Tariff Trade War Causing Looming Uncertainty for Franchisors and Franchisees

May and June have been a volatile month for tariffs as court battles, trade deals and President Trump’s executive orders continue to redefine global trade. On May 12, the United States and China announced a trade deal, in which both countries significantly lowered their tariffs for a 90-day period. The U.S. vowed to lower tariffs on goods coming from China from 145% down to 30%, while China agreed to lower its tariffs from 125% to 10%.¹

As it currently stands, after several modifications and negotiations, the February and March IEEPA Tariffs (as defined herein) currently all remain in place, set at 25% for Mexican and Canadian products and at 20% for Chinese products. The IEEPA Tariffs on Canadian energy and energy resources remain at the lower 10% rate.

In April, President Trump issued an executive order, invoking IEEPA again and imposed a general 10% ad valorem duty on “all imports from all trading partners,” which “shall increase for” a list of 57 countries to higher rates ranging from 11% to as high as 50% ad valorem (the “Reciprocal Tariffs”). ²Currently, the worldwide Reciprocal Tariffs remain in place at 10% for all countries, while the country-specific higher rates, that were paused for 90 days, are set to take effect on July 9, 2025.

On May 28, the United States Court of International Trade (“CIT”) issued an opinion striking down the tariffs that President Trump implemented under the International Emergency Economic Powers Act of 1977 (“IEEPA”). ³The question before the court was whether IEEPA delegates these powers to the President in the form of authority to impose unlimited tariffs on goods from nearly every country in the world. CIT held the Constitution endows Congress with exclusive power to “lay and collect Taxes, Duties, Imposts and Excises,” and to “regulate Commerce with foreign Nations.” U.S. Const. art. I, § 8, cls. 1, 3. 

While IEEPA authorizes the President to “regulate . . . importation . . . of . . . any property in which any foreign country or a national thereof has any interest by any person . . . subject to the jurisdiction of the United States . . . .”  there are still limitations. See 50 U.S.C. § 1702(a)(1)(B). The Court stated that under IEEPA, such authority may be exercised only to “deal with an unusual and extraordinary threat with respect to which a national emergency has been declared . . . and may not be exercised for any other purpose.” 50 U.S.C. § 1701(b) (emphasis added).

President Trump initially imposed the February and March tariffs against Mexico, China and Canada under IEEPA citing a national emergency public health crisis related to illicit cross-border movement of drugs and illegal immigrants (the “IEEPA Tariffs”). In April, President Trump implemented what the Administration termed Reciprocal Tariffs (as defined herein) under IEEPA. Both sets of tariffs implemented under IEEPA were challenged under the lawsuit. CIT reasoned the IEEPA Tariffs imposed did not “deal with” a national emergency as intended by IEEPA. CIT held IEEPA does not confer such unbounded authority and set aside the challenged tariffs imposed thereunder.

While CIT vacated and permanently enjoined the IEEPA Tariffs, as expected, the U.S. Government appealed to the United States Court of Appeals for the Federal Circuit (“Federal Circuit”)⁴, which issued a stay in the CIT’s order pending further briefing by the parties, effectively reinstating both the IEEPA Tariffs and Reciprocal Tariffs for the foreseeable future.

Things to keep an eye on

On May 29, a second federal court, the U.S. District Court for the District of Columbia (“DCDC”) blocked President Trump's authority to unilaterally impose tariffs, ruling in favor of two Illinois toy importers⁵. The U.S. Government appealed that decision to the U.S. Court of Appeals for the D.C. Circuit (“DC Circuit”). On June 3, the DC Circuit, like the Federal Circuit, stayed the lower court’s action pending appeal.

The cases mentioned herein only challenged the IEEPA Tariffs and Reciprocal Tariffs imposed by President Trump earlier this year. Other tariffs imposed on certain sectors under national security investigations conducted under Section 232 Tariffs (such as on steel, aluminum or autos) or under Section 301 of the Trade Act of 1974 (as imposed by President Trump during his first term against certain imports from China and expanded during the Biden Administration) are unaffected by the rulings.  In fact, in early June, President Trump issued a proclamation increasing tariffs on steel and aluminum from 25% to 50% (under Section 232 of the Trade Expansion Act of 1962 (“Section 232 Tariffs”)), which became effective Wednesday June 4th.⁶

Impact on franchisors and franchisees

Franchisors and franchisees should closely monitor any further court actions and retaliatory tariffs. Tariffs on imported goods have caused importers to incur additional costs, which is forcing companies to raise prices and pass on the costs to consumers. As consumers bear the brunt of cost increases, it is unclear how consumer spending will react in the coming months and what effect any decrease in consumer spending will have on franchisor and franchisees’ bottom lines.

Franchisors and franchisees should proactively secure shipments of goods before any potential increase in Reciprocal Tariffs take effect on July 9. Additionally, some brands can mitigate tariff risk by seeking out domestic suppliers.

As certain goods may increase in costs in the short-term, franchisors should be adaptive to potential alternative supplier changes, whether for food, goods or other products. The next six weeks should inform franchisor and franchisees decisions going forward into Q3 and Q4 as the court battles play out, the temporary delay in increased reciprocal tariff rates ends on July 9, 2025 (pending possible deals before then), and the joint US-China tariff reduction ends on August 10, 2025 (pending any further deals and negotiations such as the deal discussed herein being finalized).

As this dynamic situation plays out, with tariffs in flux due to legal battles, bilateral negotiations, and temporary pauses, franchisors and franchisees should adjust operations as needed and communicate with each other to navigate such uncertainty.

¹ On June 11, President Trump announced a new handshake agreement with China, pending signatures, that would formalize the U.S.’s Reciprocal Tariffs on China to be locked in at the baseline rate of 10% for the foreseeable future, while the U.S.’s tariffs on Chinese goods will remain at 10%, and in which China agreed to supply the U.S. with rare earth metals.

This 10% Reciprocal Tariff rate is in addition to the 20% IEPPA Tariffs addressed above. Certain Chinese products are also still subject to additional tariffs ranging from 7.5% to 25% as imposed under Section 301 of the Trade Act of 1974 during President Trump’s first term in 2018. The total rate on Chinese goods is thus currently up to 55% depending on the type of goods (subject to various exemptions not discussed here).

² See Executive Order 14257, Regulating Imports With a Reciprocal Tariff to Rectify Trade Practices That Contribute to Large and Persistent Annual United States Goods Trade Deficits, 90 Fed. Reg. 15041, 15045 (Apr. 2, 2025).

³ V.O.S. Selections, Inc. v. Trump, United States Court of International Trade in No. 1:25-cv-00066-GSK-TMR-JAR (May 28, 2025); State of Oregon v. Trump, No. 1:25-cv-00077-GSK-TMR-JAR (May 28, 2025).

⁴ V.O.S. Selections, Inc. v. Trump, Appeal from the United States Court of International Trade in No. 1:25-cv-00066-GSK-TMR-JAR; State of Oregon v. Trump, Appeal from the United States Court of International Trade in No. 1:25-cv-00077-GSK-TMR-JAR.

⁵ Learning Resources, Inc., et al., v. Donald J. Trump, et al., No. 1:25-cv-01248-RC (D.C. Cir. 2025).

⁶ See whitehouse.gov/presidential-actions/2025/06/adjusting-imports-of-aluminum-and-steel-into-the-united-states/

Joyce Mazero is co-chair of Polsinelli’s Global Franchise and Supply Network practice. Josh Goldberg is an associate in Polsinelli’s Global Franchise and Supply Network practice. Alissa Chase is an Associate in Polsinelli's International Trade practice group.