Trump Trade 2.0: CIT Issues Ruling Against Section 122, EU Tensions, China Summit

Court of International Trade Rules against Section 122 Tariffs

On May 7, the U.S. Court of International Trade (CIT) ruled that the Trump Administration's 10 percent global tariff imposed under Section 122 of the Trade Act of 1974 is unlawful. The 2-1 decision found that the Administration failed to identify "large and serious" balance-of-payments deficits as required by the statute. However, the court’s injunction only impacts the state of Washington and the two small importers who brought the suit and were found to have standing. Section 122 tariffs apply to all other importers, and collections will proceed.

The ruling stems from consolidated challenges brought by 24 Democratic state Attorneys General and two small business importers, Burlap & Barrel and Basic Fun. The court found that only the State of Washington and the two companies had standing, dismissing the remaining states' claims.

Following the Supreme Court’s rejection of the IEEPA tariffs, the Administration levied a 10% tariff on nearly all imports through July 24, 2026, citing its authority under Section 122 of the Trade Act of 1974. The Administration cited the current merchandise trade deficit, a current account deficit, and a negative net international investment position as justification. The court rejected this reasoning, holding that Section 122 was enacted to address currency reserve crises under the Bretton Woods fixed-exchange-rate system. The majority found that the trade and current account deficits cited by the administration do not constitute "balance-of-payments deficits" as the statute uses the term.

The Administration is expected to appeal to the U.S. Court of Appeals for the Federal Circuit. Meanwhile, USTR is conducting two investigations under Section 301 of the Trade Act of 1974 concerning forced labor and manufacturing excess capacity. Those investigations are expected to conclude in time for new Section 301 tariffs to be imposed before the current Section 122 tariffs expire on July 24, 2026.

IEEPA Refunds Update

Customs and Border Protection (CBP)'s CAPE refund portal launched on April 20, and eligible importers began receiving tariff refund payments during the week of May 5.

As of the end of April, CBP had received more than 75,000 CAPE declarations. Of those, roughly 47,000 covering approximately 11 million individual tariff payments were properly filed and accepted into the refund pipeline, according to CBP. About 1.7 million entries had cleared all validations and entered the refund stage, representing roughly 3 percent of total entries submitted. CBP rejected approximately 15 percent of declarations, primarily due to incorrect information or ineligible entries. The next update from CBP, which will provide updated processing figures and indicate whether Phase 2 timelines have been set, is due to the CIT on May 12.

The Michael Best legal and government relations teams are well-positioned to assist companies in navigating the CBP refund process. Please get in touch with Sarah Helton or Jeffrey Dunn if you are interested.

US-EU Trade Deal

On May 7, President Trump set a July 4deadline for the European Union to pass and implement the US-EU trade deal initially struck in July 2025. The President stated that he had “a great call” with European Commission President Ursula von der Leyen, but would raise tariffs if the EU does not act by the deadline. This exchange follows an earlier threat on May 1, when President Trump announced he would raise tariffs on EU cars and trucks from 15 percent to 25 percent, accusing the bloc of failing to comply with the deal's terms. US Trade Representative Jamieson Greer told Politico that the U.S. has been "95 percent compliant for nine months," while the EU has been "0 percent compliant."

On the EU side, an internal round of negotiations to pass the legislation needed to implement the deal ended without an agreement on May 7. EU lawmakers are still divided over issues such as safeguards, retaliation mechanisms, and a possible sunset clause. The next round of talks is scheduled for May 19.

US-China Summit

President Trump is scheduled to travel to Beijing on May 14-15 for a two-day summit with Chinese President Xi Jinping, the first visit by a U.S. president to China since 2017. The Presidents’ meeting follows months of working-level engagement among Treasury Secretary Scott Bessent, USTR Jamieson Greer, and Chinese Vice Premier He Lifeng, including a sixth round of in-person talks in Paris in March and a call on April 30.

The US-China trading relationship is expected to be a major focus at the summit. The primary trade-related issues discussed are likely to include maintaining the tariff truce reached during last October’s meeting in South Korea, where the U.S. reduced tariffs on a broad swathe of Chinese exports in exchange for greater access to critical minerals. Other key issues include U.S. concerns over new Chinese supply chain rules that could penalize foreign companies for shifting sourcing away from Chinese suppliers, and Beijing's demand that Washington drop its Section 301 investigations targeting Chinese industries. Trade Representative Greer has also floated the idea of a new "Board of Trade" to manage bilateral commerce in non-sensitive goods that could be discussed next week.

The White House has also invited CEOs from major American firms, including Nvidia, Apple, ExxonMobil, Boeing, and Blackstone, to join the summit. Boeing is expected to finalize its first major Chinese aircraft order since 2017, a deal that could include up to 600 jets.

However, other geopolitical issues, such as the ongoing US-Iran war and tensions over Taiwan, could pull focus away from trade, reducing the chance of a breakthrough.

USMCA Negotiations

The six-year trilateral review of the United States-Mexico-Canada Agreement (USMCA) is set to begin on July 1. The U.S. and Mexico have already begun significant talks ahead of the review. USTR Greer traveled to Mexico City on April 20 and met with President Sheinbaum and Economy Secretary Ebrard to discuss Section 232 steel and auto tariffs, rules of origin, critical minerals, and bilateral trade irritants. The first official bilateral negotiating round is set for the week of May 25 in Mexico City. The most contentious issue remains automotive rules of origin, with the US preferring to increase the proportion of North American-made parts required to qualify under the USMCA. Mexico and Canada have also held bilateral talks in May with Ebrard and Canadian Commerce Minister Dominic LeBlanc meeting to coordinate ahead of the review.

The US-Canadian relationship has become more fraught in recent weeks. USTR Greer stated that “There are two countries that have retaliated economically against the United States in the past year: the People’s Republic of China and Canada.” While Deputy USTR Rick Switzer stated that talks with Mexico have advanced further than with Canada because “there’s not a grown-up in Canada in charge.” Still, negotiations are expected to begin July 1 and stretch throughout the summer.

Are you concerned about the impacts of the outlined trade issues? Please contact Sarah Helton, Michael Best Strategies’ Trade Practice Lead at sarah.helton@michaelbest.com for assistance.