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Donald Trump’s strategy of imposing sweeping tariffs on America’s main trading partners will face a major test in the US courts on Thursday, four days after the president hailed the “powerful deal” reached with the EU and just hours before a new round of punishing import duties is set to come into effect.

Trump has underpinned his tariff policy with an emergency power that is now being challenged as unlawful in the federal courts. On Thursday the US court of appeals for the federal circuit will hear oral arguments in the case, VOS Selections v Trump.

A group of small business owners are suing the US president on grounds that he lacks legal authority from Congress to impose severe tariffs that could damage their bottom line. The Trump administration has invoked a 1977 law, the International Emergency Economic Powers Act (IEEPA), claiming that various national emergencies – including US trade deficits with trading partners and the scourge of fentanyl trafficking – demand urgent action.

But the plaintiffs have countered that the IEEPA does not give the president the power to impose tariffs, and has never been used in such a way in its almost half a century on the statute books.

The case has the potential to derail Trump’s most significant tariff deals and negotiations, which he has made a centrepiece of his second presidency. Given hhttps://www.theguardian.com/us-news/2025/jul/28/trump-tariffs-lawsuit-small-businessow much is riding on it, the suit is likely eventually to be settled by the US supreme court under its current 6-3 supermajority of hard-right justices.

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President Trump and President of the European Commission Ursula von der Leyen announced a trade deal on Sunday, setting tariffs at 15 percent for European goods, including automobiles.

The European Union will purchase $750 billion worth of energy from the U.S. as part of the deal, Trump announced, and agreed to invest in the U.S. $600 billion more than the current investments for other goods.

The agreement is lower than the 30 percent tariff Trump had threatened to impose on the EU, which would have begun on Aug. 1, and avoids a trade war with the U.S.’s largest trading partner.

Trump and von der Leyen both touted the enormity of the deal they had agreed to during a meeting at the president’s golf course in Turnberry, Scotland.

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President Donald Trump will slap a 30% tariff on all imports from Mexico and the European Union beginning Aug. 1, he announced on his Truth Social account on July 12.

In letters to Mexican President Claudia Sheinbaum and European Commission President Ursula Von der Leyen, Trump wrote that the two leaders had not done enough to prevent fentanyl from entering the U.S. and to end trade deficits with the U.S., respectively.

"Mexico has been helping me secure the border. BUT, what Mexico has done, is not enough," he wrote in the letter to Sheinbaum.

In recent days, Trump has slapped tariffs of at least 20% set to begin Aug. 1 on two dozen countries, not including the European Union. On July 9, he sent letters announcing the imminent tariffs to Libya, Iraq, the Philippines, and four other countries. Another batch of letters to 14 countries, including South Africa, Malaysia, and Laos went out two days earlier.

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Trump posted a letter sent to Canadian Prime Minister Mark Carney in which he outlined the upcoming tariffs. This week, Trump has posted letters to more than a dozen countries vowing to impose steep tariffs on their imports starting Aug. 1.

The president argued Canada had not done enough to curb the flow of fentanyl into the United States, even though relatively little fentanyl crosses the northern border each year compared with the southern border.

The president argued Canada had not done enough to curb the flow of fentanyl into the United States, even though relatively little fentanyl crosses the northern border each year compared with the southern border.

"If Canada works with me to stop the flow of Fentanyl, we will, perhaps, consider an adjustment to this letter,” Trump wrote to Carney. “These Tariffs may be modified, upward or downward, depending on our relationship with your Country.”

The U.S. had previously imposed a 25 percent tariff on Canadian goods, though Trump later exempted products covered under the 2020 trade agreement struck between the U.S., Canada and Mexico. It’s unclear whether those exemptions will still apply as of Aug. 1.

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The US dollar has had its worst first half-year in more than 50 years, as the financial markets over the last six months were dominated by geopolitical crises and Donald Trump’s trade war.

The dollar has fallen by 10.8% against a basket of currencies since the start of 2025. That is its worst performance over the first six months of any year since 1973, and the worst half-year since the second half of 1991.

This sell-off has pulled the dollar index down to its lowest level since March 2022 and lifted the pound to a three-year high of $1.37, up from $1.25 at the start of the year.

Investors have been selling the US currency due to concerns that Trump’s economic policies threaten the safe-haven role of US dollar-denominated assets, with economists predicting that the president’s “big beautiful” budget bill will drive the US national debt even higher.

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Federal Reserve chair Jerome Powell said earlier this morning that the central bank would likely have already cut interest rates this year had it not been for the economic shock caused by Donald Trump’s tariff policies.

When asked if Trump’s tariffs on imported goods held up the Fed’s plan to cut interest rates, Powell replied:I  think that’s right.

Speaking at a central banking conference in Portugal, he went on:

In effect, we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs.

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