U.S. President Donald Trump speaks during a joint press conference with Israeli Prime Minister Benjamin Netanyahu in the East Room at the White House in Washington, D.C., Feb. 4. Reuters-Yonhap

Donald Trump's tariffs are being challenged. But not the ones you might think.

As the recently inaugurated U.S. president presses even more aggressive tariffs to address various national issues unrelated to trade, a legal challenge to the taxes he imposed on China in his first term has garnered fresh attention.

Observers say lessons from the case may already be shaping Trump's tariff strategy, as he invoked emergency powers last week to order new levies on China, prompting Beijing to file a dispute with the World Trade Organization.

They suggest the lawsuit's outcome, expected later this year, could significantly impact the U.S. executive branch's ability to order tariffs.

The tariffs at issue were applied to Chinese imports between 2018 and 2019 under Section 301 of the Trade Policy Act of 1974 in response to Beijing's retaliation against Trump's initial tariffs on Chinese goods worth $50 billion.

In September 2020, HMTX Industries, a Connecticut-based global manufacturer of vinyl tiles, filed a lawsuit arguing the U.S. government unlawfully disregarded public comments and failed to assess the economic impact before imposing additional duties — ranging from 7.5 per cent to 25 per cent — on Chinese goods worth $300 billion.

Data from U.S. Customs and Border Protection showed that, as of June last year, nearly $220 billion has been collected in Section 301 tariffs since 2018.

Now, about 4,000 disgruntled U.S. businesses in the lawsuit are seeking to claw back the billions of dollars they paid in "excess." They accuse the first Trump administration of overreach by dramatically expanding tariffs without providing a valid justification.

Calling the increase in tariffs from $50 billion to more than $300 billion a "massive escalation", the plaintiffs in the case argued in January's oral hearing at a U.S. appeal court that the U.S. Congress never gave the president or the Office of the U.S. Trade Representative authority to make such tenfold "modifications" under Section 301.

Such a large increase, they claim, should require a new investigation, including fresh public comment reviews.

USTR has argued that, because the president directed it to impose the tariffs, the agency's "discretionary decision is unreviewable presidential action."

It further said "[a] decision to impose tariffs in response to a determination that a foreign country is harming the United States directly" exempts the USTR from a requirement, under the Administrative Procedure Act, to involve the public by publishing notices and seeking comments.

Trump's sharp criticism of his successor, Joe Biden, belies the fact the Democrat's administration continued defending the Republican's tariffs in the HMTX lawsuit, trade law experts point out.

They further note that Biden missed a chance to work with the U.S. Congress to establish statutes that could have prevented future administrations from "abusing" tariffs.

In 2023, the Justice Department, which Trump has often accused of acting politically against him, secured its first legal victory in the case.

U.S. President Donald Trump talks to reporters after signing an executive order, "Unleashing prosperity through deregulation," in the Oval Office in Washington, D.C., Jan. 31. AFP-Yonhap

The U.S. Court of International Trade in New York ruled that, despite flaws in the USTR's implementation and justification, the Section 301 tariffs were imposed legally.

When the case reached the U.S. Court of Appeal for the District of Columbia Circuit soon after the verdict, a group of law experts filed an amicus brief backing the HMTX argument that the USTR violated the law.

Observers believe Trump's 10 per cent tariffs on China imposed last week under emergency executive powers were informed by lessons learned from legal challenges to tariffs levied during his first presidential term.

They predict the new import duties will spark fresh legal challenges about the limits of presidential authority over tariffs.

Some argue Trump and his trade team were more prepared this time to use new tools at their disposal to impose tariffs, saying that while a court might not rule against the president, Congress still has a way to check the president's actions.

The HMTX case could have "very significant ramifications for the ability of the administration to impose expansive new tariffs very quickly" under Section 301, according to Tim Meyer of Duke University School of Law.

"What has frequently been the problem for the Trump administration is that they don't want to wait," said Meyer, an international law expert.

In 2018, Trump announced four tranches of China tariffs following a 2017 investigation by the U.S. trade representative that accused Beijing of intellectual-property theft and other technology-related practices that cost U.S. commerce an estimated $50 billion.

The first two sets of additional 25 per cent taxes, known as List 1 and List 2, were levied on Chinese goods worth $50 billion in July and August 2018.

Then, when China in retaliation slapped U.S. goods worth $75 billion with 10 per cent tariffs, Trump launched a 10 per cent tax on another $200 billion worth of Chinese goods in List 3. This was later raised to 25 per cent. In 2019, Trump announced List 4a for an additional 7.5 per cent duty on Chinese goods worth $120 billion.

The USTR told the DC circuit court that the initial tariffs action was "inadequate" to achieve its goal of "eliminating" China's "objectionable practices" and that the diplomatic landscape had "shifted swiftly, dramatically and repeatedly" as the world's two largest economies tackled their trade tensions.

