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Indian Express
2 days ago
- Business
- Indian Express
Uncertainty around US tariffs will not be over after August 1, even with signed trade deals
The US tariff saga has gone through many twists and turns. And many more are likely left. The ratcheting up of tariffs last month is broader and higher than expected. In late May, the view was that while the extant US average tariff rate was around 13-14 per cent, it was headed towards 18-20 per cent. Much of the increase was expected to be focused on ASEAN, where the tariff rate would be raised to that of China's to eliminate transshipment of Chinese exports to the US via the region. While those on Vietnam and Indonesia were in line with expectations, the additional tariffs on Brazil, Canada, and Mexico were not. Nor was the higher 50 per cent rate on copper. However, negotiations are ongoing, including with India, the EU, and Korea. If this week's Japan deal is any guide, tariffs on these economies will likely be half of the threatened levels. But, even at the reduced rate, if these, along with those on EU and the likely extensions of global sectoral tariffs to semiconductors and pharmaceuticals, are realised, then the effective tariff rate could well exceed 20 per cent. All eyes are therefore on August 1, which is the new deadline set by the administration for countries to finalise trade deals. But there is an upcoming and surprisingly overlooked event that could easily make these trade deals moot and plunge the tariff discussions into more uncertainty. On May 28, the US Court of International Trade (USCIT) ruled that tariffs imposed using the provisions under the International Emergency Economic Powers Act (IEEPA) overstepped the authority granted by the Act. The ruling did not consider the current conditions in the US to be a 'state of emergency,' which is needed to invoke IEEPA, to be convincing nor the use of tariffs to address it. Tariffs could be imposed, if the government so desired, but via the other options at its disposal. Not IEEPA. A federal appeals court granted the government a stay on the order and is slated to begin hearing arguments on the appeal on July 31. All the universal, reciprocal, and fentanyl-related tariffs are based on IEEPA. The tariffs unaffected are the Section 301 tariffs on China imposed under Trump 1.0 and extended by the Biden administration, and the global sectoral tariffs on aluminum, autos and auto parts, copper, and steel that were imposed under Section 232. It is unclear how the appeals court will rule. But regardless of the decision, either party is likely to move the case to the Supreme Court. If the tariffs under IEEPA are eventually disallowed by the US Supreme Court, the government will shift to other options. Tariffs are central to this administration's economic agenda and will thus be pursued. Unlike those under IEEPA, the tariffs under the other options are more cumbersome, limited in scope, and significantly more resource intensive. But they can be implemented in a compressed time frame if the administration so desires. A potential sequence of such actions could be the following. Use Section 122 to impose tariffs of 15 per cent for 150 days on all countries (justified to address balance of payments needs or to prevent a significant depreciation of the dollar). At the same time, ratchet up the tariffs on China that were imposed under Section 301 in Trade War 1.0 by both the Trump and Biden administrations. Keep tariffs on steel and aluminum at 50 per cent (as on copper) and raise that on autos from 25 per cent to 50 per cent. Hasten the ongoing Section 232 (sector specific on grounds on national economic security) investigations into semiconductors, pharmaceuticals, and lumber to bring these under the tariff net of 25 per cent – 50 per cent. Use Section 338 to impose tariffs on countries that are deemed to discriminate specifically against US commercial interests (such as digital services taxes by Australia, the EU, Canada, India, and others, although the taxes are imposed on other countries too). Complete Section 301 investigations on large trading partners (some are ongoing, for example, on the EU and Brazil). These investigations are resource intensive as they need to first identify the specific policy of a trading partner that is the basis of 'unfair competition 'and then quantify the 'harm' that such policies impose on US consumers for each product and for each country. The tariff rate needs to be commensurate with the harm caused and, thus, differ, from product to product for each country. Finally, roll all tariffs under Sections 301 and 232. As one can imagine, this is an arduous and uncertain process. However, the direction of travel is more certain — the average effective tariff rate is likely to settle close to 20 per cent. Needless to say, the country- and product-specific impact of Sections 301 and 232 tariffs could be vastly different than under IEEPA. Markets so far have largely shrugged off the announced new tariffs. This is understandable given the quick deescalation after the strong market and corporate reaction to the Liberation Day tariffs; the possibility that the August 1 deadline is postponed; and the eventual negotiated tariff rates could be different from those announced. However, a court ruling on IEEPA could well turn both the August 1 deadline and the trade deals moot, including potentially that with India. If the basis of these deals, that is, IEEPA, is no longer admissible, then we are headed for renegotiations with tariffs under sections 301 and 232. These could be starkly different than those that are being negotiated now. The uncertainty around US tariffs will not be over after August 1, even with signed trade deals. US courts might well upset the best laid plans of mice and men. Continued uncertainty is the only certainty. The writer is Chief Emerging Markets Economist, J P Morgan. Views are personal
