Tariffs on Trial: What It Means for Investors

This week, the US court of International Trade has cast doubt on the legal foundation of Donald Trump’s sweeping tariff strategy, suggesting the President overstepped his legal authority. The White House has responded to this ruling, appealing it and claiming that there are other ways for the President to pursue his global trade war, even if this route fails.

The ruling also comes at a critical time for global trade negotiations. Trump’s administration has been actively pursuing new bilateral deals, using tariffs as leverage. A legal roadblock like this may slow the pace of negotiations or weaken the US’s bargaining position - at least in the short term.

What was the market impact? The US markets saw a short-lived rally which quickly faded on news that Trump was appealing this ruling. From a broader macro perspective, the uncertainty surrounding US trade policy could have knock-on effects beyond equities. Currency markets, particularly emerging market foreign exchange (FX), may be sensitive to any signs of protectionism easing or intensifying.

Main takeaways for investors:

• Uncertainty remains – The White House is fighting back, and other legal tools to support Trump’s tariff strategy are still in play.
• Some relief – If tariffs are delayed or removed, companies reliant on global supply chains like manufacturers and retailers could see lower costs and better margins.
• More volatility is possible – Markets may react to any new court decisions, appeals, or changes in trade policy.

While the court ruling introduces a legal challenge to Trump’s tariff playbook, it’s unlikely to mark the end of his trade war tactics. We note that this is an evolving situation, and all information is correct at time of writing.


The Noise

• Global equity markets reverberated at pre-‘Liberation Day’ levels this week, remaining uninspired. The German equity market is the only major market which continues to surpass pre-’Liberation Day’ highs. The UK, US and Europe rose modestly over the week.

• The bond market was relatively flat this week, with US yields ending the week modestly lower on the back of somewhat weaker GDP data released. Japan’s longer dated bond yields (yields move inversely to prices) have been rising rapidly and causing concerns. Yet this week the Bank of Japan surveyed dealers about their views on appropriate levels of bond issuance, helping to calm the market, which saw declines in the 30- and 40-year yields. Japan has one of the highest public debt levels in the world, and rising yields in the last month have been a focus for global investors.

• For the first time in three years, the US economy shrunk quarter on quarter. Recent economic data indicated a contraction of 0.2%, slightly above expectations. This is some of the first tangible economic data which shows the impact of Trump’s tariffs on the US economy. Whilst this drop from 2.4% last quarter was largely driven by tariffs, weaker consumer spending also played a large role in this growth.