Markets are giving mixed reactions to Friday’s US Supreme Court ruling invalidating the “Liberation Day” tariffs imposed by US President Donald Trump last April. The initial reaction was positive, with a surge in risk appetite. But after the weekend to assess the situation and the White House’s reaction, the market has turned negative. Like with most trade-related issues, Forex is directly implicated in the fallout.
The ruling was widely expected; it was just a matter of timing. As we mentioned before, the White House already had a backup plan for tariffs, announcing 15% global tariffs just hours after the ruling. The initial modestly positive market reaction has almost entirely faded since. Traders were hopeful that the Supreme Court decision would reduce some of the uncertainty around trade, but it’s also clear that Trump will continue to pursue tariffs using other legal mechanisms.
What Happens Now?
The initial concern was that the ruling would throw existing trade deals into disarray. However, so far, the trade deals have remained in place, with some US trade partners, such as the EU, insisting that the ruling does not change their stance. South Korea also ratified its trade deal. China was closed for a holiday on Monday, but its government did not change its trade rhetoric. Analysts believe that China and the US do not want to rock the boat on trade ahead of Trump’s planned visit to Beijing on March 31 to meet with President Xi Jinping.
While the tariff rates for the vast majority of countries remain the same, there are some notable changes. China and Brazil, which had high levels of tariffs, are among the biggest beneficiaries of the ruling, as it means a reduction in their trade levies. A few Southeast Asian countries had a couple of percentage-point reductions in tariffs to 15%. On the other hand, the UK, Australia and Chile, which had signed deals for 10% tariffs, have been hit with an increase, although the trade document cites a wide range of exceptions for specific product categories. It’s not clear if those countries might get a reprieve back to 10%, which could support their respective currencies.
How “Temporary” Are the Tariffs?
Trump is using a different mechanism to impose the 15% global tariffs: section 211, which allows the President to impose levies for 150 days, after which it’s up to Congress. For this reason, the tariffs are being called “temporary”. However, the Administration can initiate trade investigations that could conclude that the tariffs are in national security interests, and effectively maintain the tariffs. Congress – controlled by the president’s party with a very thin margin – could also enshrine the tariffs into law, but that is seen as unlikely.
What could be seen as positive by the markets in the medium term is that the ruling removes the wider range of tariffs that Trump has been imposing lately. Effectively, it curtails his power to announce new tariffs, but does not eliminate the possibility. This could leave the market with more certainty, and future tariff announcements could have a smaller impact on financials. However, the overall tone of the market’s perception of the tariffs can be summarised by gold’s reaction. The yellow metal has advanced substantially, gaining over $100 in the last couple of trading days to reach above $5,150 per ounce. That is despite a slight strengthening in the green back in early Monday trading. Traders are more interested in safe havens after the Supreme Court ruling.
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