Written by Shane Balkham
The US tariffs story took an interesting turn last week. The US Court of International Trade ruled that tariffs imposed using the International Emergency Economic Powers Act are illegal, as applying tariffs relating to fentanyl, illegal immigration, as well as reciprocal tariffs, were inappropriate. However, the Court also offered a lifeline to the Trump administration by stating that other statutes do allow presidential tariff authority.
What this means is President Trump is allowed to impose tariffs, just not in the way he is currently justifying them. This has been appealed by the Trump administration, allowing the current level of tariffs to be collected while the US Court of Appeals considers the case.
The positive aspect of the ruling is that to date, President Trump had been using the emergency powers on an ad hoc, unpredictable basis. Most other trade authorities require a process that is more predictable and structured, which could bring more certainty to countries, companies, and markets.
The negative aspect of this ruling is that it extends the timeline of uncertainty around the future trajectory of US trade policy. It effectively means that negotiations that were underway to try to beat the 9th July deadline, for the 90-day pause on reciprocal tariffs, are likely to be paused. Countries have little reason to negotiate when the Trump administration is awaiting the decision of its tariff powers, meaning a quick end to negotiations is some way off, as Trump can use multiple other legal justifications to impose tariffs.
Treasury Secretary Scott Bessent has insisted the US would never default on its debt as he sought to lessen Wall Street concerns over the state of the country’s public finances. The market has had concerns over the size of the US federal debt as President Trump has urged Congress to push through his “One Big Beautiful Bill Act” which is expected to increase the deficit. The Committee for a Responsible Federal Budget has warned that Trump’s bill would add about $3tn in debt over the next decade. The bill passed the House of Representatives and is now set to be debated by the Senate. The Trump administration has insisted the bill will not increase the deficit and that projections fail to consider increases in economic growth.
But with the US net federal debt-to-GDP already over 100%, and with economic growth slowing materially this year, there is a concern that the US is pushing the limits of bond market tolerance for perpetually high fiscal deficits that continue to increase the debt-to-GDP ratio.
We continue to believe that an appropriate globally diversified portfolio, of different asset classes and investment styles, is the most effective way to navigate the volatile and evolving global landscape. When uncertainty is prevalent, staying invested is the best course of action.
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