In early March, we explained what Americans need to know about President Donald Trump's tariffs on Canada, Mexico, and China.

In early April, we said we "really, really, really hoping we wouldn't have to talk about tariffs again," but Trump's "Liberation Day" tariffs forced our hand, so we talked about what these effectively worldwide taxes would mean for the economy, the stock market, and your wallet.

And that was it. We thought. 

We honestly, naively assumed that there wouldn't be any major tariff splash to top Liberation Day—and that even if those taxes ever did come off the board, they would in a piecemeal way that wouldn't necessitate another whole newsletter.

Our readers—our friends—when we say what we're about to say, know that it is with all the regret in the world:

The Tea

On May 28, the Court of International Trade blocked tariffs that Trump had imposed under the International Emergency Economic Powers Act of 1977 (IEEPA). That covers most of the tariffs imposed so far in Trump's second term, albeit not all of them.

UBS Economist Jonathan Pingle, in a research report, provides a breakdown:

❌ Liberation Day universal and reciprocal tariffs: "The court found that IEEPA does not grant the President unlimited authority to impose tariffs and the president exceeded what authority he has under IEEPA."

❌ Border and fentanyl tariffs: "The court found that the tariffs do not deal with the declared threat, and so can not be used."

❌ De minimus tariffs: "Additionally, we note our initial interpretation of the ruling is that the de minimus tariffs on imports from China and Hong Kong, which the court linked to the border and fentanyl tariffs, are also halted."

✔️ Sector tariffs: "The tariffs imposed under authorities remain in place. Tariffs on autos and auto parts, as well as the steel and aluminum tariffs, do not rely on IEEPA."

"In all," Pingle says, "we estimate that the court ruling voided roughly three-quarters of the dollar value of the new tariffs imposed by the Trump administration this year."

The court further stated that the administration has 10 days to stop enforcing tariffs, and that could eventually be required to refund any collected tariffs.

Young and the Invested Tip: You can't control tariffs, but you can control how much tax is withheld from your paycheck. And if you don't know how, you should learn.

Receiving fewer headlines, but still noteworthy, is that hours later, a second federal court handed out a similar ruling, with U.S. District Judge Rudolph Contreras saying that Trump overstepped the authority imbued by IEEPA.

While it's remarkable, we wouldn't exactly call it surprising. The legal theory behind using IEEPA authority is that trade deficits are an "unusual and extraordinary threat" allowing the president to declare trade against other countries a national emergency. If that sounds like an, ahem, interesting way to view trade … well, Bloomberg's Matt Levine concurs:

"The idea seems to be that every trade policy of every country in the world, over the past several decades, constitutes an "unusual and extraordinary threat." This is a strange way to use words! How can every instance of trade with every country be unusual? How, after decades of trade deficits, is a trade deficit extraordinary?

"It is also a strange way to use law. The U.S. is in a perpetual state of emergency with respect to every country forever, allowing the president to use emergency powers to bypass the Constitution to impose tariffs."

Anyways, all's well that ends … what's that? There's more?

The Trump administration quickly appealed both judgments, and the U.S. Court of Appeals for the Federal Circuit ruled that the "judgments and the permanent injunctions entered by the Court of International Trade in these cases are temporarily stayed until further notice." Both sides of each case will now have until June 9 to present arguments about whether the two court rulings should be further delayed throughout the appeals process.

In other words: Within roughly a day, the entire tariff regime was thrown upside down, only to be returned to exactly where it was … at least for now.

But we'd hardly say things are returning to normal. Because all of these events have opened wide brand-new windows of potential tariff chaos.

The Take

If you're dying to go outside and bask in the glorious late-spring weather, the very short version is: "We're still likely to endure tariffs one way or the other, this is just kicking the can of uncertainty farther down the road."

You're welcome. Enjoy your pickleball.

The longer version?

The two court rulings against Trump (and the appeals processes) in and of themselves throw a wrench into the gears. "This significantly complicates ongoing trade negotiations as countries will now be unclear about the potential tariffs that could come into effect," Andrew Hollenhorst, Chief U.S. Economist at Citi, says in a recent research report.

But more importantly, when it's all said and done, the two likeliest outcomes result in Americans paying a lot more tariffs than they ever have before.

Young and the Invested Tip: Higher prices on goods have spurred more frequent use of Buy Now, Pay Later (BNPL) loans. They're convenient … but problematic.

