Markets not surprised. 10-year Treasury yield rises modestly.
By Wolf Richter for WOLF STREET.
The tariffs Trump imposed by invoking the International Emergency Economic Powers Act (IEEPA) of 1977, both the “reciprocal” tariffs designed to reduce the trade deficit, and the tariffs designed to reduce fentanyl trafficking out of China, Mexico, and Canada, got struck down in the Supreme Court by a 6-3 vote, released today. The three dissenters were Clarence Thomas, Samuel Alito, and Brett Kavenough.
Over half of the tariff revenues have been generated by the IEEPA tariffs. The rest of Trump’s tariffs, based on different laws, were not before the Court.
The administration has said in the past that if these tariffs under IEEPA were ruled illegal, it would switch tariffs to various other tariff acts, including those it has already invoked for its other tariffs.
The ruling removes Trump’s favorite negotiating tool that he used widely to push companies and countries to invest in the US and to achieve diplomatic goals.
The ruling rejected the argument brought forth by the Trump administration that IEEPA implicitly gave the President the power to levy those tariffs.
“Had Congress intended to convey the distinct and extraordinary power to impose tariffs, it would have done so expressly, as it consistently has in other tariff statutes,” Chief Justice John Roberts wrote in the opinion.
Allowing the administration’s legal reasoning to stand “would replace the longstanding executive-legislative collaboration over trade policy with unchecked Presidential policymaking…. Congress seldom effects such sea changes through ‘vague language,’” Roberts wrote.
The justices had seemed broadly skeptical during the arguments in November about Trump’s authority under IEEPA to impose the tariffs.
The ruling did not include language on whether or not the government would have to refund those IEEPA tariffs. Over 1,000 companies have reportedly sued or joined suits against the government over the tariffs in order to secure any potential refunds, including Costco, Toyota, Bumble Bee Foods, Revlon, Kawasaki, BYD, Goodyear, etc.
In his dissent, Kavanaugh said: “Refunds of billions of dollars would have significant consequences for the U. S. Treasury. The Court says nothing today about whether, and if so how, the Government should go about returning the billions of dollars that it has collected from importers. But that process is likely to be a ‘mess,’ as was acknowledged at oral argument.”
Markets not surprised.
The 10-year Treasury yield has ticked up only 2 basis points so far, to 4.10%, which it might have done anyway. It seems the Treasury market is only mildly ruffled, if at all, by the prospect that a substantial portion of revenues for the government would either cease to flow, or would have to be replaced with other tariffs, while the threat and “mess” over refunds – which would require additional borrowing by the government – will hang over the market perhaps for years.
The stock market hasn’t budged much. The Dow is down a hair, the S&P 500 up just 0.3% at the moment and the Nasdaq up 0.5%, about the same before the ruling was released.
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“I have the right to destroy the country but I can’t charge a single dollar” listen to DJT speech, that just came out of his mouth maybe twice
When are people going to quit posting “Trump said” stuff here????
I thought It was appropriate for the topic, supreme courts does this Trump does that and says this in response to supreme court. Cause and effect. I thought it added to the discussion, of where we are going with our markets and as a nation. You are in charge Wolf, it’s your site. Pardon if offended you or your viewers. Money pays attention to what the POTUS says and does.
That line you cited contains nothing that said what he will do. Nothing. It was just a lament!
Trump DID say some things about what he will do, including imposing global 10% tariffs, based on Section 122 of the Trade Act of 1974 (after 150 days, they’ll require congressional approval) on top of the existing legal tariffs.
But you didn’t mention that, though that would have been useful for you to mention and would have contributed to the usefulness of the comments.
You must have missed the part where one of the dissenting judges listed all the avenues the administration can pursue to accomplish the same objective.
Hey Delusional, how about some context? Or are you just some corporate media shill?
Another option..Congress could approve the tariffs. Why have they not?? Won’t pass? Yes, it is a mess.
Congress is and has long been completely in the pocket of Corporate America, which is why we have these huge trade deficits in the first place. Only Corporate America benefitted from pumping up its profit margins by sending production to cheap labor overseas and by using US tax laws to shelter foreign production from US income taxes by running them through low-tax jurisdictions, such as Ireland. They’re all doing it, and Congress encourages them to do it.
