On May 28, the court ruled that Trump’s “universal reciprocal tariffs,” issued under the International Emergency Economic Powers Act
(IEEPA), were unlawful and constituted an overreach of executive authority. The ruling imposed a permanent injunction against the
enforcement of the tariffs. Following the announcement, U.S. equity index futures surged across the board—Nasdaq futures jumped
nearly 2% intraday, gold plunged $30 in a matter of minutes, and the U.S. Dollar Index spiked 0.4%.
What investors are now focused on is the potential market-wide impact and longevity of this legal decision. Before diving into its broader
implications, it’s essential to understand why the U.S. Court of International Trade (CIT) has the authority to block a sitting president from
overstepping legal boundaries.
Below is a brief overview of the CIT:
In summary, the U.S. Court of International Trade (CIT) is a specialized court within the federal judiciary system, tasked with adjudicating
disputes related to imports, tariffs, trade remedies, anti-dumping, countervailing duties, and other aspects of federal international trade law.
In essence, it is a dedicated judicial body that oversees whether the U.S. government’s trade actions comply with the law—a specialized
forum for holding trade-related executive actions accountable.
How CIT Can Halt the Trump Tariffs
At the heart of this judicial action lies a legal delineation of the boundaries of presidential power and the constitutional checks and balances
that constrain executive overreach.
The Trump administration attempted to invoke the 1977 International Emergency Economic Powers Act (IEEPA) to declare a state of
"economic emergency," thereby justifying the imposition of sweeping tariffs on China and other trade partners. While the IEEPA does grant
the president authority to take economic action in response to foreign-origin threats deemed to create a national emergency, Congress’s
legislative intent was to narrowly tailor its use—only in response to "unusual and extraordinary threats" emanating from specific nations or
sectors. Crucially, the statute does not authorize the president to unilaterally impose broad-based tariffs. Historically, the IEEPA has been
invoked in targeted contexts—such as during the Iran hostage crisis—not as a blanket instrument for global trade intervention.
In its ruling, the Court of International Trade (CIT) sharply rebuked the Trump administration, identifying a dual overreach of authority. First,
characterizing a trade deficit as a "national emergency" exceeded the IEEPA’s statutory definition, which requires that the threat be both
foreign in origin and a genuine risk to national security. Second, the imposition of “reciprocal tariffs” amounted to an unconstitutional
usurpation of Congress’s exclusive power to regulate tariffs. The court emphasized that the U.S. Constitution vests legislative authority over
tariffs with Congress, and the president may only act within the scope of delegated power. This division of authority is a foundational
element of America’s separation-of-powers system—the president is not an “imperial executive” above the law, and all administrative
actions must be grounded in statutory authority and subject to judicial review.
The CIT further clarified that the IEEPA’s legislative purpose was to limit, not expand, presidential power. The statute permits temporary
measures—such as investigating, regulating, or prohibiting specific transactions—to address concrete, time-sensitive threats. It was never
intended to confer permanent authority to reshape the global trade system. Trump’s interpretation of the IEEPA as a blanket tariff mandate
not only misrepresented the plain language of the statute, but also undermined the constitutional framework of checks and balances. This
level of judicial scrutiny is not unprecedented; in 2020, in a case brought by over 3,600 U.S. companies challenging the Trump tariffs, the
court similarly ruled in favor of the plaintiffs, citing exceedance of statutory limits.
Ultimately, the CIT determined that Trump’s tariff policy was "unlawful as to all parties" and exercised its jurisdiction to invalidate and
immediately halt the implementation of the measure. This ruling is more than a case-specific correction—it is a reaffirmation of a core
constitutional tenet: all executive actions must conform to the rule of law, and even the president cannot invoke “national security” as a
pretext for exceeding legal boundaries. This form of judicial oversight is a critical safeguard within the U.S. legal system, ensuring that power
is not abused under the guise of emergency.
Does This Ruling Trigger Immediate Termination of Tariffs?
In theory, U.S. Customs, responsible for collecting tariffs, must unconditionally comply with the court ruling and cease tariff collection. Upon
issuance of the ruling, the court will formally notify the U.S. government—including the Treasury Department and Customs and Border
Protection (CBP)—to halt enforcement of the tariff order.
