Markets react mildly to US court ruling on Trump's tariffs despite risk of prolonged uncertainty
The US court ruling has thrown a spanner in the works for Trump’s reciprocal tariffs in judging that the President has insufficient legal justification to impose the levies without the support of Congress. Market participants have largely cheered the news in the hope that the ruling could potentially scupper the tariffs or, at the very least, weaken America’s hand in ongoing trade negotiations.
Yet, the market reaction has been far from euphoric thus far. Investors are not getting too carried away, presumably in the expectation that the White House will find a workaround that allows them to continue to pursue their trade agenda.
There are various mechanisms in the Trade Act of 1974 that can be called upon to circumnavigate the courts, and there is nothing standing in the way of Trump doubling down on his sectoral tariffs, which are not blocked under the ruling.
Trade negotiations are now left in somewhat of a limbo, as it is tough to see how Trump can justify imposing tariffs when it is not clear that he has the legal means to do so. A concern for markets will be that the ruling potentially prolongs the period of uncertainty, as any legal bypasses will take time, and the emboldening of trading partners could sabotage the chances of trade deals being struck before the 9th July deadline.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
