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US Supreme Court strikes down Trump's tariffs – investment implications
The US Supreme Court struck down the government’s use of the International Emergency Economic Powers Act (IEEPA) as a legal basis for President Trump’s reciprocal tariffs and a range of other tariff actions threatened or implemented under emergency declarations.
Key takeaways
- The US Supreme Court ruling eliminates all IEEPA‑based tariffs, reaffirming Congress’s sole authority over trade policy and removing the President’s most flexible tariff tool.
- While shifting to narrower tariff statutes may introduce fresh uncertainty, prospects of tariff refunds could lift equities, and the ruling strengthens US institutional checks and balances.
The ruling invalidates both the near‑global “reciprocal” tariffs and the 25% tariffs tied to fentanyl‑related emergency measures targeting Canada, Mexico and China, highlighting the sweeping scope of the decision. Existing tariffs imposed under other statutes – such as Section 232 duties on steel and aluminium – remain unaffected.
The Court went further and more categorically than our base case expectation of a potential “yes but” decision: it offered no guardrails, no ambiguity and no partial uphold. Instead, it issued a sweeping reaffirmation of Congress’s exclusive authority over tariffs.
Despite the breadth of the ruling, the economic and political implications broadly align with our prior expectations.
Refund risk: large but uncertain
The Court did not rule on retroactive tariff refunds but explicitly left the door open to litigation. Such cases could be lengthy and administratively complex, and ultimately cost the US Treasury USD 150-200 billion if plaintiffs succeed.
Alternative legal pathways remain available
The ruling affects only IEEPA. Other authorities remain intact:
- Section 122 of the Trade Act (1974) allows tariffs of up to 15%, and President Trump already announced he would activate this globally; however, congressional approval would be needed after 150 days. Countries currently facing very high tariff rates – such as Brazil – may benefit most from any reduction during the transition.
- Section 232 would allow sectoral tariffs, though with risks of new distortions to supply chains.
- Section 301 remains available, for example by using digital taxes or non tariff barriers abroad as the basis for potentially severe retaliation.
The rapid deployment of these alternatives would limit market disruption but still introduce uncertainty as the administration recalibrates its legal strategy.
Foreign policy tools narrowed
The Court held that foreign affairs considerations do not expand presidential power, expressly rejecting a foreign affairs exception to the major questions doctrine – the principle that when a presidential action has vast economic or political significance, Congress must clearly grant that authority rather than leaving it to inference. This ruling reinforces that Congress alone controls tariff authority.
As a result, the President loses tariffs as a flexible foreign policy coercion tool. Other instruments – such as military or security measures – remain available but are significantly more cumbersome to deploy.
Market implications
- Risk sentiment: Less presidential discretion over tariff policy may support risk assets broadly by reducing policy volatility.
- Equities: Hopes of tariff refunds could lift specific stocks, particularly major importers.
- Rates: Potential repayments represent a sizeable but manageable fiscal risk for Treasuries.
- FX: The decision may bolster confidence in US institutional checks and balances, providing marginal support for the US dollar.
By reasserting Congress’s exclusive authority over tariff policy, the ruling reinforces the strength of US institutional checks and balances – an outcome that markets typically reward.