Economic Times
22-07-2025
- Business
- Economic Times
Rising US fiscal risk signals dollar weakness and yield spike ahead: Jahangir Aziz
So, with the increase in fiscal deficit and reduced foreign borrowing, the US might experience higher yields and a weaker dollar, as the government's actions increase the risk premium on the country. This is how I see the dollar and US yields moving. Synopsis JPMorgan's Jahangir Aziz highlights the potential impact of a July 31st court ruling on existing tariffs, overshadowing the August 1st deadline. The court's decision on IEEPA could invalidate current trade deals and lead to prolonged uncertainty. Despite market resilience, the delayed impact of tariffs on inflation and ongoing negotiations with India remain key concerns. "So, while August 1st is a key deadline, July 31st—just the day before—could have a meaningful and material impact on what we wake up to on August 1st or 2nd," says Jahangir Aziz, JPMorgan. ADVERTISEMENT Help us analyze and understand what the key talking points for market participants are right now. The 9th July deadline has already passed, and we're now waiting for the 1st of August. However, there haven't been any major announcements so far, and many tariff deals are still pending. How do you think market participants will interpret this, especially since the markets have shown resilience recently? Jahangir Aziz: The markets are clearly showing resilience and are shrugging off the new or recent set of tariffs that have been announced. However, let me make two points. First, August 1st is after July 31st, and the market has somewhat forgotten that amidst all the talk about new tariffs and the Fed. On July 31st, the federal appeals court will begin hearing the case of the appeal made by the government regarding a case they lost in the US Court of International Trade. The court ruled that all tariffs imposed under IEEPA (International Emergency Economic Powers Act), which includes universal tariffs and reciprocal tariffs, are inadmissible. Depending on what the appeals court does on July 31st, or maybe in a couple of days (since it is an appeals court), these tariffs could become moot. This is because IEEPA, the act on which both the tariffs and the reciprocal tariffs are based, could no longer be used. In that case, we could face more months of uncertainty, as the US government may then shift away from IEEPA tariffs to tariffs based on other sections of the trade act, such as Section 301, Section 232, etc. So, while August 1st is a key deadline, July 31st—just the day before—could have a meaningful and material impact on what we wake up to on August 1st or 2nd. Also, we'd like to get your view on developments regarding the Fed chair. With US inflation seeming to be under control, if there is no rate cut as the market expects, do you think this could lead to a change in leadership at the Fed? Jahangir Aziz: That's a completely different issue, and it's hard to speculate on it. But let me start with your first point. You mentioned that inflation is under control. Well, if you look at goods inflation last month and exclude autos (which have dampened due to price cuts by Japanese auto manufacturers selling to their subsidiaries), goods inflation in the US was running at around 5.5%. Even though there has been a significant shift away from China to countries with lower tariffs, like ASEAN, Vietnam, Malaysia, Thailand, etc., and many firms are absorbing tariff increases on their profit margins for now, goods inflation—excluding autos—still stands at 5.5%. The tariff impact is taking longer than expected. As we had anticipated, it would take 2 to 4 months for the tariff effects to hit inflation. Just because it isn't showing up in the data now doesn't mean it won't later. The Fed is aware of this and will be watching for signs of this pass-through and also keeping an eye on non-farm payrolls. Although the most recent non-farm payrolls report showed a surprise number of 147,000, the private sector non-farm payrolls stood at just 74,000—one of the lowest in the past two years. I want to talk about India. The only missing piece seems to be what happens with tariffs, while India is holding ground. There doesn't seem to be a consensus yet on how much tariffs India will face. Where do you think this situation is headed? Jahangir Aziz: My guess is that since India hasn't received a letter yet, at least negotiations are still ongoing, which is a very good sign. Unlike countries like Japan or Korea, which have already received letters and now have to scramble to start trade deals, India's negotiations are still in progress, and the US is not just saying, "Here's the deal, take it or leave it." So that's a positive sign. As for where the tariffs will settle, I