Three possible scenarios may follow:
Among these, the second or third scenarios are more likely, as the Trump administration may seek to circumvent the court ruling through
two approaches:
Appealing to the Circuit Court and requesting a stay of the judgment to continue tariff collection until the appeal is resolved. Courts typically
allow a short period (e.g., 7–14 days) post-judgment for the government to file a stay motion. However, since the ruling is grounded in
constitutional separation of powers (the major questions doctrine and the nondelegation principle), and the court found Trump’s tariff order
to be clearly ultra vires, approval of a stay is less probable. In analogous cases (such as Algonquin SNG, Inc. v. Fed. Energy Admin., 1975),
courts have denied stay requests because the presidential action was deemed “manifestly unlawful.”
Invoking alternative legal authorities to continue tariffs beyond IEEPA: for example, Section 122 of the Trade Act of 1974. Section 122
authorizes the President to impose temporary (up to 150 days) additional tariffs of up to 15% on imports in response to a serious “balance of
payments” crisis (19 U.S.C. §2132). The Trump administration might define the $1.2 trillion trade deficit in 2024 as a balance of payments
emergency. However, these provisions grant less expansive presidential authority than IEEPA, and the tariff rates under these statutes have
more limitations.
The core controversy in this ruling concerns whether the trade deficit qualifies as a “national emergency” under IEEPA. The Trump
administration may argue that, although the trade deficit does not directly constitute a national emergency, the “persistent and sizable trade
deficit” threatens the security of U.S. dollar assets and should be regarded as a “quantitative change resulting in a qualitative shift.”
Accordingly, future tariff policies may undergo partial adjustments: global “reciprocal tariffs” may be rescinded, while targeted tariffs on
specific countries or regions could be retained.
The Trump administration has already initiated an appeal. It is worth noting that Section 232 national security tariffs on steel and aluminum
remain in effect, and the government has threatened a 50% tariff on EU autos by June 1. This “legal toolkit rotation” strategy injects
considerable uncertainty into trade policy.
Fundamentally, this ruling exposes contradictions within the U.S. administrative and judicial systems. The lack of consensus on foreign trade
policy prevents cohesive action. The separation of powers framework acts as a check on executive overreach, which in turn helps mitigate
some market risks.
Impact on US stocks and the Fed’s policy path
After the ruling was announced, the global financial markets exhibited a complex “immediate boost – structural divergence” response:
This market reaction fundamentally stems from the dual correction of easing inflation expectations and the mitigation of trade tensions: With
tariff barriers removed, the cost of imported intermediate goods will decline, directly improving corporate gross margins, while the risk of
global supply chain disruptions will significantly diminish. According to Goldman Sachs models, a full tariff removal could reduce the U.S.
core PCE inflation rate by 0.4 to 0.6 percentage points.
This provides a reliable pathway for the Federal Reserve to recalibrate its inflation window and interest rate trajectory:
(1) Dual variable reset of inflation and growth
Inflation easing effect: According to the New York Fed model, full tariff removal may bring CPI year-over-year growth down to a 3.2%–3.5%
range by Q3 2025, below the market’s previous expectation of 3.8%–4.0%, offering a critical data window for the Fed to validate its
“transitory inflation” assessment.
Growth expectation revision: Greater certainty in trade policy is expected to boost corporate capex growth from the current 2.1% back to
around 3.5%. The Atlanta Fed’s GDPNow model has already raised its Q2 growth forecast from 2.8% to 3.1%.
(2) Triple policy considerations for the June FOMC meeting
Short-term wait-and-see stance: Although dovish signals have been sent by Atlanta Fed President Bostic and others, the policy uncertainty
stemming from the ongoing appeal makes it 78% likely (per CME FedWatch data) that the June 11 meeting will maintain the 5.25%–5.5% rate
range.
Mid-term rate cut conditions: If tariffs are ultimately lifted and core PCE remains below 3.5% for two consecutive months, the Fed may
initiate a 25 basis point cut in September to address global growth slowdown risks.
Long-term debt constraints: With the 10-year U.S. Treasury yield already surpassing 4.5%, coupled with a concentrated $7.2 trillion in
Treasury maturities due in June, the Fed faces a delicate balancing act between inflation control and debt sustainability, likely resulting in a
“slow and steady” pace for the rate cut cycle.
