In the wake of a massive pushback by the US Supreme Court against his tariff policy, Donald Trump has opted for something of a showdown.
With his main legal lever on tariffs invalidated, the US president announced that he was raising his new global tariff to 15%, up from the 10% initially planned.
This move reshuffles the cards in an already fragile transatlantic trade relationship and potentially threatens an agreement between Washington and Brussels.
The Supreme Court started all this by ruling that the White House had overstepped its powers by relying on the International Emergency Economic Powers Act (IEEPA), a law designed for national emergencies, to impose tariffs on dozens of countries.
In response, President Trump immediately mobilised another tool: Section 122 of the Trade Act of 1974, which authorises him to impose temporary import restrictions for 150 days.
A decree introducing a 10% global tariff was due to come into force, but the president announced on social media that this rate would be increased to 15%.
This toughening of measures comes as Brussels attempts to secure a compromise presented as a path to stabilisation.
Negotiated in Scotland last year, the transatlantic agreement provided for the United States to maintain a 15% tariff on most European exports, while the European Union would reduce its own duties on American industrial goods and some agricultural products to zero.
Member states have given the green light, but the European Parliament has not yet ratified the text and it could find itself suspended.
Before the IEEPA-based tariffs were canceled, the effective tariff rate reached 19.6%, a level not seen since 1935.
The Supreme Court’s decision immediately brought the rate down to 9.1%, halving the overall tariff pressure.
The activation of Section 122 then raised the rate back to over 15%, restoring part of the tariff wall, but without returning to the previous peak.
If these temporary measures expire after 150 days, the effective rate would automatically fall back to 9.1%, illustrating how much the US trade trajectory is now dependent on legal and political decisions.
The United Kingdom, which had obtained a uniform rate of 10% under a “reciprocity” agreement, now faces a five-point increase.
In turn the European Commission has officially requested “full clarification,” reiterating that “an agreement is an agreement.”
The underlying message is that parliament will not ratify a text if the US reserves the right to unilaterally change the rules of the game.
What are investors to make of it?
“This is simply a tax on US corporate profit,” said David Roberts, head of fixed income at Nedgroup Investments. “Companies now look set to increase pressure on the Federal Government for refunds. Windfall profits, even a rounding error such as these, boost stocks.”
Although there is also a rotation away from US equities.
“We had adopted an investment thesis linked to a phase of geographical rotation away from US equities and a broader distribution of performance outside the most momentum or most heavily held sectors,” said Michaël Nizard, head of multi-asset and overlay at Edmond de Rothschild Asset Management.
“This context reinforces our belief in the value of the two strategies we launched in recent months, Global Resilience and Mission Europa,” Nizard said.
The first, said Nizard, aims to focus on resilient companies in an unstable world, while the second targets companies that will benefit from the European response to this environment.
“We are also maintaining our overweight position in Japanese and emerging market equities, which are currently continuing to outperform,” he said.
For bonds, the picture is less clear, noted Roberts. “Lower tariffs equal lower CPI all things being equal and should see a rally,” he said. “However, the US deficit increases, and the treasury will need to issue more bonds to make up the short fall. More supply; bond prices may fall.”
It is highly likely that Trump will find an alternative route via another piece of legislation to continue his grand tariff plans.
“That, plus potential roll back of current tariffs, will create investment uncertainty. Generally, that’s not good for equities,” added Roberts.
Comments