New US Tariff Policy Sparks Market Turmoil
A recent U.S. Supreme Court decision striking down reciprocal tariffs was followed by the imposition of a new 10% global levy, creating fresh trade turmoil. According to a Bloomberg podcast, early market moves on Monday indicated that investors are pricing in a higher risk premium for U.S. assets as a result of the policy volatility.
- The Supreme Court's 6-3 decision invalidated tariffs imposed under the International Emergency Economic Powers Act (IEEPA), ruling the act does not grant the president authority to unilaterally set tariffs. This decision affects an estimated $170 billion in tariffs collected, with over 1,800 lawsuits already filed for refunds by importing companies. - In response, the administration invoked Section 122 of the Trade Act of 1974 to impose a new global tariff, initially set at 10% and quickly raised to 15%. This authority, unused since 1949, allows for a temporary levy of up to 150 days without congressional approval. - The new tariff includes exemptions for certain goods such as some foods, critical minerals, pharmaceuticals, and vehicles. Additionally, goods from Canada and Mexico that are compliant with the United States-Mexico-Canada Agreement (USMCA) are not subject to the new duties. - Initial market reactions included a drop in S&P 500 and Nasdaq futures by 0.8% and 1% respectively, a decline in the U.S. dollar, and a rally in safe-haven assets like gold. - Economists from the Yale Budget Lab project the remaining tariffs will result in an average effective rate of 9.1%, a level that remains the highest since 1946 (excluding 2025). They also estimate the policy will cause a 0.6% short-term rise in the price level, costing the average American household around $800. - The administration is also launching new investigations into unfair trade practices under Section 301, the same authority used to impose broad tariffs on Chinese imports during the president's first term.
