Citi notes options for Trump to reimpose tariffs post-court ruling

On Thursday, a federal trade court invalidated a set of tariffs imposed by President Trump, citing an overreach of authority. The court’s decision, which targeted the President’s use of the International Emergency Economic Powers Act (IEEPA) to levy tariffs, has led to a permanent injunction against these tariffs and prohibits any future modifications. The ruling, however, does not affect tariffs on aluminum and steel as they were not instituted under the IEEPA. Market volatility indicators reflect the uncertainty, with InvestingPro data showing significant price movements and a 25.6% return over the past six months.

The administration has responded swiftly, lodging an appeal with the US Court of Appeals. In light of this development, Citi analysts have highlighted the potential ramifications for companies previously affected by the tariff headwinds. The analysts at Citi, referencing a detailed note issued last week, underscored the favorable short-term impact for businesses but expressed caution regarding the future landscape of trade tariffs. Market data from InvestingPro shows robust trading activity, with average daily volume reaching 7.93 million shares over the past three months, indicating strong investor engagement with market uncertainty instruments.

The Court of International Trade’s decision is now subject to an appeal by the Trump administration, with the possibility of the Supreme Court eventually hearing the case. Citi analysts point out that, despite the current setback, President Trump has several avenues to reimpose tariffs under US trade law. These include Section 122 of the Trade Act of 1974, which permits temporary tariffs for up to 150 days but requires Congressional approval thereafter.

Furthermore, the President could broaden the scope of Section 232, which allows for tariffs in response to national security threats. Alternatively, the initiation of Section 301 investigations into trade practices of US partners, or the use of Section 338, which authorizes tariffs of up to 50% on imports from countries found to discriminate against the U.S., remain viable options for the administration to consider.

In other recent news, JPMorgan has revised its economic forecasts, presenting a more optimistic view of the global economy. The firm now sees a lower risk of recession, thanks to reduced trade tensions between the United States and China. This development follows significant tariff reductions, with the US lowering its rate on Chinese imports to 13.4% and China reducing its tariff on US imports to 28%. Meanwhile, Citi reported a decline in the University of Michigan Sentiment index, which fell to 50.8 in May, indicating weaker consumer confidence. Despite this dip, Citi analysts remain uncertain about its potential impact on consumer spending.

Additionally, Truist Securities has adjusted its investment strategy, downgrading equities to "less attractive" and increasing the attractiveness of holding cash. This move reflects a more cautious approach, capitalizing on a recent market rebound. Truist analysts have also downgraded U.S. large caps from "most attractive" to "attractive" and mid caps to "neutral." Furthermore, Wall Street’s main indicator of investor anxiety, the Cboe Volatility Index, hit an eight-month high amid concerns over US tariff policies. This surge in the index reflects heightened market volatility and investor concerns about a potential US recession.

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