In a landmark judgement today, the Supreme Court struck down President Trump’s IEEPA tariffs in a 6-3 ruling (Justices Kavanaugh, Thomas, and Alito dissenting). SCOTUS made no decision regarding potential refunds of past tariffs, with the question likely to return to lower courts. Hence in response to the court ruling, President Trump announced he would implement a 10% “global tariff” under Section 122 of the Trade act of 1974, followed by Section 301 investigations, which could provide a more-durable basis for tariffs. Our current base case is that these will substitute for the overturned IEEPA tariffs, maintaining exemptions which were previously in place. We estimate the net impact would reduce the average effective tariff slightly by 1.6pp to 12% from the current 13% levels. Despite Trump’ s insistence in his press conference that tariff revenues would increase as a result of the Supreme Court decision, we put more weight on USTR Ambassador Greer’s comments that the newly announced tariffs would maintain “continuity.” Some trade partners with reciprocal tariff rates above 10% (such as Brazil) are likely to benefit in the near term from the transition from IEEPA to Section 122 tariffs. From a timing point of view, it is noteworthy that a Congressional vote to continue the Section 122 tariffs will need to occur in late June or early July, right when the midterm elections are expected to become front and center. On the issue of refunds, we believe roughly $150 BN could be potentially under litigation. But it might be a long drawn legal process with marginal benefits for small businesses & modestly disinflationary. Market impact is likely some steepening in UST yield curve as well as higher US equities. We had given a trade reco on initiating a 2*10 US flattener at 47 levels on 7th Feb. Profit target was 35 levels. Currently it is at 36.5 levels where we close the trade in profit as today’s tariff decision is significant enough to change our core view. We remain bullish on US equities as per our trade reco on 8th Nov when S&P was at 6729. Currently it is at 6909 and we have a target of 7015.
