US Tariffs at a Crossroads: Examining the Court Ruling and Potential Next Steps

While the US Court of Appeals has struck down several of former President Donald Trump's tariff policies, there are strong reasons to believe that these tariffs will not see significant changes, at least in the coming months. Last Friday, the US Federal Circuit Court of Appeals upheld a lower court ruling, with a majority of appellate judges finding that Trump exceeded his authority when he invoked the International Emergency Economic Powers Act of 1977 (IEEPA) to justify several tariffs he imposed on specific countries. However, investors should not expect the US court system to drive significant changes to Trump's tariff policies in the short term. Reasons for this include the slow pace of Supreme Court proceedings, the potential for congressional intervention, and other factors. Here are a few key points for the market to keep in mind when preparing for the subsequent situation:

Supreme Court Ruling Could Come in June

Tariffs deemed invalid will remain in effect until October 14 to allow the Supreme Court to consider hearing the case. Semafor reported that Treasury Secretary Beisnte said on Monday that he plans to draft a legal opinion to be submitted by the Attorney General of the Department of Justice, defending the legality of the tariffs, in anticipation of a possible Supreme Court ruling on the case. In a report, Owen Tedford, senior research analyst at Beacon Policy Advisors, said that the Supreme Court is expected to begin hearing the case early next year, and a ruling may not be announced until the end of June. Trump said on Tuesday that his government would ask the Supreme Court on Wednesday to expedite the ruling, adding that he believed the US stock market decline was affected by the Court of Appeals' decision on tariffs.

Potential Scenarios and the Future of Tariffs

Terry Haines, founder of forecasting firm Pangaea Policy, believes that the two most likely scenarios are: the Supreme Court supports Trump's use of IEEPA; or granting Congress enough time to pass a bill granting the president the necessary authority - knowing that the Republicans to whom Trump belongs currently hold a slim majority in both houses of Congress. However, other analysts are not optimistic about the Trump administration's prospects in the Supreme Court, although the Supreme Court currently consists of 6 conservative judges and 3 liberal judges (a conservative majority). A team of analysts at Raymond James, led by Ed Mills, said: "We believe this ruling is based on the Supreme Court's "major questions" doctrine, which sees that the tariff authority "belongs to Congress", making the Trump administration face a difficult battle in the Supreme Court." The term "major questions" refers to the fact that government agencies must obtain clear authorization from Congress when making decisions of great national importance. At the same time, many analysts, including the Raymond James team, emphasized that the Trump administration does not need to rely on IEEPA to achieve the tariff policies it wants. Mills and colleagues wrote in the report: "Although the negative ruling of the Supreme Court is a blow to the Trump administration, we would like to emphasize that the President also has many other channels for delegating tariffs. This supports our point of view: the process may change, but the result is likely not to be significantly different."

Trump's Other Options for Tariff Authorization

So, what other options are available to Trump besides IEEPA? Raymond James analysts point out that "Article 122 regarding international balance of payments fees and Article 301 regarding national security fees are the most viable options in the short term - the first article allows for the imposition of customs duties of up to 15%, with a maximum of 150 days." They added that Trump administration officials have confirmed that related contingency plans are in active preparation. Other options also include Article 201 related to tariffs and Article 338 related to tariffs. Tedford pointed out that Article 201 related to tariffs is valid for a maximum of 8 years, must be re-approved after the first 4 years, and must be reduced gradually after one year of entry into force; while the maximum customs duties under Articles 122 and 338 are 15% and 50%, respectively, where Article 122 related to customs duties is valid for only 150 days unless extended by Congress. Tedford wrote: "However, the advantage of Articles 122 and 338 compared to Articles 301 and 201 is that they do not require an investigation, which means that the White House can replace the tariffs based on the IEEPA with them almost immediately."

Court Decision Does Not Affect Some Tariffs

The sectoral tariffs imposed by Trump on imports of cars and auto parts and steel and aluminum products were not affected by the court decision issued last Friday. The Trump administration has also pledged to impose customs duties on other industries that have already conducted trade investigations, such as imported medicines, electronics and furniture.

Possibility of Tax Refunds

Tedford said that as Trump's tariffs based on the IEEPA are exposed to another blow, the issue of whether companies that paid customs duties will receive tax refunds is gaining more attention. He wrote that this tax refund process will take at least weeks, if not months, and may become the largest customs duties tax refund project in US history. The team of analysts at Raymond James believes this will have an impact on the market. They said that refunding existing customs duties "may lead to an increase in US Treasury bond issuances and returns."

Conclusion

In conclusion, while the recent court decision presents a challenge to President Trump's tariff policies, there are still several avenues available to the US administration to maintain these tariffs or implement new ones. Investors and market participants should stay informed of the latest legal, political, and economic developments to assess the potential implications for global trade and the US economy. Examining alternative trade strategies and supply chain diversification can also help businesses mitigate potential risks associated with ongoing trade disputes.