Key Takeaways
- This week we report from Switzerland – a country hit with sizable tariffs thanks to its gold, pharmaceutical and chemical exports and resulting trade surplus with the US.
- President Trump is facing legal challenges as he looks to implement his tariff agenda – a ruling suggests powers have been exceeded. An appeal to the Supreme Court is likely.
- Markets remain calm against a backdrop of tariff related uncertainty – but any reduction would be welcome.
- The full impact of previously implemented tariffs is still to be seen but we do know they will likely be an impediment to growth.
This week’s market update comes from Switzerland another country hit hard by US tariffs. Switzerland is a facing 39% tariff – a level that is significantly higher than anticipated. Expectations were in the region of 15% – but significant gold, pharmaceutical and chemical exports to the US result in a significant trade deficit.
However, this week we learned that things are not that simple given a court ruling (following a similar judgement in May) that tariffs are illegal. The judgement suggests that President Trump has exceeded his powers by not using Congress to impose tariffs and instead choosing the International Emergency Powers Act which is really meant for national emergencies around security rather than the imposition of sanctions and tariffs designed to tackle a trade deficit.
So, what does this mean? It means we’re going to see President Trump appeal to the Supreme Court. The process may take some time, and tariffs remain in place for now until at least 14 October. We could see an interim ruling from the Supreme Court in the next fortnight, but the final decision could well extend into next year.
It is worth bearing in mind that the Supreme Court is Republican leaning and likely to favour the President. In this event it will likely be an end of the matter and tariffs will prevail. If the Court rules otherwise, then there will be continued uncertainty and more serious ramifications.
President Trump can and probably will continue to use tariffs under the section 232 powers which are already in place on sectors such as steel, autos and aluminium. These Section 232 powers can be extended further but doing so involves a process that takes time but ultimately can result in a similar level of tariffs on specific sectors. What these do not cover, however, is the global reciprocal tariffs and a mechanism to replicate the reciprocal tariffs would be more complicated and take a lot longer.
The other avenue of course is via Congress which does have the power to set tariffs – that ability is embedded in the Constitution so that may well be the path to follow. Nevertheless, that approach will take time and the imposition on individual countries may well need specific legislation pushing through. The Republicans currently have control of Congress, but they will be mindful that next year sees midterm elections so will be keen to make any related moves soon.
Markets remain calm – a situation largely reflecting the likely protracted nature of any legal process. Ultimately, if we see tariffs reduced that will be viewed as a good outcome. Should tariffs prevail then markets have already adjusted to that scenario and seem comfortable in ‘dealing with it’ albeit with the caveat that we know tariffs are a likely impediment to growth and that we are still waiting to see the full impact of those that kicked in earlier this year.