“Congress is and has long been completely in the pocket of Corporate America”
1,000% agreed. And it’s not just Congress.
It’s sickening. After this ruling today, I have accepted the death of the US. It’s over.
I’m old, I hope I die before it happens…
What… are You stuck here in America ? My Great Grandparents came here in 1916 from Mojdez Crnagora for a better life.
There is a whole world out there to explore.
Doom talk will get One nowhere.
Have a fantastic weekend.
When the average American reads this, I think the feeling is ‘what do I care, I like my cheap Chinese imports’.
I understand that the country is better off overall, but what’s in it for the individual — or how do you explain to an individual — how they personally or directly benefit from onshoring? I have some thoughts, such as perhaps the gov generated more rev and therefore can cut individual taxes, but curious on how you go about explaining this when it comes up in conversations?
you’re not getting “cheap imports” – you’re getting fat profit margins for corporate America. They didn’t offshore to save you money, lol, they offshored to fatten up their own profit margins by bringing down their labor and tax costs.
“Congress is and has long been completely in the pocket of Corporate America” – Yes!
When the corporate workers are starving they will no choice but to eat the rich. I sure hope they taste like chicken.
Turns out, George Carlin was correct after all…
Well said. If I may attempt to expand on it a little, R’s and D’s are basically the same party on economics because the Fed allows them to be. Everything is just a bidding war. Congress gives corporations tax perks because they can always paper over the lower tax receipts. Deficits haven’t mattered.
As for this episode with tariffs, now the Treasury has the money and others just own claims to that money. Advantage Treasury.
The truth is somewhere in between. Plenty of workers in non-manufacturing sectors benefitted from the economic efficiency.
I’m not arguing with you though, I agree that way to much of the benefit went to corporations. Some of the tax issues you mention should have been the first thing to get fixed.
We’re not really cleaning up the system though, we’re adding bloat/inefficacy/confusion.
Congress has historically been more pro Tariff than POTUS. Congress represents smaller segments of the country that can see disproportionate benefit from Tariffs (you can absolutely get corruption in a different way from this version of the world). Steel tariffs in the old day won your seat in the rust belt. Neoliberal POTUS has the stopping block.
I work in manufacturing that hasn’t offshored a single employee, we’re 100% American and source all our pressure vessels and other structural steel from American manufacturers. Industrial policy would help more than tariffs.
Make trade school free. Keep cost down for MechE/ChemE engineers to encourage the best and brightest. We’re getting carved up by tariffs on equipment, but the HTS codes for our products are all exempt, so no help on the product side.
Most importantly, things like induced demand could really get industries off the ground.
IDK if they have the votes.
Also we must remember politics is not about results, it is about blame. The president can now blame the SC for falling manufacturing employment in 2025. They stifled his plan to “bring the jobs back (r)”. So who isn’t happy with this ruling?
I doubt this ruling will have much affect. The executive branch can unilaterally suspend imports from a company or country. It’s an easy response to a demand for refund of the tariffs… You want the refund? You can no longer do business in the US.
Trump says he has backup plans to keep tariffs. Looks like the bond market believes him, or just doesn’t care. Otherwise rates would be moving a lot higher today than they have been, everything else being equal. Tariff revenue is a very small percentage of our total debt.
It seems this ruling would make it much easier to litigate against the “various other tariff acts” and win those as well.
Not really, those other acts specifically say “tariffs” and have been challenged before. The new tactics the IEEPA ruling is forcing will just be a little less convenient for the executive branch.
The real issue is that congress has historically abdicated its responsibilities to the executive branch. If either side was interested in fixing things, they would roll that back, but neither side wants to be restricted when they are in control.
I’m looking at a bear call spread on TLT at 90/91 and expiring next week. The treasury market is slow moving compared to stocks, but eventually incorporates news. This ruling means:
-More treasury issuance to cover bigger than expected deficits.
-Possible unexpected liabilities when the tariffs have to be refunded.