don't have an insider perspective, but my guess is that India will likely try to protect its agricultural sector, as it should. India would probably be willing to compromise on other sectors. But suppose we have a trade deal tomorrow, and then the federal court rules that IEEPA tariffs are inadmissible, upholding the US CIT court's decision. Then, what happens to the trade deal? These deals are being made on the assumption that IEEPA tariffs will continue. But if the appeals court, or even the Supreme Court, rules otherwise, then none of these trade deals would make sense. What kind of deal are you cutting under those circumstances? The way markets are digesting tariff news seems a little different this time. We aren't seeing a surge in gold prices or the dollar index, and emerging market sentiment is holding up relatively well. How do you see the dollar moving from these levels, particularly with regard to its impact on emerging market sentiment? Jahangir Aziz: I look at the US dollar and 10-year treasury yields through the lens of my experience working with emerging market countries. I'm not suggesting the US is an emerging market—far from it. The US probably has the best private sector in the world. However, looking at it from this perspective, consider this: the US fiscal deficit for fiscal year 2025 is projected to be around 6.2%, and for 2026, it could be around 7.2%. At the same time, the US is seeking to impose tariffs to address its trade balance, which is expected to decrease from 4% to about 3.5% due to tariffs. Here's the situation: the US is increasing its fiscal deficit by 1% while also reducing its current account deficit by 0.5%, meaning its foreign borrowing will decrease. To make up for this, the US needs to find 1.5% of GDP in increased domestic savings. If this were an emerging market country, we'd expect bond yields to rise and the exchange rate to depreciate. So, with the increase in fiscal deficit and reduced foreign borrowing, the US might experience higher yields and a weaker dollar, as the government's actions increase the risk premium on the country. This is how I see the dollar and US yields moving. 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Business Standard
09-07-2025
- Business
- Business Standard
Donald Trump's tariff 'blank check' must be curbed: Businesses to US court
A group of small businesses that won an order finding President Donald Trump's sweeping global tariffs illegal urged a federal appeals court to uphold that decision and block the trade levies. The US Court of International Trade ruled on May 28 that Trump exceeded his authority by imposing broad tariffs, a power granted to Congress in the Constitution. That decision was temporarily put on hold by the US Court of Appeals for the Federal Circuit, which will hear arguments July 31 on whether to let it go into effect or extend the stay. The companies challenging the tariffs filed their brief in the Federal Circuit on Tuesday. 'The government's claim of unbounded power to set, reset, rescind, and reapply tariffs of any amount against any product, based on a unilateral and unreviewable emergency declaration, runs contrary to the plain text' of the law, the businesses said in their brief. The appeals court showdown comes as Trump's aggressive tariffs continue to roil global markets. The hearing will take place a day before Trump's newly announced August 1 deadline for tariffs go into effect, replacing his earlier July 9 date. He's insisted there will be no further extensions. At issue is Trump's interpretation of the 1977 International Emergency Economic Powers Act, or IEEPA, which says the president can 'regulate' certain foreign transactions during times of crisis. The president claims that persistent US trade deficits amount to a national emergency, allowing him to evoke the IEEPA, but the companies contend that interpretation is overly broad. 'If such generic language authorized taxation, the president would have vast taxing powers that no president in US history has ever been understood to have,' the businesses said in their brief. 'IEEPA is thus properly understood as a sanctions and embargo law, not a blank check for the president to rewrite tariff schedules.' The companies, led by New York wine importer V.O.S. Selections Inc., also claim that the impact of the tariffs is so sweeping that the matter requires Congressional action under the 'major questions' doctrine. Arguing that Trump's tariffs will 'reshape' the US economy, the companies say they will face much higher costs and lower sales, with some of them likely to end up in bankruptcy. The administration filed its own brief in the appeals case last month, arguing that Congress had 'delegated' tariff authority to the president to bolster his ability to manage foreign affairs. It further claimed that blocking the tariffs would disrupt US diplomacy and jeopardize highly sensitive trade negotiations with other nations. But the companies said Tuesday that Trump's back-and-forth threats on tariffs and the resulting uncertainty were evidence that he was misusing the emergency law. The White House didn't immediately respond to a request for comment on Tuesday. If the appeals court ultimately rules against Trump's tariffs, the Justice Department has said that it would ask the US Supreme Court to immediately intervene in the fight.