Investors’ response strategies
I. Strategic Allocation Strategy: Dynamic Positioning with Precision Management
Following the ruling, U.S. stock futures surged significantly, reflecting the market’s positive pricing of easing trade tensions. It is advisable to
capitalize on the policy window by overweighting export-sensitive sectors (such as semiconductor equipment and industrial robotics) and
cost-sensitive industries (high-end consumer electronics, cross-border retail).
Equity exposure can be increased toward a 70% target range while maintaining approximately 30% in cash equivalents to hedge against
potential secondary volatility triggered by the Trump administration’s appeal.
II. Industry Selection Guide: Precise Identification of Beneficiary and Risk Sectors
Three Key Beneficiary Tracks:
Tech & Semiconductor Supply Chain: Tariff removal will reduce chip import costs by 8%–12%, with a focus on globally integrated supply
chain leaders like Apple (AAPL) and NVIDIA (NVDA). Watch for potential impacts under Section 232 of the Trade Expansion Act of 1962;
consider domestic producers with over 60% local capacity such as Intel (INTC).
Consumer & Retail: Lower import prices are expected to boost retail gross margins by 0.5–0.8 percentage points. Leaders like Walmart
(WMT) and Target (TGT) stand to benefit directly. Data indicates that for every 0.1% drop in core PCE, retail sector net margins rise by 0.4%.
Healthcare & Staples: With China supplying 60% of U.S. active pharmaceutical ingredients, tariff removal further consolidates their market
position. Companies like Johnson & Johnson (JNJ), Merck (MRK), and staples giants such as Coca-Cola (KO) and Procter & Gamble (PG)
maintain strong defensive characteristics amid trade volatility.
III. Avoid or Minimize Exposure in Three High-Risk Sectors
Steel & Aluminum: Despite the repeal of “Liberation Day” tariffs, the 25% Section 232 tariffs on steel and aluminum remain in effect. U.S.
Steel (X) and Alcoa (AA) may face 15%–20% compression in per-ton steel margins.
Auto Parts: If the proposed 50% auto tariffs on the EU are implemented, Tesla (TSLA) and GM (GM) could see per-vehicle cost increases
of $3,000–$5,000. Focus on companies like Ford (F) with over 40% Mexican production capacity.
Energy & Materials: Tariff policy uncertainty could amplify volatility in commodities such as crude oil and copper, potentially increasing risk
in energy stocks like ExxonMobil (XOM) and Chevron (CVX).
IV. Risk Management Framework: Building a Multi-Layered Defensive Strategy
To hedge legal risks from potential trade restrictions under Section 304 of the Tariff Act of 1930 initiated by the Trump administration,
construct a “spot + options” protective portfolio. For example, buy put options on the S&P 500 at-the-money while allocating 5% to volatility
ETFs (e.g., VXX) to capture policy-driven volatility returns.
Key Policy Monitoring Cycles for Investors:
Short Term (June–July) Critical Window
Legal Process: Closely monitor Supreme Court acceptance of the appeal by June 15. Initiation of judicial proceedings may trigger S&P 500
pullbacks.
Economic Data: May core PCE data (due May 30) below 2.5% will reinforce September rate cut expectations, potentially boosting growth
stocks like NVIDIA, Tesla, and major tech giants.
Mid Term (Q3–Q4) Policy Nodes
Fed Policy: If tariffs are fully lifted and core PCE remains below 3% for two consecutive months, the Fed may commence a 25-basis-point
easing cycle in September; consider positioning in rate-sensitive assets.
Trade Negotiations: Failure of the June 1 U.S.-EU auto tariff talks could trigger retaliatory EU tariffs, potentially pressuring auto supply chain
ADRs like BMW and Volkswagen by 10%–15%.
Long Term (2026 and Beyond) Trend Response
The ruling may constrain presidential trade powers, normalizing policy uncertainty.
Recommend allocating 5% to gold ETFs (GLD) and sectors with policy immunity such as education and healthcare.
Current Index Key Levels:
S&P 500: Breakout above 5900 confirms an uptrend; losing support at 5900 should trigger a reduction strategy, with a hard stop around
5750.
Nasdaq: The 19,000 level is a strong support point worth monitoring.
