Trump’s Tariff Trial

The US Supreme Court began hearings this week on whether the Trump-era tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were lawful. While the case has attracted significant political and legal attention, we believe the practical implications for US trade policy and markets are likely to be limited.

Backdrop

The Court is reviewing tariffs introduced under IEEPA, a 1977 law originally designed for use during national emergencies. These powers were invoked in 2018 and again in 2025 to impose country-level tariffs on a range of imports. However, both conservative and liberal justices have expressed scepticism over whether trade deficits or other economic issues meet the legal definition of a “national emergency.”

The Supreme Court generally deliberates for months before issuing rulings, but the Trump administration has urged a faster resolution, meaning it could be made by year-end or in early 2026.

A Shift in Tariff Frameworks

From a policy standpoint, the US has already been adjusting its approach to tariffs. In recent years, the focus has shifted away from broad, country-level measures toward more targeted trade actions, often aimed at specific sectors such as metals, autos, and technology. This evolution means that even if the Court were to rule against the current framework, alternative legal channels are already in place to maintain a similar tariff structure.

In practical terms, this means headline tariffs are likely to stay elevated, and the overall stance on trade protection remains largely unchanged. For businesses and investors, that suggests continuity rather than disruption – and little reason to expect any material impact on global trade flows or corporate earnings.

Market Impact: Contained and Manageable

Beyond the headlines, the potential market impact also appears modest. Bond yields (which move inversely to bond prices) and equity markets have shown little reaction to the case so far, reflecting expectations that the ruling will not materially alter trade policy or fiscal conditions.

Even in a scenario where IEEPA-based tariffs are overturned, refunds of collected duties would likely be partial and phased in gradually due to administrative and legal complexities. This would give the US Treasury time to handle any shortfall by slightly adjusting how much it borrows, keeping markets steady.

Any short-term market volatility would likely reflect temporary legal uncertainty rather than fundamental changes in trade or economic outlook.

Looking Ahead

While the case may set an important precedent for the balance of power between Congress and the presidency, it is unlikely to reshape the tariff environment or the broader market picture. In the meantime, markets continue to be driven more by corporate earnings, central bank policy decisions, and the ongoing tech and AI boom.

The Noise

• Markets had a challenging week, with US equities falling around 1% on Thursday alone, weighed down by declines in consumer discretionary and tech shares. UK markets fared slightly better but also fell 0.5% on Thursday,after closing at a record high on Wednesday. This was despite strong Q3 earnings reported by most companies, with earnings up 15% year-on-year in the US and 1% in Europe.
• In currencies, the British pound rose from a seven-month low against the US dollar after the Bank of England voted 5–4 to keep its policy rate unchanged at 4%, noting that inflation is likely to have peaked. Meanwhile, the US dollar index (which measures the dollar against a basket of major currencies) eased from a five-month high on Thursday after weak labour data bolstered expectations of a Federal Reserve rate cut this month.
• In commodities, gold remained steady after a decline two weeks ago that ended its recent rally. The softer US labour market data raised expectations of Federal Reserve rate cuts, reducing the opportunity cost of holding non-yielding assets such as gold. Meanwhile, crude oil prices continued to fall, extending what has been a difficult year for the sector, following fresh Saudi price cuts and ongoing concerns about global supply risks.