs under Section 122.”  

Burlap and Barrel co-CEOs Ethan Frisch and Ori Zohar called the ruling a “major victory for small businesses” that need “fair and predictable trade policy” to prosper. “These tariffs created real challenges for our company and for the farmers we partner with around the world,” they 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,” added Basic Fun! CEO Jay Foreman. “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.”

These small businesses may not be out of the woods yet when it comes to additional duties, however.

The Section 122 tariffs were due to expire on July 26, and with that date in mind, the administration turned to another provision of the Trade Act of 1974, Section 301. Two investigations into forced labor and industrial excess capacity encompass dozens of U.S. trading partners, and could lead to hefty tariffs well beyond the 10 percent imposed under Section 122. The Office of the U.S. Trade Representative is conducting the investigations on an expedited timeline at the administration’s behest, and held hearings this week and last with stakeholders impacted by the probes.