A three-judge panel concluded that the US president exceeded his authority when he unveiled additional taxes on foreign-made goods.
Tariffs must be typically approved by Congress – but Trump has argued he had power to act because it was a national emergency.
The controversial measures unveiled on “Liberation Day” in April, which included a 10% tariff on UK imports, caused aggressive sell-offs in the stock market.
Minutes after the Court of International Trade delivered its verdict, the Trump administration filed a notice of appeal.
Several lawsuits have been filed against the president’s tariffs – and this ruling relates to a case brought on behalf of five small businesses that import goods from other countries.
The companies, which sell everything from wine to musical instruments, had argued the additional costs would hurt their ability to operate.
Trump’s deputy chief of staff Stephen Miller criticised the court on social media, writing: “The judicial coup is out of control.”
And in a fiery statement, the White House added: “It is not for unelected judges to decide how to properly address a national emergency.”
But Oregon’s Democratic attorney general, Dan Rayfield, welcomed the ruling and described Trump’s tariffs as unlawful, reckless and economically devastating.
Before the court’s intervention, flat tariffs of 10% worldwide were in force – with higher rates for specific rates due to be implemented on 9 July.
Economists had expressed fears that the tariffs could exacerbate inflation, and even cause a recession.
The US dollar strengthened as investors digested the news – with stock market futures also rallying higher.
“We’re just trying to work out what it might mean basically but obviously the market is doing a kneejerk reaction so I guess it’s reversing a lot of the moves that we’ve seen,” National Australia Bank’s head of FX strategy Ray Attrill said.
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