In a significant legal decision, the Supreme Court has determined that former President Donald Trump overstepped his authority in imposing global tariffs, prompting a positive response from stock market investors. The ruling has catalysed gains in major indices, with the Dow Jones Industrial Average climbing by 0.3%, or 138 points, to reach 49,533. This uptick follows a slight dip in early trading prior to the announcement. Similarly, the S&P 500 index, which began the day nearly flat, has risen by 0.32%. In London, the FTSE 100 has also experienced a boost, increasing by 75 points, or 0.7%, bringing it close to its recent record high of 10,715 set earlier this week.
Bond Market Reaction
The ruling has led to a slight weakening in US bond prices, which, in turn, has resulted in a small uptick in Treasury yields as investors begin to ponder the implications for companies that have previously paid tariffs. The Supreme Court’s decision specifically addresses tariffs imposed under the International Emergency Economic Powers Act (IEEPA).
Michael Brown, a senior research strategist at Pepperstone, commented on the implications of the ruling, stating, “This accounts for roughly half of the rise in the overall average effective tariff rate seen since President Trump returned to office. It primarily concerns levies imposed on a ‘reciprocal’ basis, as well as those targeting China, Canada, and Mexico in relation to ‘fentanyl supply’.”
Future Tariff Measures
Despite the setback for the previous administration’s tariff strategy, Brown notes that the current administration still has several avenues available to implement similar measures. “There are at least five other sections of US commerce law that the Administration can utilise to reintroduce tariffs. While these alternatives generally require Congressional approval or an investigation by the Commerce Department, it is likely that the Administration can find enough means to keep the overall average tariff rate around 16% even after this ruling,” he added.
Moreover, the question of refunds for companies affected by these tariffs remains unresolved. However, the ruling suggests that such reimbursements could be feasible. It is important to recognise that any potential refunds are expected to be disbursed over an extended period and may be financed through increased issuance of short-term Treasury bills. This dynamic could balance out any revenue from alternative tariff measures that may emerge in the future.
Market Outlook
As investors digest the implications of this landmark ruling, the stock market appears to have responded positively, reflecting a broader optimism regarding economic policy moving forward. The immediate effect on equities indicates that market participants are hopeful for a more stable trading environment, free from the unpredictability associated with the previous tariff regime.
Why it Matters
This ruling by the Supreme Court marks a pivotal moment in US trade policy, with significant implications for both domestic businesses and international trade relations. The potential for tariff refunds could alleviate some financial burdens on affected companies, while the ability of the current administration to impose alternative tariffs may sustain existing trade tensions. As the market reacts to these developments, all eyes will be on how policymakers navigate this complex landscape in the coming months, shaping the economic prospects for both the US and its trading partners.
