Supreme Court strikes down Trump’s tariffs — but it’s not the end of the story
Commenting, John Wyn Evans, Head of Market Analysis, at Rathbones, says: "The US Supreme Court caught markets on the hop by ruling 6-3 in favour of declaring President Trump's IEEPA tariffs illegal. The full implications are as yet unclear, not least because any decision about refunding tariffs already collected (around $175bn) has been deferred to a lower court.
“Any decision-making process on this could be messy and drawn out. Unsurprisingly, reaction has been as you would expect along party lines with the President labelling the decision as a "disgrace".
“The ruling is something of a double-edged sword. On the positive side, it removes some of the burden from companies and consumers, as well as alleviating inflation concerns. It also helps exporters to the US. That has been reflected in firmer equity markets. On the other hand, the reduction in potential government income in the face of higher spending promises points to higher fiscal deficits, a risk reflected in an underperformance of Treasury bonds vs global peers.
“However, this is by far from being the end of the tariff story. There are other ways for President Trump to impose tariffs. Various others can be imposed to address national security concerns (section 232, already in use), to remedy unfair trade practices (301, also being used) or to penalise countries that discriminate against US commerce (338). Section 122 allows universal tariffs of up to 15% for 150 days to address balance-of-payments deficits. We should be prepared for all sorts of interesting definitions of these factors. The Yale Budget Lab's immediate assessment was that the rate of tariffs in force will fall from 16.9% to 9.1%.
“Another positive factor is the fact that SCOTUS delivered this ruling. It is not in hock to the White House, as many feared. Therefore, the constitutional checks and balances that protect the country are not in complete disrepair. Indeed, we have seen more vocal opposition to Trump's policies from within his own party recently. However, the lack of pushback from corporate USA remains a concern.”
US GDP
“The headline US Q4 GDP print initially surprised, with annualised growth slowing to 1.4% from 4.4% in Q3. That said, quarter‑to‑quarter volatility is often exaggerated by annualisation. Recent GDP data have been distorted by several temporary factors, including volatile inventories of pharmaceuticals and precious metals linked to tariffs, and the government shutdown, which shaved an estimated 0.9 percentage points off growth. Some of this drag should reverse in Q1, alongside additional fiscal support from last year’s One Big Beautiful Bill Act.
“More concerning is that inflation remains sticky. Core PCE rose from 2.8% to 3%, potentially tempering rate‑cut expectations. As the Fed’s preferred inflation gauge, Core PCE is less influenced by shelter costs than CPI and therefore remains relatively elevated despite slowing rental growth.
“While stronger nominal GDP growth is not necessarily negative for equities—particularly for firms with pricing power—slower rate cuts and higher bond yields remain a headwind to activity and valuations. This does not yet amount to evidence of stagflation, but lower inflation without a sharp growth slowdown would be preferable. The outlook for 2026 remains broadly constructive, with improving soft data, although the “no hire, no fire” labour market could still weaken, despite better‑than‑expected initial jobless claims.”
