US: Legal setback reshapes trade landscape – ABN AMRO

ABN AMRO economists Rogier Quaedvlieg, Arjen van Dijkhuizen and Bill Diviney analyse how the US Supreme Court’s annulment of IEEPA-based tariffs modestly lowers overall US tariff levels while leaving them historically high. They stress that Section 122 and sectoral tools like Section 232 and 301 will likely be used to rebuild tariffs, with limited impact on US growth, inflation and fiscal trajectories in their base case.

Supreme Court ruling curbs tariff powers

"After a surprisingly long delay, the Supreme Court ruled 6-3 last Friday that the International Emergency Economic Powers Act (IEEPA) does not give the President the authority to impose tariffs. Importantly, they referred the decision on whether paid tariffs, over $160 billion, have to be refunded back to lower courts. The Trump administration was quick to reimpose tariffs through other means."

"The impact on the fiscal picture will be limited. Our base case already saw a decrease in tariffs this year, which has now materialized. Having to pay back last year’s tariffs will raise this year’s deficit again but is overall unlikely to qualitatively alter the trajectory of the US debt."

"We also do not expect a substantial impact on inflation. The overall aggregate tariff level remains at historically high levels. Even if businesses do get tariff refunds, they’re unlikely to pass that fiscal windfall on to end-consumers."

"Section 122 again provides legally dubious grounds for tariffs. Formally, it was written to prevent international payment problems in a fixed exchange rate regime. Given the precedent in the IEEPA tariffs, it’s unlikely that a legal challenge, which is sure to come, will be concluded before the 150 day term is up."

"In the meantime, the Trump administration is expected to take the sector-level Section 232 and the ‘unfair foreign trade practices’ Section 301 to rebuild the tariffs in a permanent, and more legally-sound manner. Both require extended investigations before they can be applied. Neither can be used to completely rebuild the Liberation Day package as they do not allow for sweeping universal tariffs, but an extended effort can get close."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)