Lawsuit in court this week could throw a wrench in Trump's trade policies

The Trump administration's trade policy faces a critical test this week as a federal court weighs the legality of its sweeping tariffs.

The U.S. Court of Appeals for the Federal Circuit in Washington, D.C., is scheduled to hear oral arguments on Thursday in V.O.S. Selections v. Trump, a case brought by five small business owners and 12 states who allege they have been harmed by President Trump's import taxes. V.O.S., the lead plaintiff in the case, is a New-York based wine importer.

The lawsuit challenges President Trump's claim that he has authority under the International Emergency Economic Powers Act of 1977 (IEEPA) to issue tariffs, a process that normally requires congressional approval.

A victory by the plaintiffs could deal a blow to Mr. Trump as he seeks to negotiate trade deals with U.S. economic partners. The U.S. and the European Union on Sunday announced a pact, easing tension over a brewing trade war. But the White House has yet to reach deals with other major trading partners, including Canada, Mexico, South Korea and China.

The plaintiffs in the V.O.S. case argue that Mr. Trump exceeded his authority when he bypassed congressional approval and invoked IEEPA as the legal basis for imposing his "Liberation Day" tariffs on April 2. Mr. Trump also drew on IEEPA in deploying a separate set of tariffs in February against Canada, Mexico and China that he said was aimed at stemming the flow of undocumented immigrants and fentanyl.

"This case is about more than high tariffs," Brent Skorup, a legal fellow at the Cato Institute, a Washington, D.C., nonpartisan think tank, said in an email to CBS MoneyWatch. "It's about whether a president can stretch a vague statute beyond recognition to sidestep Congress."

IEEPA, among other things, gives the president authority to regulate transactions with foreign countries during national emergencies. However, no U.S. president has ever invoked IEEPA as a justification for imposing tariffs.

"It's limited to emergencies where there is an 'unusual and extraordinary threat' — and the trade deficit is hardly an emergency. It's been with us for basically 50 years" said Jeffrey Schwab, senior counsel and director of litigation at the Liberty Justice Center, a nonpartisan public interest law representing the five businesses that have filed suit in the case.

The White House has defended President Trump's use of IEEPA to impose tariffs.

"The administration is legally and fairly using tariff powers that have been granted to the executive branch by the Constitution and Congress to level the playing field for American workers and safeguard our national security," White House spokesperson Kush Desai told CBS MoneyWatch in a statement.

Mr. Trump has said tariffs are necessary to eliminate trade imbalances with other countries, which he said constitutes an "unusual and extraordinary threat to the national security and economy of the United States."

But a ruling in favor of the plaintiffs could have broader implications for trade policy, forcing Mr. Trump to seek congressional approval in imposing tariffs, Schwab said.

"If the court holds that the President's Liberation Day and fentanyl tariffs are unlawful, then he would not have authority to set those tariff rates, but still Congress could approve these deals — just like it did the NAFTA renegotiation in the first Trump term," Schwab said in an email.

Presidents can draw on other statutes, such as Section 232 of the Trade Expansion Act of 1962, to authorize the use of tariffs.

The U.S. Court of International Trade in May struck down Mr. Trump's tariffs, with a three-judge panel ruling that the levies exceeded "any authority granted to the president by IEEPA to regulate importation by means of tariffs."

At the time, the trade court said the 10% reciprocal tariffs are designed to deal with trade imbalances, which the judges said did not constitute an emergency under IEEPA. But a federal appeals court in May blocked the trade court ruling and reinstated the tariffs after the Trump administration appealed.

After the trade court ruling in May, Desai said Mr. Trump would use "all tools at his disposal to advance trade policy that works for all Americans."

The case now heads to the federal appeals court in Washington, D.C., where lawyers from both parties will present their arguments. The court could issue a decision as early as August, Schwab told CBS MoneyWatch.

That decision likely won't be the end of the road for the case, with Schwab expecting the losing party to appeal to the Supreme Court.