The main lesson the Trump administration has taken from the litigation, Meyer said, "has been that they should avoid the need to conduct investigations and they should avoid statutes that involve administrative agencies subject to the Administrative Procedure Act."

Shipping containers are stacked at the Port of Los Angeles in Long Beach, Calif., U.S., Feb. 3. EPA-Yonhap

He noted Trump's use of the International Emergency Economic Powers Act to order 10 per cent tariffs on China and the 25 per cent tariffs on Canada and Mexico last week that are now temporarily suspended.

The IEEPA, a relatively obscure law nearly five decades old, grants an American president authority to control economic transactions during a national emergency. Trump is the first U.S. president to invoke it for tariffs.

As justification, Trump cited "the major threat of illegal aliens and deadly drugs, including fentanyl." He accused Mexico, Canada and China of failing to stem their flow into the U.S., saying there "may be some pain" for Americans because of the new taxes.

Meyer said the Trump administration "figured out if they just act under [the] IEEPA, there won't be any Administrative Procedure Act challenges and they have very broad authority under that statute unless the courts are prepared to read it more narrowly than they've read it in the past."

He cited bipartisan consensus in Washington on economic decoupling from Beijing as the reason behind Biden defending Trump's tariffs in the HMTX lawsuit.

Meyer said Biden could have worked with Congress to "write statutes that would have given the president the flexibility to respond to actual disputes, to actual emergencies, but without allowing the kind of thing that we've seen in the last 10 days" — Trump announcing, cancelling and suspending tariffs without process or investigation.

According to Alan Morrison of George Washington University, the Court of International Trade "made a mistake" in its decision in the HMTX case, emboldening the executive branch further.

"They didn't read the statute carefully enough and they seemed willing to say that, 'well, China retaliated, so we can do anything we want in response.' And I don't think that's what the law says," Morrison said.

He voiced concern over "too much discretion given to the president and his agencies to begin with on tariffs."

"This is just one more step that enables them to ratchet up by many times what was done initially, without any new investigation, without any new findings, and that seems to me to be lawless," Morrison said of the new Trump administration.

Section 301 requires an investigation process, he explained, with a determination that "the other country was doing things in the area of trade that were unreasonable", adding that what Trump proposed to do to Colombia "would not have [been] justified."

In January, Trump threatened Colombia with 25 per cent tariffs on its exports to the U.S. after Colombian President Gustavo Petro barred two military planes, carrying Colombians deported from the U.S., from landing. After Trump's warning, Colombia agreed to allow the planes to land.

Citizens who are advocating for a variety of causes, including migrant rights, government accountability and opposition to Project 2025, take part in a demonstration against recent U.S. President Donald Trump's policies, in Lake Worth Beach, Fla., U.S., Feb. 7. EPA-Yonhap

Morrison said the IEEPA "does not justify imposing tariffs and I would expect that there'll be litigation over that." The IEEPA is not directed at tariffs, he added, pointing to "a whole set of laws having to do with tariffs."

Morrison believed earlier cases questioning executive authority on tariffs "are going to come back to haunt President Trump when he tries to use these emergency powers for something it wasn't intended to be used for."

That said, Trump and his trade team were "extremely knowledgeable about the vast array of trade statutes at their disposal, some of which they have used in the past" and others like the IEEPA, said Raj Bhala of the University of Kansas School of Law.

The new USTR has announced a full review of economic ties with China, citing a presidential memorandum on "America-first" trade policy signed by Trump on January 20.

According to Bhala, Section 301 is the "most important weapon in America's trade remedy arsenal" against unfair practices by foreign governments.

Nevertheless, it required the president to go through the USTR, unlike the IEEPA, which allows the president to "move with much greater alacrity."

The IEEPA can be challenged in court, but the likelihood of a judge ruling against the president is "very low," Bhala said, citing a "long line of judicial precedent, including Supreme Court cases, that defer to the president on matters of national security."

Still, Congress also gets to review the IEEPA, Bhala added, noting the president is required to deliver periodic reports to Congress about the national emergency he has declared and the actions he has taken.

That means the check on the president's power to invoke the IEEPA comes "really more from Congress than from the courts," he said.

As the DC circuit court's verdict in the HMTX case looms, trade experts are left wary of how Trump will continue to use trade laws for tariffs.

Steve Charnovitz of George Washington University Law School described Trump as "very likely" to continue using Section 301 to impose new tariffs.

"I don't know if USTR will improve its performance and compliance this time around," he said, adding that if the court allows a "president to expand and misuse Section 301 authority, there is no limiting principle to prevent a president from taking unfair and counterproductive trade actions."

Read the full story at SCMP.