Well, we got away without tariffs dominating the headlines for one week anyway! This week saw yet more tariff news, with a court ruling calling into question the legal basis for the majority of tariffs imposed since President Trump returned to the White House.
We also saw the President threatening the EU with a 50% tariff, though the fact this threat didn’t even last 72 hours added to the view that such numbers are used to bring people to the table rather than genuine policy.
The US Court of International Trade ruled that President Trump had “overreached his authority” in imposing tariffs without the approval of Congress. The judgement impacts levies imposed on 2 April, including the baseline 10% tariff, the 20% tariff on China, and additional ‘reciprocal’ tariffs on many countries which are on pause until 9 July. The court gave the administration 10 days to “effectuate” the judgement. The legal question is over the majority of the recent tariffs, including the 10% baseline tariffs and all ‘reciprocal’ tariffs. This also calls into question the basis of any negotiations underway with the US, and of course the ‘deals’ already struck, with the UK for example. A White House spokesperson has already said “it is not for unelected judges to decide how to properly address a national emergency”. Other tariffs will remain in place – those that have been implemented via the correct legal processes on steel, autos, aluminium and the tariffs on China from 2018.
The appeal posted by the US administration yesterday was successful – a higher court has now stated that the tariffs can remain in place and duties collected until the appeals process is completed. The administration has said it will ask the Supreme Court for “emergency relief” as soon as today. The US Constitution (Article I, Section 8) gives Congress alone the power to set tariffs, but the Trump administration used the 1974 International Emergency Economic Powers Act [IEEPA] which allows the President to impose tariffs if there if there is a declared national emergency. Trump declared such an emergency on 2 April, claiming that a lack of reciprocity in bilateral trade relationships, and policies by US trading partners to suppress domestic wages were an “unusual and extraordinary threat” to the US economy and to national security. However, if the US government is unable to justify a trade deficit as a ‘national emergency’ then it means that the tariff process may be significantly delayed by trade investigations, reporting and Congressional approvals.
The immediate question is if this ruling represents a permanent setback to the Trump administrations plans or more of an impediment. Arguably, it is the latter. Even if the courts ultimately declare that the IEEPA is not a valid framework for the imposition of tariffs, there are other avenues the administration can pursue to achieve their policy goals. The Trade Act of 1974 offers some options given it was designed to enable the President to impose temporary tariffs to address “large and serious United States balance of payments deficits”. Section 122 of this act gives limited powers to impose tariffs of up to 15% for up to 150 days before seeking further authorisation from Congress. Section 232 tariffs, which are already in place on steel, aluminium, and autos, also remain a valid policy tool. Section 232 ‘investigations’ are already underway in other sectors including pharmaceuticals and aerospace. The Tariff Act of 1930 also empowers the President to impose tariffs if US business are suffering “unfair discrimination” at the hands of a foreign power. Such tariffs are capped at 50%. There is a suggestion also that the tariffs could be added to the showpiece tax bill making its way through Congress to enact the tariffs. This could turn into a very long drawn-out process – and this alone means persistent uncertainty will continue to weigh on corporate decision making and investment, prolonging the headwinds to economic growth.
As for the threats by President Trump to impose a 50% tariff on imports from the European Union, the journey from escalation to de-escalation took just 72 hours, as a threat of a 50% tariff effective from 1 June came and went in the space of a few days. The announcement from Trump appeared to be the result of frustration with the speed of negotiations with the EU rather than a firm policy commitment, though the threat clearly focussed minds in the EU to push forwards with the next stage of talks. The market reaction was also somewhat muted given the size of the tariffs proposed, with European equities seeing a mild selloff on Friday, reflecting perhaps the degree of scepticism to which tariff announcements are now treated. While the US and UK markets were closed on Monday for bank holidays, European equities recovered all of Friday’s losses and indeed the DAX index in Germany has seen record closing highs this week.
President Trump also touted the prospects for tariffs on Apple, Samsung and other smartphone makers unless production of their smartphones was moved to the USA. Trump suggested that a tariff on 25% should be imposed on iPhones and Samsung phones that are not manufactured in the US. Apple sold 60 million iPhones in the US last year, the majority of which were made in China. Apple has already said it is planning to make all devices destined for the US in India by the end of 2026. India and the US are in the midst of trade talks to remove the threatened 26% tariff on goods imported into the US from India. Apple, meanwhile, has already promised to spend several hundred billion dollars in the US in the next four years, but shifting their South Asian based supply chain for iPhone production would be both costly and disruptive.
Equity markets appeared to be continuing to take a ‘glass half full’ view of tariffs, even before the news from the US trade court on Wednesday. Now we face further uncertainty over the timing of talks or what even can be negotiated if the legal process undermines the majority of tariffs under discussion. The prevailing view, notwithstanding the legal uncertainty, is that we would see agreements to reduce tariffs towards the baseline level of 10% for many of the US’s key trading partners over the coming weeks leading up to the closure of the 90-day window for negotiations in early July. But that timescale now has to be questioned. Financial markets will take some comfort if the tariffs are indeed being kicked down the road, but the persistent uncertainty will certainly be an impediment to economic growth.
Source: Columbia Threadneedle Investments as at 30 May 2025
