NEW YORK (Reuters) -Five American small businesses asked a U.S. court on Tuesday to halt President Donald Trump's "Liberation Day" tariffs, arguing that he overstepped his powers by declaring a national emergency to impose across-the-board taxes on imports from nations that sell more to the United States than they buy.

The Republican president's April 2 imposition of the tariffs "represents and unprecedented and unlawful expansion of executive authority," Jeffrey Schwab, an attorney representing the plaintiffs, told a panel of three judges at the New York-based U.S. Court of International Trade.

Trump's interpretation, Schwab said, would allow him to impose tariffs "at any rate, at any time, simply by declaring a national emergency."

During the hearing in the first major legal test of Trump's tariffs, the judges asked U.S. Justice Department lawyer Eric Hamilton, arguing for the administration, pointed questions on the limits of a president's tariff power.

"We have a national shortage of peanut butter. Can the president declare an extraordinary emergency?" U.S. District Judge Jane Restani asked. "What you're saying is there's no limit."

The judges asked Schwab whether they have the authority to stop Trump from imposing the tariffs under a federal law that allows a president to regulate trade.

Restani questioned Schwab's argument that there was no "emergency" that would allow for Trump's tariffs under a law called the International Emergency Economic Powers Act (IEEPA), which gives presidents special powers to combat unusual or extraordinary threats to the United States. Restani also asked Schwab about what circumstances would constitute such an emergency.

"'You know it when you see it' doesn't work," Restani said.

Hamilton said economic conditions do justify concluding that there is a national emergency under IEEPA.

The U.S. trade deficit has grown by 40% over the past five years, weakening the American economy and the ability of domestic manufacturers to provide the U.S. military with needed equipment and supplies, Hamilton said.

"The trade deficit has threatened the supply chain, it has caused a state of affairs where the national defense industrial base is not adequately prepared to meet the challenges that the country faces," Hamilton said.

The lawsuit was filed by the nonpartisan Liberty Justice Center on behalf of five small U.S. businesses that import goods from countries targeted by the duties. 

The companies, which range from a New York wine and spirits importer to a Virginia-based maker of educational kits and musical instruments, have said the steep tariffs will hurt their ability to do business.

The Justice Department has said that the lawsuit should be thrown out because the plaintiffs have not been harmed by tariffs that they have not yet paid, and because only Congress, and not private businesses, can challenge a national emergency declared by the president under IEEPA. 

The Liberty Justice Center's lawsuit is one of seven court challenges to Trump's tariff policies, and it is the first to seek a ruling that would stop the tariffs from moving forward.

The Court of International Trade previously rejected the request by the plaintiffs to temporarily pause the tariffs while their lawsuit went forward, but then quickly scheduled Tuesday's court hearing to decide whether to rule against the tariffs or impose a longer-term pause. It is expected to issue a written ruling in the coming weeks.

The court hears disputes involving international trade and customs laws. Its decisions can be appealed to the U.S. Court of Appeals for the Federal Circuit in Washington, D.C., and ultimately the U.S. Supreme Court.

ON-AND-OFF TARIFFS 

When Trump imposed the new tariffs, he said the U.S. trade deficit was a "national emergency" that justified a 10% across-the-board tariff on all imports, with higher tariff rates for countries with which the U.S. has the largest trade deficits, particularly China.

Many of those country-specific tariffs were paused a week later, and on Monday the Trump administration said it was also temporarily slashing the steepest China tariffs while working on a longer-term trade deal with Beijing. Both countries agreed over the weekend to cut tariffs on each other for at least 90 days. 

Trump's on-and-off-again tariffs have shocked U.S. markets. He has framed them as a way to restore America's manufacturing capability. 

The president's executive order announcing the tariffs invoked laws including IEEPA.

The Liberty Justice Center said the law does not give the president the authority to unilaterally impose tariffs "on any country he chooses at any rate he chooses." 

The law is meant to address "unusual and extraordinary" threats, and the U.S.' decades-long practice of buying more goods than it exports does not qualify as an emergency that would trigger IEEPA, according to the lawsuit.