Why investors are wrong to celebrate the Trump tariff ban

Telegraph

29-05-2025

Three American judges have thrown Donald Trump's trade policies into disarray, triggering celebrations on global stock markets.
The US Court of International Trade ruled on Wednesday night that the President did not have the authority to use emergency powers to impose his 'liberation day' tariffs. He now has 10 days to cancel them.
Stock markets were quick to cheer the news, with Tokyo's Nikkei 225 index up 1.9pc and the S&P 500 in the US expected to open up 1pc in New York.
However, the popping of champagne corks may be premature. The White House isn't backing down, with a spokesman insisting it was 'not for unelected judges to decide how to properly address a national emergency'.
The court itself acknowledged there were other ways for the Trump administration to impose tariffs on other countries.
Experts view this as only a temporary setback for Trump and believe it is only a matter of time before he strikes again.
What did the ruling say?
The US court ruling centres on a decades-old law that hands the President sweeping economic powers during a national emergency.
The International Emergency Economic Powers Act (IEEPA) replaced the aptly titled Trading with the Enemy Act in 1977, which had itself been in place since the First World War.
Under the IEEPA, presidents can take a wide variety of actions 'to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy or economy' of the country.
The law has been invoked around 70 times since it was introduced, including by Jimmy Carter to freeze Iranian government assets in the US in response to the 1979 hostage crisis.
However, judges ruled that Trump had overstepped his authority by using the law to impose blanket tariffs on US trading partners.
'The court does not pass upon the wisdom or likely effectiveness of the President's use of tariffs as leverage,' the judges said. 'That use is impermissible [is] not because it is unwise or ineffective, but because [the law] does not allow it.'
Does it mean the end of tariffs?
The ruling does not affect US tariffs imposed on imports of cars and steel. The Trump administration has also made it clear officials intend to fight the Court of International Trade ruling to defend the President's right to impose his tariffs. The White House almost immediately lodged an appeal to the judgment.
Catherine Barnard, a law professor at the University of Cambridge, says: 'I was very struck by somebody very senior in the White House who came out and said: 'This is a judicial coup', and it would indicate that that's the line they're going to take, that as President he [Trump] shouldn't be constrained. He was elected on a ticket of doing what's best for America, and that includes tariffs.
'This is gearing up to be a really serious confrontation between the executive and the courts. The fact they appealed instantly shows that they're going to fight it all the way.'
Hosuk Lee-Makiyama, a trade lawyer, is more blunt. In his view, the Court of International Trade ruling is 'a non event'.
'It really means nothing. It's going to be appealed. So it will end up with the Supreme Court and that's where the big decision will be taken,' he says.
He notes that the Supreme Court is mostly made up of Republican-appointed judges, three of whom Trump appointed himself. 'It would be quite, let's say, spectacular if the Supreme Court would rule against Donald Trump,' says Lee-Makiyama.
Dragging the case through the courts is a lengthy process. 'You're talking months here,' says Barnard.
What are President Trump's options?
In the meantime, Trump can still use other legislative means to try and push through tariffs.
Analysts at Goldman Sachs said the administration could quickly replace the 10pc across-the-board tariff with a similar levy of up to 15pc under Section 122 of the 1974 Trade Act. This hands the President powers to try to stop money flooding out of the country or to stop a big fall in the value of the dollar.
Alec Phillips at Goldman notes that invoking Section 122 does not require 'any formal investigation or process, so the administration could theoretically replace the current 10pc 'reciprocal' tariff [announced on April 2] with a [new] tariff within days if deemed necessary.'
Section 122 tariffs have a time limit of 150 days, after which Trump should consult Congress.
Alternatively, the president could use Section 232 of a 1962 trade law, which is the legislation he has already used on as the basis for steel, aluminium and car tariffs. The section allows tariffs on certain imports that 'threaten to impair' US national security. While that gives broad sweep, an investigation is required within 270 days after imposing any levies.
Trump has suggested tariffs on pharmaceuticals and semiconductors will fall under these provisions. Phillips says: 'President Trump has not emphasised these so-called sectoral tariffs as frequently lately as he did earlier this year, but if the White House finds it has less flexibility on country-focused tariffs, sectoral tariffs might receive more attention again.'
The White House could also launch Section 301 investigations into trading partners it believes are engaging in unfair or discriminatory trade practices. If the investigation does find foul play, tariffs can be deployed. There is no limit on there level or duration.
Another option is Section 338 of the 1930 Trade Act, which gives the president the authority to impose tariffs of up to 50pc on imports from countries that Trump believes are discriminating against the US. While there is a limit on the maximum tariff rate, it does not require a formal investigation. This option has not been used before.
What will he go for?
Most economists believe Trump will announce a new set of emergency tariffs within days.
Phillips at Goldman says: 'As it seems unlikely that the administration could win an appeal in the 10 days it has under the court order to remove the tariffs, we would expect the White House to announce a similar across-the-board tariff using Sec. 122.
'This would then provide the administration time to launch a series of Sec. 301 cases against larger trading partners, potentially opening the door to imposing tariffs higher than 10pc in some cases.'
Where does this ruling leave the UK?
The UK struck a trade deal with the US that reduces tariffs on cars, steel and aluminium among other things, though 10pc tariffs on most imports remain.
The Court of International Trade ruling appears to cast uncertainty over that deal. However, David Henig, from the European Centre for International Political Economy, says the UK deal is unlikely to be affected.
'The deal that the UK did was on a different set of tariffs that have not been ruled illegal. They're all about steel and car tariffs and getting relief from those,' he says.
Anand Menon, Professor of European Politics and Foreign Affairs at King's College London, says there are implications for Brussels, however, which is currently scrambling to strike a quick trade deal with the US after Trump threatened to impose 50pc tariffs on the EU in July.
'It eases the pressure because it means they're not liable to the massive tariffs that Trump's trying to impose on them,' Menon says. 'There will be a fight inside the European Union as to whether this is the moment where it stands up, or whether you turn around to the US and say, 'OK, let's deal'. It's not clear to me which side will win that debate.'
Henig adds: 'The EU really did want to have these tariffs eliminated. The court said they should be, but Trump's now going to want to put them back by some other means [and] that might actually delay the EU doing negotiations.
'[So] for the EU it doesn't look so good. But today it's good for the UK, probably less good for the EU, terrible for business because literally, you have no idea what you're going to pay day to day.
'That doesn't look likely to change anytime. The uncertainty is just a horrible, horrible kind of destroyer of the economy.'