Investors are debating whether the US Supreme Court ruling that US President Donald Trump’s sweeping ‘liberation day’ tariffs were unlawful is a positive, or a “step back” for global markets.
After nearly a year of trade volatility, the American high court ruled on Friday that Trump’s tariffs were unlawful in a 6-3 vote, and under the 1977 International Emergency Economic Powers Act (IEEPA), ordinarily used for national emergencies, could not justify most of the tariff waves last year.
Trump responded by invoking Section 122 of the 1974 Trade Act to temporarily impose a new 10% baseline tariff on all countries, which he has threatened to raise to 15%.
The announcement last year caused widespread disruption to markets, and now investors have said just as they were getting used to some of the tariff impact, there is now a new level of uncertainty.
See also: Markets rise on Trump’s EU tariffs U-turn
Responding to the news, Bryn Jones, head of fixed income at Rathbones, said: “I don’t think it’s worth playing bingo with Trump at this point.”
The US president had proven himself so “unpredictable” on tariffs and foreign policy that any attempt to predict his next action was more of a risk than it was worth, according to the veteran bond manager.
“You could probably try to predict him at this point, and you may even get some of these [calls] right, or you could end up with nothing.”
Indeed, Jason Hollands, managing director at Bestinvest, noted Trump’s “furious response” has only further complicated the picture for investors.
“There is still a considerable degree of uncertainty about the trade landscape, including the bilateral deals struck last year with trading partners,” he said. For example, the European Union looks set to halt the ratification of a trade deal with the US, while India has postponed negotiations on its own agreement.
AJ Bell’s investment director Russ Mould added: “While tariffs are generally not seen as market-friendly, investors had absorbed the trade policies announced by the Trump administration last year and were just hoping for some certainty and stability.”
This ongoing tariff saga offers “none of that”, he noted. Instead, investors are faced with another “cliff edge” as global governments “scramble” to determine if the deals they’ve already made with the US will be affected.
‘Global trade has taken two steps back’
Susannah Streeter, chief investment strategist at the Wealth Club, said: “The exuberance that flashed over global markets after the US Supreme Court rejected Trump’s tariffs as unconstitutional is evaporating.
“Instead of taking a big step forward, global trade has taken two steps back.”
This uneasiness has spread to markets. Japan’s Nikkei and the UK FTSE 100 opened the day flat, with US futures indicating that the S&P 500 might be bound for a similar fate.
However, Darius McDermott, managing director at FundCalibre, noted while investors seem to have become “desensitised” to political shock, a deeper concern is the fluidity of policy.
“Measures can be introduced, challenged or reversed in quick succession, which makes them difficult to price with conviction,” McDermott said. As a result, many investors seem to be adopting a “wait and see” approach.
See also: EdenTree’s Hiorns: Impact of tariffs and political uncertainty is only just beginning to unfold
That said, Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: “Taking a step back, there is an argument that this is a positive development for investors.”
The ruling was “largely expected” and is a signal that there are limits to the executive’s power over trade and tariffs, he said. While tariff headlines will “no doubt continue to dominate the news cycle, the goalposts have shifted” and it’s become clear that near-unlimited use of tariffs will be challenged.
“For markets that have spent months toying with worst-case scenarios, that’s a small silver lining,” Britzman concluded.
See also: The hawk-turned-dove: Trump nominates Warsh as Fed chair
