Supreme Court Kills Tariffs, But Rebate Seekers Face Challenges
Those businesses that want to be repaid after IEEPA tariffs were shot down are facing some obstacles.
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The U.S. Supreme Court ruled 6-3 against using the International Emergency Economic Powers Act (IEEPA) tariffs on Friday.
This was largely expected. As we have been discussing, a strong ruling supporting the IEEPA tariffs may have posed more danger to markets, as it could have unleashed another “Liberation Day.”
Rebates Will Be Difficult to Get
Now, for those who have been affected by the tariffs, the next step will be deciding whether or not to make a claim for a rebate.
By making a claim, one could risk upsetting the presidential administration, which might be more detrimental to future business than it is worth in a return. Maybe companies will view it as a “sunk” cost and move on.
Then they face questions about whether the claim will be paid, or if challenges to the claim will be raised. Will the cost of pursuing the claim be worth the payment? This is probably particularly true for small businesses.
Alternatives to IEEPA
Any country that has announced a “trade deal” is presumably subject to whatever was “agreed” upon at the time. I think very few of the deals have been fully documented (I don’t remember seeing any signing ceremonies, beyond agreements in principle) but they would supersede IEPPA tariffs.
There are other rules and laws that can be used. The administration has had plenty of time to prepare for this ruling, so expect a rollout of tariffs under other rules (to the extent they are still necessary — i.e., not subject to negotiated trade deals, etc.)
And, while some of the higher tariff rates cannot be supported using other measures, that will only represent a faction of what has been tariffed.
Bottom Line
There will be a minimal impact on bond yields following this ruling.
The total dollar amount of rebates paid will be a fraction of what is eligible and the timing of payment will be delayed and staggered. So, there will be no immediate need to fund the rebates. That would have put pressure on bonds.
Between announced deals, other means and all the various ways companies and countries have been minimizing tariff impacts, I don’t think the “realized tariff rate” will change that much, even with the ruling. Those expecting some sort of reduced levels of tariffs being deflationary are probably being too optimistic.
Again, I think much of the “relief” rally on tariffs is that they stay the hand of the administration, and we are not likely to see a “second bite of the apple” in regards to a Liberation Day level of tariffs, even against countries that “play hardball” during negotiations or do something in another arena that goes against the administration’s wishes.
Reduced Volatility
Having said that, this does little for the ongoing debates around margins, hiring, growth, the “working poor,” etc. — all things that have been a drag on domestic markets.
I will have more updated market thoughts in this weekend’s "T-Report," but I think the Supreme Court decision is (somewhat bizarrely) a non-event — which is why we didn’t spend a lot of time writing about it, and instead focused Thursday's report on trade balances.
