American companies challenge Trump’s tariff narrative

On September 10, an American company went to court to get a tariff refund. It argues that some of Trump’s tariffs against China are illegal, and that these duties have cost it dearly. The case, filed by HMTX, a vinyl tile maker, is at the U.S. Court of International Trade (CIT). Win or lose, HMTX has challenged Trump’s narrative about tariffs. Some 3,500 companies are now in the litigation. Congress should pay attention.

HTMX’s complaint calls Trump’s Section 301 tariffs an “unprecedented, unbounded and unlimited trade war.” It says the third and fourth rounds of these tariffs are “untethered to the unfair intellectual property policies” that gave rise to them. Quoting Trump’s tweets, HTMX has a paper trail linking these tariffs to the U.S. “trade imbalance,” China’s “currency manipulation” and the flow of fentanyl from China. HTMX insists these motives were never part of the original Section 301 investigation, are unrelated to China’s theft of intellectual property and don’t offer a legal basis for Trump to have “wildly expanded the scope of tariffs.” The company thus feels it is owed a refund.

HTMX has to like the fact that the CIT ruled in July for Transpacific Steel. That case was triggered by Trump’s national security tariffs. Transpacific imports Turkish steel, which was hit by a higher tariff than steel from other countries targeted by Section 232. Transpacific insisted Turkey’s higher tariff lacked any “nexus to national security.” The CIT didn’t go this far, but did rule there was “no procedurally proper” finding of Turkey’s greater threat to the United States. 

The big picture is that American companies are poking holes in the use of Sections 301 and 232, arguing that they are being used recklessly. HTMX says, for example, the 1974 Trade Act, which set out Section 301, “did not confer authority on Defendants to litigate a vast trade war for however long, and by whatever means, they choose.” Transpacific urged that Trump’s Section 232 tariffs were about “diplomatic leverage,” not national security.

These domestic lawsuits echo litigation at the World Trade Organization (WTO). In the case of Section 301, for example, the U.S. couldn’t excuse its China tariffs citing “public morals” because there didn’t seem to be any relationship. The U.S. claimed only these tariffs were not “incapable” of stopping China’s “unfair and immoral practices.” The U.S. lost.

The WTO hasn’t yet ruled on Section 232, but it has been warming up. In a dispute with Ukraine, Russia argued the national security “exception” for the first time. The WTO ruled that the nexus between a trade measure and national security had to be tighter the more removed the defendant was from war or public disorder. The WTO found that while Russia and Ukraine were close to war, Russia’s effort to connect these dots was only “minimally satisfactory.” This bodes poorly for Trump’s defense of Section 232.

In a dispute with Qatar, Saudi Arabia followed Russia’s playbook. Here, the WTO looked more closely at the nexus between trade and national security. These countries weren’t at war, and Saudi Arabia wasn’t on the verge of public disorder. Qatar claimed that Saudi Arabia was stealing its intellectual property. Saudi Arabia, citing it cut of diplomatic ties with Qatar, refused legal representation to Qatari owners of intellectual property in a Saudi court. The WTO quizzed Saudi Arabia about how this enhanced its national security. Saudi Arabia had no good story, and lost. This, too, makes it hard for Trump to defend Section 232.

So what? Legal arguments about the nexus between tariffs and foreign policy goals have been sharpened over the past 18 months, both at home and in Geneva. These arguments can be politically potent, not just legally. Even if HTMX doesn’t win, its case puts an unflattering light on Trump’s tariff narrative. Now that much of corporate America has joined the action, the case makes a political statement that Congress quite literally can’t afford to ignore.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, a nonresident senior fellow at the Atlantic Council and host of the podcast TradeCraft.