A three-member trade court has struck down many of the Trump administration tariffs, saying that the President exceeded his authority. Equities strengthened. The matter, however, produces more uncertainties about the outcome for trade policy. We carry initial reactions.

Stock markets rallied yesterday in Asia and Europe after a US trade court ruling blocked most of President Donald Trump's tariffs, saying he had exceeded his authority.

Germany – in talks with the US about tariffs – did not comment; neither did the European Union. 

S&P 500 stock futures were up more than 1 per cent in pre-market trade; the Index was up 0.3 per cent around midday in the US. The Euro Stoxx 50 index of major European equities was up about 0.67 per cent in the morning but later gave up the gains.

News services (Reuters, Bloomberg, others) said winners on financial markets included chip makers, banks, luxury stocks and the auto industry. These have been hit by tariff-led disruptions.

At issue is whether the ruling by the US Court of International Trade in New York, which was unanimous, will decisively thwart Trump from his tariff policy – something he has put at the centre of his economic agenda.

The court gave the administration 10 days to “effectuate” its order, but didn’t spell out any steps it must take to unwind the tariffs.

"The tariff tango has seen a new dance partner hit the floor, following last night’s ruling that Trump has exceeded his authority with his sweeping April tariffs,” Chris Beauchamp, chief market analyst at IG, the trading platform, said. “Stock markets have reacted with almost audible relief, surging around the globe in the hope that the tariff drama is entering its endgame. While the administration has other ways to impose tariffs, they will take longer and could face their own challenges. An angry response from the president is all but guaranteed, so keep the popcorn handy.” 

Capital Economics, a consultancy, said the outlook for markets may now rest on the decision of the Republican-stacked Supreme Court.

“The upside risks to US inflation and downside risks to GDP would be reduced if the Supreme Court also rules against the tariffs imposed under the International Emergency Economic Powers Act (IEEPA), but it would be unlikely to mark the end of the tariff war given the various other routes through which the Trump administration could impose tariffs,” Capital Economics said.

The US CIT has ruled that “the Worldwide and Retaliatory Tariff Orders exceed any authority granted to the President by IEEPA to regulate importation by means of tariffs.”

Capital Economics explained that such wording means that the baseline 10 per cent tariff, the reciprocal tariffs scheduled to take effect after the 90-day pause, the 20 per cent fentanyl-related tariffs on China, and the 25 per cent fentanyl tariffs on non-USMCA compliant imports from Canada and Mexico are void. 

“The case would first be taken up by the US Federal Court of Appeals and, if the administration loses that appeal, then potentially go to the Supreme Court. We are neither legal nor constitutional experts and it is unclear to us how long the process might take. The full process could take many months although it is possible that the Supreme Court would grant the administration a stay on the ITC’s ruling in the meantime,” Capital Economics said.

The tariffs that remain in place are the Section 232 tariffs of 25 per cent on automotive, steel and aluminium imports and the Section 301 tariffs on China that were imposed during President Trump’s first term and expanded under the Biden administration. 

“The effective tariff rate is now 6.5 per cent, up from 2.5 per cent at the start of the year but far lower than the 15 per cent rate based on our assumption of the IEEPA-related tariffs remaining in place,” Capital Economics said.

Not a big surprise
“We’ve long been pointing out that legal challenges to Trump’s tariffs were likely,” Lizzy Galbraith, senior political economist, at Aberdeen, said in a note. “But this doesn’t mean the tariffs are now gone. The administration will almost certainly appeal the ruling and seek to lift the block on IEPPA tariffs while the case is ongoing. The case will first go to the US Court of Appeals for the Federal Circuit but is likely to end up in the Supreme Court. At stake is the extent of the tariff authority Congress has conferred to the presidency over time.”

“Nevertheless, the ruling has significant implications for countries that were in trade negotiations with the US. Many are likely to wait for clarity on whether the block on tariffs is maintained before making big concessions. So, the ruling undercuts Trump’s negotiating leverage.

“Even if the ruling is upheld, the administration will have alternative routes to implement tariffs. But these will be slower and more targeted, as opposed to the current sweeping approach,” Galbraith said. 

For example, she said that Section 301 and 232 tariffs could be expanded to cover other sectors. And the unused Section 122 of the Trade Act would allow blanket tariffs of up to 15 per cent to address balance of payments deficits (although Congress is required to authorise these tariffs if they last more than 150 days).