-Suddenly worsening debt to tax revenue and debt coverage metrics for the US Govt, possibly resulting in more downgrades.
Of course, this will stretch out over months as the admin tries different legal approaches. But bonds will eventually price in the facts on the ground. The SC has ruled. The administration’s presumably best legal footing has failed, and they’re stalling now.
Bond yields will also face upward pressure from today’s hot PCE inflation reading. Wolf, I hope you’ll write your thoughts about how for the past 3 months CPI has been trending down to 2.4% annualized while PCE has been trending up to 2.9% annualized. Either the data quality has deteriorated after all the layoffs, or one agency is more politically influenced than the other! Either way is a discouragement to treasury buyers.
Short TLT.
check out the 5 year chart of TNX. The 200MA is 4.006
It’s taken 4 years for then TNX to return to the 200MA.
Should get exciting for a while.
oh, and to the same for TLT. Something has to give…one way or the other.
Yes, the devaluation trade is still very much in play…
@ChrisB
“PCE has been trending up to 2.9% annualized”
You mean 4.8% (.4×12)
I read a couple months ago that someone associated with the administration was buying up the tariff receipts from companies.
So now if those tariffs get refunded they make a ton of money..
Pretty funny hearing Kavanaugh say “…that process is likely to be a ‘mess’…” since it is his (and his brethren’s) fault for waiting so long to rule.
He probably needed to find time on his calendar to consult with his frat bros, PJ, Squee, and Tobin before ruling. Seriously though, I think more blame goes to the guy who created all this chaos and unpredictability for corporate America on such flimsy legal grounds.
“President Donald Trump on Friday said the U.S. Supreme Court’s ruling that struck down his sweeping tariffs was “deeply disappointing” and that he was “absolutely ashamed” by the justices who ruled against him in the 6-3 decision.” Trump has a tendency to appoint unqualified people, especially women, to important positions of power (Coney Barret, Noem, Bondi, for example). One would think he might have learned more from his first administration where he gave his imbecile daughter way too much power. Hubris is dangerous.
Wolf – if Trump replaces these tariffs with others under different laws, what effect does that have on tariffs already collected by the US gov?
Can those other tariff laws be applied retroactively? Or is that unconstitutional?
Good, congress passes taxes.
I think he can lower them to 10% and make them stick via another rule.
The case for tariffs is compelling, but I have been stunned at the inability of the administration to articulate it to the country. Plus their implementation has been messy and confusing.
Plan B is supposedly 10% on all imports. Why wasn’t that plan A? So much easier to calculate. Should be viewed as more of a fair assessment. Minimal pushback since it’s a drop in the bucket to most importers. I would argue it’s still too low, but it’s a start.
The government needs to raise money to fix our ugly budget deficits. Our middle class needs a hand because they’re in constant competition with foreign labor with which they cannot compete while living here. Corporate America can’t exit the race to the bottom that is offshoring without a change in the legal framework. Once one competitor succeeds manufacturing overseas, sll others in an industry are compelled to follow suit or gradually lose market share.
Some tariffs could be good if done wisely. Requires a long term strategic plan.
It was not done wisely. It would require some smart guys and actual patriots (not self centred billioners) around Trump. It is not going to happen.
Nobody has explained how tariffs are supposed to raise revenue *and* bring back manufacturing (and, continue to act as a cudgel that Trump can use for his personal vendettas). If the manufacturers come back then they stop paying tariffs, and vice versa. Meanwhile, the totally chaotic, arbitrary and capricious nature of this whole thing is dissuading companies from committing to anything, and as a result nothing is really changing. Manufacturing is down and the trade deficit is up. If anything, this is turning into a worst-of-all-worlds situation for consumers: they’re paying the tariffs without getting the jobs back, the tariffs aren’t even fixing the deficit if they have to be refunded, and consumers probably won’t be getting those refunds.
Agreed. It is still too early to tell as well. In our industry, folks rushed to pour product across the border before the tariffs went into effect. Several in our industry did exactly that. Plenty of companies are still selling pre-tariff product and waiting this mess out to see what happens next.
Gorsuch’s concurring opinion acusing the majority of talking out both sides is worth a read if you need a laugh.