Court actions on Trump tariffs underscore uncertainty for US energy markets

A federal appeals court on May 29 temporarily paused a ruling that invalidated President Donald Trump's sweeping emergency tariffs.

The US Court of Appeals for the Federal Circuit in a brief order said it was placing the administrative stay on the ruling issued by the US Court of International Trade a day earlier until it can consider further legal arguments.

US Justice Department lawyers had warned the Federal Circuit in a legal filing that the administration intended to seek emergency relief from the US Supreme Court if the trade court's unanimous May 28 ruling was not put on hold.

The Federal Circuit asked companies and states that challenged the tariffs to file responses laying out their arguments by June 5 and said the Justice Department can reply to that brief no later than June 9.

The stay was issued hours after a federal judge for the US District Court for the District of Columbia similarly blocked Trump's emergency tariffs, although the judge limited that ruling to the two educational and toy companies that brought the lawsuit.

The rapid series of developments underscored how uncertainty over trade policy is expected to persist for the US energy sector and commodities markets.

Market futures surged after the May 28 ruling by a three-judge panel featuring two Republican appointees, including one Trump appointee. But trading optimism waned on May 29 as industry analysts noted Trump was still expected to pursue tariffs for large swaths of the US economy through other authorities in the wake of the trade court's ruling.

"This ruling represents a setback for the administration's tariff plans and increases uncertainty but might not change the final outcome for most major US trading partners," Goldman Sachs analysts said in a May 28 client note.

The S&P 500 index gained 0.40% in trading on May 29.

Trump had claimed authority under the International Emergency Economic Powers Act (IEEPA) for executive orders implementing 25% tariffs on imports from Canada and Mexico, along with 10% tariffs on China, to combat the cross-border flow of synthetic opioids.

The trade court judges on May 28 permanently blocked Trump's "trafficking" tariffs after concluding they "fail because they do not deal with the threats set forth in those orders." The panel also permanently blocked Trump's global 10% tariff on imports to the US and variable "reciprocal" tariffs for dozens of countries announced on April 2.

"The worldwide and retaliatory tariff orders exceed any authority granted to the president by IEEPA to regulate importation by means of tariffs," the panel found.

All but one of the 11 judges on the Federal Circuit agreed to pause the trade court's ruling in a May 29 per curiam order.

Commodity market implications

Even before the Federal Circuit granted its temporary stay, trade and legal experts stressed that energy companies were expected to continue navigating trade policy uncertainty.

"Particularly in the energy sector, we still have a large number of companies that are desperately trying to do long-term, extensive planning," Joshua Zive, a senior principal at Bracewell who specializes in international trade, said in an interview.

North American flows of natural gas and electricity were already largely unaffected after Trump agreed to pause emergency tariffs on goods covered by the US-Mexico-Canada Agreement. Trump also exempted most critical minerals from the emergency levies.

For the US LNG sector, the consequences of US trade court ruling — if it holds — were uncertain.

"In the short term, the ruling could be supportive of global LNG prices in response to improved economic sentiment," said Ross Wyeno, director for LNG analytics at S&P Global Energy, in regard to the trade court's ruling blocking the tariffs.

The potential effects on LNG contracting are less clear, since the trade court's ruling is unlikely to derail Trump's tariff agenda, Wyeno said. Many countries may continue negotiations for US LNG supplies.

Two sale and purchase agreements (SPAs) tied to US LNG projects were announced a day after the trade court ruling, both with Japanese buyers.

Trump has urged countries to import more US LNG to avoid tariffs. The recent SPAs added to a series of supply deals that US developers have signed over the past two months as countries seek to lower their trade imbalances amid the ongoing trade negotiations.

In terms of physical flows of US LNG, the ruling had no immediate impact on China's retaliatory tariff on US LNG, which remains at 25%. The trade dispute essentially froze the LNG trade between the US, the world's biggest LNG exporter, and China, the biggest importer.

Chinese LNG importers have sold their US LNG volumes in the global market instead of bringing them to China to avoid the tariffs after Beijing first imposed retaliatory levies on US LNG in February.

Alternative tariff authorities

If the Federal Circuit lifts its stay, the Trump administration could still pursue tariffs under Sections 122 and 301 of the Trade Act of 1974.

Section 122 authorizes the US president to unilaterally impose across-the-board tariffs of up to 15% to address a balance of payments deficit or to prevent an imminent and significant depreciation in the dollar. Those tariffs must be extended by Congress after 150 days.

Section 301 also authorizes unlimited tariff rates on individual countries to address unfair trade practices following an investigation by the US Trade Representative.

"There is also a reason why the president did not choose any of these options starting off," Zive said. "They all carry with them their own complications. Sometimes that complication is the form of a process that's required — a report, a study, an open comment period."

Under Section 122, Trump would be required to implement across-the-board tariffs on every US trading partner, Zive noted.

"So, his flexibility under any of the alternatives is much less than with the perceived flexibility under IEEPA," he said.

The president has other options for imposing tariffs. Jefferies and Goldman analysts highlighted Section 232 of the Trade Expansion Act of 1962, which allows the president to impose sectoral tariffs on imports if the secretary of commerce determines they threaten national security. Trump used this authority during his first term.

They also pointed to Section 338 of the Tariff Act of 1930, which permits the president to put retaliatory tariffs of up to 50% on countries that discriminate against US goods. That authority, which has never been used, requires a formal investigation.

During a May 29 press briefing, White House Press Secretary Karoline Leavitt said the administration was pursuing legal appeals as well as considering other sections of law to allow the president's trade agenda to advance.

"For now, we can walk and chew gum at the same time. We are doing both," Leavitt told reporters.