Supreme Court Invalid Rates and White House Responds with Unpublished Legal Strategy

[Igor Pereira]

The global trade scenario suffered a dramatic turn after the Supreme Court of the United States overturned a wide range of tariffs imposed by the Trump administration under the International Emergency Economic Powers Act (IEEPA) In an immediate response to contain the protectionist vacuum, the presidency announced the implementation of new 15% temporary tariffs based on Section 122 of the 1974 Trade Act. The maneuver attempts to justify the fees as a solution to a supposed "crisis on the balance of payments" of the US, an argument that faces strong scepticism of economists and signals a new round of court battles in Washington.

By Igor Pereira, financial market analyst, Junior member WallStreet NYSE.

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The Legal Fragility of Section 122

The use of Section 122 is seen by experts as a measure of last resort and technically questionable. This statute allows the president to impose surcharges of up to 15% for a period of 150 days to deal with serious imbalances in the country's international accounts.

The friction point for the market is that most of the current economic indicators do not point to a balance of payments crisis. Even the White House legal team had, months ago, dismissed this law as irrelevant. This legal inconsistency creates a layer of uncertainty ("noise") that the financial market abhors, as tariffs can be suspended by injunctions at any time, making it difficult to plan long-term for large importers and S&P 500 companies.

The Beijing Response and the Geopolitical Board

China reacted promptly through its Trade Ministry, adopting a tone that mixes caution and readiness. Beijing urged the United States to abandon the unilateral tariffs, but strategically left the door open for further rounds of negotiations.

However, the Chinese government has stated that it will decide "at the appropriate time" on adjustments to its countermeasures. For the trader, this means that the risk of immediate retaliation remains alive, which keeps implied volatility high in the pairs involving the Yuan (CNY) and the Dollar (USD).

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Financial Market Impact Analysis

As an analyst of ExpertFX School, we should observe the following developments for risk and protection assets:

• Gold (XAU/USD): Precious metal continues to act as the main thermometer of this crisis. The legal uncertainty in the US and the threat of Chinese retaliation strengthen the safe refuge thesis (safe haven). We expect a price support above critical levels of support as long as the legality of the new tariffs is questioned.

• US Dollar: The DXY index may present erratic behavior. If on the one hand the tariffs theoretically "protect" the currency by trying to reduce the trade deficit, the institutional instability caused by successive defeats in the Supreme Court may generate distrust in Treasury bonds (Treasuries).

• Capital Market: Sectors dependent on global inputs, such as technology and automotive industry, should require an increase in operating costs for the next 150 days (due to Section 122), which may limit high rallying on US scholarships.

What to Wait for Next Days?

Volatility will be the rule. China has signaled willingness to talk, but the options market is already beginning to price "worse case" scenarios if negotiations fail. Caution is recommended in risk management, avoiding excessive exposure in assets correlated to the Sino-American commercial cycle.

Follow the next exclusive updates here at ExpertFX School to adjust their positions as new legal facts arise in Washington courts.