Business Times
09-07-2025
- Business
- Business Times
Trump tariff ‘blank check' must be curbed, appeals court told
[NEW YORK] A group of small businesses that won an order finding US President Donald Trump's sweeping global tariffs illegal urged a federal appeals court to uphold that decision and block the trade levies. The US Court of International Trade ruled on May 28 that Trump exceeded his authority by imposing broad tariffs, a power granted to Congress in the Constitution. That decision was temporarily put on hold by the US Court of Appeals for the Federal Circuit, which will hear arguments on Jul 31 on whether to let it go into effect or extend the stay. The companies challenging the tariffs filed their brief in the Federal Circuit on Tuesday (Jul 8). 'The government's claim of unbounded power to set, reset, rescind, and reapply tariffs of any amount against any product, based on a unilateral and unreviewable emergency declaration, runs contrary to the plain text' of the law, the businesses said in their brief. The appeals court showdown comes as Trump's aggressive tariffs continue to roil global markets. The hearing will take place a day before Trump's newly announced Aug 1 deadline for tariffs go into effect, replacing his earlier Jul 9 date. He's insisted there will be no further extensions. At issue is Trump's interpretation of the 1977 International Emergency Economic Powers Act, or Ieepa, which says the president can 'regulate' certain foreign transactions during times of crisis. The president claims that persistent US trade deficits amount to a national emergency, allowing him to evoke the Ieepa, but the companies contend that the interpretation is overly broad. 'If such generic language authorised taxation, the president would have vast taxing powers that no president in US history has ever been understood to have,' the businesses said in their brief. 'Leepa is thus properly understood as a sanctions and embargo law, not a blank check for the president to rewrite tariff schedules.' BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up The companies, led by New York wine importer VOS Selections, also claim that the impact of the tariffs is so sweeping that the matter requires Congressional action under the 'major questions' doctrine. Arguing that Trump's tariffs will 'reshape' the US economy, the companies say they will face much higher costs and lower sales, with some of them likely to end up in bankruptcy. The administration filed its own brief in the appeals case last month, arguing that Congress had 'delegated' tariff authority to the president to bolster his ability to manage foreign affairs. It further claimed that blocking the tariffs would disrupt US diplomacy and jeopardise highly sensitive trade negotiations with other nations. But the companies said on Tuesday that Trump's back-and-forth threats on tariffs and the resulting uncertainty were evidence that he was misusing the emergency law. The White House did not immediately respond to a request for comment on Tuesday. If the appeals court ultimately rules against Trump's tariffs, the Justice Department has said that it would ask the US Supreme Court to immediately intervene in the fight. BLOOMBERG
Vox
07-07-2025
- Business
- Vox
Trump's new wave of tariffs, briefly explained
This story appeared in The Logoff, a daily newsletter that helps you stay informed about the Trump administration without letting political news take over your life. Subscribe here. Welcome to The Logoff: President Donald Trump is preparing to rev up his trade war again, even as he extends a pause on some tariffs until next month. What just happened? Trump announced new tariff rates on multiple countries Monday in a slew of form letters, citing their 'unsustainable Trade Deficits' with the US. The tariffs — including on Japan, South Korea, Malaysia, and numerous others — would take effect August 1. The White House also said that previously announced 'reciprocal' tariffs, which had been set to take effect this week, would be suspended until August 1. What's the context? Trump announced draconian tariffs on many countries in April, only to pause them a week later after financial markets cratered. He left in place a 10 percent 'global tariff,' as well as tariffs on China (since reduced from their triple-digit highs). Why is Trump doing this now? When Trump paused his tariffs in April, he said he would use the next 90 days to strike trade deals. But almost 90 days later, relatively few deals have been reached. Trump may now hope to force the issue with renewed threats of economic pain. The Logoff The email you need to stay informed about Trump — without letting the news take over your life. Email (required) Sign Up By submitting your email, you agree to our Terms and Privacy Notice . This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. Will any of these tariffs actually take effect? Trump's trade policy has been mercurial, to describe it generously, and it's even unclear how he's deciding on new tariff rates. Previously, a drastic dip in the markets managed to spook him into backing down, and the markets reacted negatively to his Monday announcement — but it's unclear what we should expect at this point. There's also a pending court case over the legality of Trump's tariffs, which he has imposed using emergency authority, but don't expect a quick resolution there, as a ruling by the US Court of International Trade blocking the tariffs is currently on hold. And with that, it's time to log off…
