Tariffying Moment.
- The US Supreme Court is set to publish, on Friday, January 9, its opinions & and probably its verdict on the use of IEEPA tariffs.
- Negative for US Treasuries and the US$. No bonanza for EM equities,
This report looks at the consequences of the current use of IEEPA tariffs being found to be illegal. That is my view. If true it affects the US fiscal picture - the more so if tariffs collected must be paid back. Either way, long term US Treasuries & the US$ remain shorts.
A ruling against current use of IEEPA will diminish the power of the executive going forward. And it would produce only momentary relief for highly tariffed economies like China and India. That's because the US Administration will use every power it can to reintroduce new tariffs and maintain foreign trade deals that used IEEPA.
The reality is that there are no tariffs that come close to replicating the IEEPA. Even those that approximate IEEPA will be immediately legally contested.
Foreign states that were coerced into early trade agreements may seek to renegotiate them if the tariff modules upon which they were based are changed,
Global resistance to the US's new found Geopolitical Doctrine of Spheres of Control (Donroe) is making a lot of enemies. Political and diplomatic resistance can no longer be divorced from trade - a lesson ironically learned from the US! Internationally, this may be the first instance in which the cost of Donroe is felt economically by the US.
If the ruling goes in favour of the Administration we can expect a greater and indiscriminate use of tariffs. That sort of volatility is unlikely to boost markets. Ony a meaningless Supreme Court fudge would leave markets unaffected and focussed on the over-riding question of the monetisation of AI and Fed cuts.