Apple catches its breath as US court rejects tariff tax

Apple — and almost everybody else — has gotten a slight reprieve as a US court yesterday set aside the Trump tariff tax. But conflict and confusion continue to batter global trade, and while the news will provide a glimmer of relief, it will probably be short-lived. There’s always another dead cat to throw into the flames.

Three judges from the US Court of International Trade found that the US International Emergency Economic Powers Act, which the Trump administration invoked to justify the imposition of these tariffs, does not give the president the authority to levy these taxes on trade. “The court does not read IEEPA to confer such unbounded authority and sets aside the challenged tariffs imposed thereunder,” they wrote.

The judgement does not impact the 25% “trafficking tariffs” imposed on Mexican and Canadian products and does not prevent the 20% trafficking tariff in place on Chinese goods. It does, however, end the “worldwide and retaliatory” 10-50% tariffs the administration threw at 57 countries.

A coalition of small businesses took the case to court, arguing that only Congress has the authority to levy tariffs under the law used by the president’s office. They seem to have prevailed in the argument — at least, so far. It is interesting to note that the administration wanted all the tariff-related lawsuits moved to this particular court, as it felt it would receptive to the administration’s arguments. 

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What is an emergency?

Responding, a White House statement from spokesperson Kush Desai maintained the need for these tariffs, calling US trade deficits a “national emergency that has decimated American communities, left our workers behind and weakened our defense industrial base — facts that the court did not dispute.” 

But can a trade in cheap consumer goods be seen as an unusual threat after it has been part of US culture for decades? Not according to the US Court of International Trade. The judges say the trade deficit does not meet the Nixon-era International Emergency Economic Powers Act requirement that an emergency can only be triggered by an “unusual and extraordinary threat.” 

The journey is by no means over, of course. With the president recently threatening additional tariffs on iPhones made in India (“I have a bit of a problem with my friend, Tim Cook”), the reprieve may be brief. 

Desai’s statement said “unelected judges” are not the right people to decide how to handle what he calls a national emergency. “The administration is committed to using every lever of executive power to address this crisis and restore American greatness.” 

It seems likely to end at the Supreme Court, even while the administration argues that it should not be bound by the checks and balances that still remain under the US Constitution. For now, an appeal has been lodged with the United States Court of Appeals for the Federal Circuit in Washington. 

Where is the off-ramp?

Apple, the world’s biggest consumer electronics company, which contributes a fortune to the US treasury and employs tens of thousands of Americans, will likely be relieved the tariffs have been set aside. 

The reprieve implies that US consumers won’t need to pay more for their iPhones for a little longer yet and better reflects the reality that even if Apple were to shift iPhone manufacturing to the US, doing so would take years, cost billions, require engineering skills in quantities that do not yet exist in the US, would involve automation rather than large numbers of new jobs, and would be hampered by the availability of components and materials. 

For the time being, at least, the judgment is a significant obstacle to the tariff taxes, albeit one that casts another spanner in the works for ongoing international trade talks. However, there is still scope for the administration to impose sector-specific taxes.

All the same, “Tim Apple” will be acutely aware that the future will not look like the past, and the company’s $500 billion investment in the US will be part of the company’s future approach to manufacturing and trade.

It suggests that while moving iPhone manufacturing to the US may be impractical, moving manufacture of some components and hardware may make sense. It is possible that as Apple and the US administration continue to negotiate, they may yet identify a road that enables both to declare some form of victory.

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