"A successful appeal to a higher court (perhaps going up to the Supreme Court) could overturn the ruling," Hollenhorst says. "Otherwise, the administration is likely to use other authority to impose similarly substantial tariffs."

Indeed, the administration has a lot of other authorities with which it can tax imported goods—in some cases identical to what has been proposed, and in other cases different (and sometimes more punitive). 

Here's what Wall Street says about the most likely candidates:

Section 122, Trade Act of 1974

Alec Phillips, Managing Director, Goldman Sachs: "Sec. 122 authorizes the President to address a balance of payments deficit or to prevent an imminent and significant depreciation in the dollar, but it does not require any formal investigation or process, so the administration could theoretically replace the current 10% tariff with a Sec. 122-based tariff within days if deemed necessary.

"The administration could quickly replace the 10% across-the-board tariff with a similar tariff of up to 15% under Sec. 122. Those tariffs would last for only up to 150 days, after which the law requires Congressional action to extend (the law is not clear on whether the period could end after 150 days and then quickly restart again)."

Section 301, Trade Act of 1974

Bruce Kasman, Chief Economist, and Jahangir Aziz, Head of Emerging Market Economic Research, JPMorgan: "This allows the administration to impose tariffs on the grounds that a trading partner has gained 'unfair advantage.' However, it is cumbersome to impose. First, there has to be an investigation where the government needs to identify and quantify the 'unfair advantage' for specific items. For each item, the implied tariff rate needs to be commensurate to the quantified 'harm' and reviewed periodically. 

"In Trade War 1.0, the investigation on China took more than six months."

Section 232, Trade Expansion Act of 1962

Phillips: "Sec. 232 tariffs, which President Trump has already used for steel, aluminum, and autos, could be broadened to cover other sectors. We already expect additional sectoral tariffs (pharmaceuticals, semiconductors/electronics, etc) and uncertainty regarding the IEEPA-based tariffs could lead the White House to put more emphasis on sectoral tariffs, where there is much less legal uncertainty.

"President Trump has not emphasized sectoral tariffs as frequently lately as he did earlier this year, but if the White House finds it has less flexibility on country-focused tariffs, sectoral tariffs might receive more attention again."

Section 338, Trade Act of 1930

Kasman and Aziz: "For tariffs to be imposed under this section, the government needs to find a trading partner to discriminate specifically against U.S. commercial interests. For example, if a country is found to impose an unreasonable tax, tariff, regulation, or other restrictions that limits the sale of U.S. products in that country. 

"However, such practices cannot be universally applied by the trading partner; instead, it has to be specifically targeted on the U.S. The ceiling is 50%, but there is no time limit. As with other sections, an investigation is needed to justify the tariff." 

Phillips notes that this authority has never been used.

Young and the Invested Tip: More tariff madness could trigger another rush into defensive assets. That in turn could be more good news for gold, which you can buy via numerous ETFs.

Section 201, Trade Act of 1974

Kasman and Aziz: "These are safeguard tariffs that allow the government to impose tariffs to provide relief to domestic industries that are suffering from serious injury caused by increased imports. Unlike 232 tariffs, the industry does not have to be related to national security. However, like Sections 301 and 232, investigations for each industry will need to be undertaken, specific items identified, and the harm justified. The duration of such tariffs is four to eight years."

So, What's Next?

The honest answer is: We don't know. No one else knows, either.

But a couple things seem likelier than not.

For one, the Trump administration is going to work on getting a longer stay across the entire appeals process. But there's no handicapping what could happen in the appeals process itself—several experts believe this could eventually end up in the hands of the Supreme Court, and we have no reason to disagree.

Also, it's highly unlikely that we'll see a slew of trade deals announced for as long as these rulings are in the appeals process. After all: Why spend time to negotiate around specific tariffs that very well could be thrown out? Even if they're eventually replaced by tariffs under a different authority, the amounts and conditions of those tariffs might necessarily be much different than what's currently on the table.

Another thing worth watching is the budget process in Washington. 

"Although the fiscal package in front of Congress did not account for tariff revenues explicitly, these revenues are no doubt being considered as an important offset for tax cuts that helps to defray the fiscal cost," writes a Deutsche Bank research team led by Chief U.S. Economist Matthew Luzzetti. "If these tariff revenues shrink, this could lead some fiscal hawks in Congress to pare back tax cuts or demand higher spending reductions at the margin—and Republican margins are small in Congress." 

So, again, what can we expect?

In a word …

—

Thank you for spending a little time with us yet again. We'll see you next week!

Riley & Kyle

Young and the Invested

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