Authored by Peter Tchir via AcademySecurities.com,

Back to the latest tariff news impacting markets.

This seems to be a good summary of what occurred (from Bloomberg.com)

In a ruling issued late Wednesday, a three-judge panel for the US Court of International Trade declared that the Trump administration had wrongly invoked a 1977 law in imposing his “Liberation Day” tariffs on dozens of countries and they were therefore illegal. It also extended that ruling to previous tariffs levied on Canada, Mexico and China over the security of the US border and trafficking in fentanyl.

In the coming hours and days, we will likely see this challenged, while we try and figure out what it means.

As a starting point:

• The T-Report was skeptical but somewhat comfortable with “true” reciprocal tariffs (average trade weighted tariffs with most countries, we under 10% and 5% was probably a reasonable guestimate).

• We were, quite frankly, horrified by the Liberation Day tariffs (which the market followed suit on over time).

• The pauses and deals have been a pivot in the right direction, but left a lot of room for negative surprises, if the President chooses to double back down.

So, in theory we should be “celebrating” this ruling which could mean that tariffs can no longer be used in the way they have been? It has seemed strange so that so much power was concentrated in the hands of the President on this particular issue (the ability to cause massive disruptions in global trade, without any of  the usual checks and balances, seemed odd). We’ve argued that we would prefer much more to be done via Congress than via Executive Order (primarily for the staying power those policies would have, versus EO’s which can easily be reversed).

But maybe it is just the inherent contrarian in me, but I’m not overly excited about the news.

• The tariff revenue was being used to help push the Big Beautiful Bill towards becoming law. Whether tariff revenue was a convenient tool, that would disappear after the bill passes, or a more permanent fixture of U.S. tax, spending and income policy is still up for debate.

• The tariff revenue, did not play a major role in our recent bullish view on treasuries, but it did play a part.

• While we have been skeptical on the “dealz” this has to be problematic for the administration’s negotiations. For all the hype about deals, and countries lining up, we had a decent one with the U.K. and struck some agreements in the Middle East, but haven’t really seen anything emerge on this front. Japan, South Korea, India, etc. were all touted as early deals and it has all gone relatively radio silent. While we haven’t liked the strategy used (damage to the American Brand), this ruling makes this strategy even more difficult to pursue. How can counterparties take any threats seriously? Again, I wouldn’t have recommended going down the path oof threats (so called “maximum leverage”), but taking the threat away (or causing doubts about if efficacy) does not help.

Then, and maybe this is more cynical, or just a deeper concern, but I cannot help but think about Nobody Puts Baby in a Corner.

Maybe not the first thing that came to mind, when the ruling hit the tape, but Nobody Puts Baby in a Corner is competing for space with Taco, Taco Man, I gotta be a Taco Man (in regards to chatter about the Trump Always Chickens Out trade).

This makes me nervous:

• Lawfare has become almost ubiquitous in other parts of the Trump agenda, but so far, the finance side had been generally immune. Look for that to ramp up, which doesn’t seem like a positive thing for the agenda, nor the country.

• Had Congress taken the reins, that would be something to be cheered (the process of checks and balancing working extremely). Using a “backdoor” to upend policy seems a little devious. Also, who knows what role China’s “army” of lawyers might have played in this. The legal system (especially anything tied to international organizations) might be an effective way for other nations (particularly China) to thwart U.S. policy.

• If this tool has been blunted (at the very least, it has to have been blunted while appeals are done), and the President is getting asked about the TACO trade (not something that fits the image he curates), does he lash out?

  • While dealing with this apparent setback to their existing strategy, do they look for new ways to achieve their goals? Do they come up with something new (which might also get challenged) to take back the narrative?

  • Or, is this the ruling they secretly were looking for to complete the pivot away from tariffs? That would be ideal. They go along and fight this in the courts, as they have, but use this to fully turn their attention from tariffs and “great deals” that weren’t materializing rapidly, to things in their control?

One can only hope it is the latter (and the pivot is in full swing), but the stock market enthusiasm for the ruling may be short lived, as the ruling may have just backed a fighter into a corner, and you can say or think whatever you want about Donald Trump, but he is one heck of a fighter!

To be perfectly honest, it scares me that we haven’t seen a response on Truth Social already. A knee jerk reaction, however aggressive, would almost be the “norm”, which makes me think a much bigger storm is brewing. Ironically, that would be better for rates – what a crazy, topsy turvy world we live in.

In theory, given the T-reports evolving views on tariffs, this is something we should be viewing as a positive, but are really, really struggling to get to that interpretation for the reasons listed above.

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This month’s Around the World with Academy Securities was published yesterday. We cover the Middle East, Iran’s Nuclear Negotiations, Russia/Ukraine Ceasefire, tensions with China, and Fighting in the Congo.