Global stock markets have gained this morning as a US court has issued a ruling that could potentially block and unwind Donald Trump’s tariffs.
The US Court of International Trade (CIT) ruled this morning (29 May) that the legal basis under which Donald Trump imposed near-universal “reciprocal” tariffs on all imports into the US was unlawful.
“This ruling reaffirms that our laws matter, and that trade decisions can’t be made on the president’s whim,” said Oregon attorney general Dan Rayfield in a statement.
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Trump’s administration has immediately indicated that it will appeal the decision. The appeals process could run on for some time and potentially go all the way to the Supreme Court.
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“In this rapidly evolving landscape the latest development is unlikely to be the last twist in the tale,” says Derren Nathan, head of equity research at Hargreaves Lansdown. “The world will be watching closely as the United States legal system seeks to hold its highest office to account.”
Should the appeal be unsuccessful, though, the tariffs that have been in effect in varying degrees since 5 April would be unwound.
Any businesses in the US that had paid tariffs on imports under the regime would have their payment refunded, plus interest. These tariffs had been as high as 145% on imports from China, while imports from many other countries had previously been subject to tariffs of 30% or more.
While temporary pauses have reduced tariffs on imports from most countries to a 10% baseline, or 30% in China’s case following a US-China trade agreement earlier this month, the ruling could hamper Trump’s ability to reinstate the tariffs once these pauses expire should he fail to negotiate comprehensive trade deals with the countries.
While the CIT’s ruling is clearly unpopular in the White House, it has provided a boost to investor sentiment, with global stocks and US futures rising this morning.
The FTSE 100 opened 0.6% higher this morning, though it had lost most of these gains by around 10am.
What was Trump’s legal basis for tariffs?
Trump’s tariff regime used an obscure piece of legislation called the International Emergency Economic Powers Act (IEEPA).
Signed by then-president Jimmy Carter in 1977, the IEEPA effectively gives the US president emergency powers to regulate the US economy in response to a national emergency.
Using the IEEPA, and characterising the size of the US trade deficit as a national emergency, meant Trump bypassed Congress when imposing the tariff regime – where he could have struggled to achieve the requisite number of votes, given the widespread view that it is damaging to the US economy.
However, that strategy now appears to be backfiring on Trump.
“Using the International Emergency Economic Powers Act (IEEPA) as a basis for imposing tariffs is legally untested and is now coming under increased scrutiny,” says Lale Akoner, global market analyst at eToro.
“This does not necessarily mean tariffs are disappearing any time soon, as the federal appeals court is likely to take a more favourable view of them,” Akoner adds. “What it does signal, is the beginning of a lengthy legal battle, one that could ultimately reach the Supreme Court, a development with significant market implications.”
White House deputy press secretary Kush Desai criticised the CIT’s ruling in a statement saying “it is not for unelected judges to decide how to properly address a national emergency".
There are other options on the table for the administration should the appeal they are launching against the decision prove unsuccessful. One option, according to Jim Reid, global head of macro research and thematic strategy at Deutsche Bank, “would be to expand the use of other tariff instruments, like the Section 232 on national security grounds, which have been used for autos, steel and aluminium tariffs”.
Because these targeted tariffs used a different legal mechanism, they haven’t been impacted by the CIT’s ruling as yet: 25% imports on all steel, aluminium and cars will remain in place.
Tariff challenge: how have markets reacted?
Most experts viewed the high tariffs that Trump had imposed as potentially damaging to the US and global economy. There are also concerns that they could fuel global inflation by increasing the cost of goods. The possibility that they could be blocked or unwound has therefore generally lifted sentiment.
The pound fell slightly this morning, with the prospect of the tariff barriers being unwound boosting sentiment around the US economy.
The FTSE 100 made a strong start before pulling back.
Asian stocks also responded positively to the ruling. The Shanghai Stock Exchange gained 0.7%, while the Nikkei gained 1.88%. The Hang Seng Index, which tracks companies listed in Hong Kong and mainland China, gained 1.35%.
Oil prices also received a boost. Brent crude was trading 1.17% higher shortly after 10am. The prospect of tariffs damaging the global economy and even potentially leading to a US recession had suppressed oil prices in the aftermath of ‘Liberation Day’, but they have now been boosted both by this news and potential fresh sanctions on Russia, which have mitigated concerns of oversupply.
Gold prices, however, have fallen over 0.6% this morning. The metal is often seen as a safe-haven asset; the market turmoil that accompanied the tariffs’ initial announcement saw gold prices surge, so it is unsurprising that the metal is now falling back.
