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What is the story about?
It's D-day for Trump's mega trade policies that could be encapsulated in one word, 'Tariffs', in his own words, his favourite word in the English dictionary.
The US Supreme Court is expected to decide on the legality of President Donald Trump’s tariffs on Friday, a verdict that could significantly affect both trade policy and the country's fiscal condition.
Judgement Day
While it is not guaranteed that the Supreme Court will issue its verdict, it has designated Friday as a “decision day” for releasing opinions, and many anticipate that the tariff case will be addressed.
The primary focus of the ruling will tackle two main questions: whether the administration has the authority to impose tariffs under the International Emergency Economic Powers Act and, if that’s found to be improper, whether the US must reimburse importers who have already paid these tariffs.
Nonetheless, the ultimate ruling may also fall somewhere in the middle.
The court could potentially allow some limited powers under the IEEPA and mandate limited reimbursements, among other various responses to this sensitive issue that is being closely monitored by Wall Street.
Additionally, even if the White House loses the case, it has alternative mechanisms available to impose tariffs that do not rely on the emergency powers outlined in the act.
The Consequences
Treasury Secretary Scott Bessent expressed on Thursday that he anticipates a “mishmash” ruling.
“What is not in doubt is our ability to continue collecting tariffs at roughly the same level, in terms of overall revenues,” Bessent said during an appearance in Minneapolis. “What is in doubt, and it’s a real shame for the American people, was the president loses flexibility to use tariffs both for national security and for negotiating leverage.”
In part, Trump invoked the IEEPA as an emergency measure to curb the influx of fentanyl into the United States.
The consequences of losing the tariffs would be extensive, according to Jose Torres, a senior economist at Interactive Brokers.
“If the court disallows the tariffs, the administration will seek alternatives,” Torres stated. “President Trump is very determined to advance this agenda despite any potential controversial fallout from such a ruling.”
Administration officials have outlined various strategies to mitigate the effects of a ruling not in their favour. Prediction markets platform Kalshi suggests there is only a 28% chance that the court will uphold the tariffs as they currently stand. Torres indicated that his firm's clients share a similar outlook.
Also Read: Trade Setup for January 9: Nifty may remain under pressure unless it moves back above 26,000
Bessent has indicated that the administration has at least three additional alternatives through the 1962 Trade Act that could maintain most of the tariffs. However, he has expressed concerns that reimbursements could put pressure on the administration and its aim to reduce the fiscal deficit.
Tariffs generated approximately $195 billion in fiscal 2025 and another $62 billion in 2026, according to Treasury statistics.
A Workaround?
Ultimately, Morgan Stanley analysts believe there's considerable potential for a nuanced decision from the Supreme Court.
“If the court blocks the tariffs, the administration is going to find workarounds,” said Jose Torres, senior economist at Interactive Brokers. “President Trump is very ambitious in getting this agenda through despite potential controversies that could surround such a decision,” as quoted by CNBC
“We do think there’s scope for the administration to take a lighter-touch approach to the overall tariff regime, given a recent political focus on affordability,” they added.
So far, the effects of the tariffs have contradicted analyst expectations: there has been minimal influence on inflation, while the trade deficit has significantly decreased, opposing assumptions that the tariffs might alienate the US from global trade. The trade gap for October reached its lowest point since the end of the financial crisis in 2009.
The US Supreme Court is expected to decide on the legality of President Donald Trump’s tariffs on Friday, a verdict that could significantly affect both trade policy and the country's fiscal condition.
Judgement Day
While it is not guaranteed that the Supreme Court will issue its verdict, it has designated Friday as a “decision day” for releasing opinions, and many anticipate that the tariff case will be addressed.
The primary focus of the ruling will tackle two main questions: whether the administration has the authority to impose tariffs under the International Emergency Economic Powers Act and, if that’s found to be improper, whether the US must reimburse importers who have already paid these tariffs.
Nonetheless, the ultimate ruling may also fall somewhere in the middle.
The court could potentially allow some limited powers under the IEEPA and mandate limited reimbursements, among other various responses to this sensitive issue that is being closely monitored by Wall Street.
Additionally, even if the White House loses the case, it has alternative mechanisms available to impose tariffs that do not rely on the emergency powers outlined in the act.
The Consequences
Treasury Secretary Scott Bessent expressed on Thursday that he anticipates a “mishmash” ruling.
“What is not in doubt is our ability to continue collecting tariffs at roughly the same level, in terms of overall revenues,” Bessent said during an appearance in Minneapolis. “What is in doubt, and it’s a real shame for the American people, was the president loses flexibility to use tariffs both for national security and for negotiating leverage.”
In part, Trump invoked the IEEPA as an emergency measure to curb the influx of fentanyl into the United States.
The consequences of losing the tariffs would be extensive, according to Jose Torres, a senior economist at Interactive Brokers.
“If the court disallows the tariffs, the administration will seek alternatives,” Torres stated. “President Trump is very determined to advance this agenda despite any potential controversial fallout from such a ruling.”
Administration officials have outlined various strategies to mitigate the effects of a ruling not in their favour. Prediction markets platform Kalshi suggests there is only a 28% chance that the court will uphold the tariffs as they currently stand. Torres indicated that his firm's clients share a similar outlook.
Also Read: Trade Setup for January 9: Nifty may remain under pressure unless it moves back above 26,000
Bessent has indicated that the administration has at least three additional alternatives through the 1962 Trade Act that could maintain most of the tariffs. However, he has expressed concerns that reimbursements could put pressure on the administration and its aim to reduce the fiscal deficit.
Tariffs generated approximately $195 billion in fiscal 2025 and another $62 billion in 2026, according to Treasury statistics.
A Workaround?
Ultimately, Morgan Stanley analysts believe there's considerable potential for a nuanced decision from the Supreme Court.
“If the court blocks the tariffs, the administration is going to find workarounds,” said Jose Torres, senior economist at Interactive Brokers. “President Trump is very ambitious in getting this agenda through despite potential controversies that could surround such a decision,” as quoted by CNBC
“We do think there’s scope for the administration to take a lighter-touch approach to the overall tariff regime, given a recent political focus on affordability,” they added.
So far, the effects of the tariffs have contradicted analyst expectations: there has been minimal influence on inflation, while the trade deficit has significantly decreased, opposing assumptions that the tariffs might alienate the US from global trade. The trade gap for October reached its lowest point since the end of the financial crisis in 2009.
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