Thoughts on the Market: Supreme Court Tests Trump Tariffs

Host: Michael Zezas, Global Head of Fixed Income Research and Public Policy Strategy, Morgan Stanley
Date: November 6, 2025

Overview

In this episode, Michael Zezas analyzes the potential market implications of the US Supreme Court's review of the Trump administration’s tariffs. Zezas unpacks the complexity behind the case, what’s at stake for markets and tariff policy, and why the outcome may ultimately matter less than it seems for investors.

Key Discussion Points and Insights

The Supreme Court Case: Legal Challenge to Trump Tariffs

• The Supreme Court is hearing arguments on the legality of most Trump-era tariffs, especially those that have significantly raised tariffs in the US in 2025.
• Investors are watching closely, as a ruling against the Trump administration could theoretically reverse much of the recent tariff hikes—a move with market-moving potential.

“This week the US Supreme Court heard arguments about the legality of most of the tariffs implemented by the Trump administration. Investors are paying close attention because if the Supreme Court rules against the administration, it could undo much of the 4 to 5 times tariff increase that's taken place in the US this year.”
— Michael Zezas [00:23]

Legal and Political Complexity of the Case

• The case hinges on the interpretation of the International Emergency Economic Powers Act (IEPA), a law designed to address economic crises and actions of foreign adversaries.
• Despite the Supreme Court's conservative-leaning makeup, the outcome is uncertain, as the justices must assess whether the Executive used power consistent with the law’s intent.

“Three of the nine judges were appointed by President Trump and six of the nine by Republican presidents. But it's not clear they'll agree that the president used his executive power in a way consistent with the law that granted the executive branch this particular power.”
— Michael Zezas [00:52]

• The court might argue tariffs against traditional allies don’t fit the law's original purpose.

Why a Ruling Against the Administration May Have Limited Impact

• Even if the Supreme Court rules against the use of IEPA, the administration has alternative authorities—especially Section 301 of US trade law.
• Section 301 lets the President impose tariffs for unfair trade practices, offering “more durable” powers. Transitioning to this authority may take time due to procedural requirements, but other temporary measures could bridge any gap.

“The administration has other executive tariff powers it can deploy if needed, and ones that are arguably more durable. For example, Section 301 gives the President wide latitude to designate a trading partner as undertaking unfair trade practices, so this authority could be swapped in...”
— Michael Zezas [01:35]

• Tariff levels may remain largely unchanged, reducing the potential for a dramatic shift in the market outlook.

Alternate Scenarios and Market Implications

• If reversed, the administration could switch to product-specific tariffs via Section 232, possibly lowering average tariff rates and relieving pressure on importers.
• However, this transition could cause volatility if higher product-specific tariffs are floated before settling at lower levels:

“That scenario might come with some volatility along the way if the administration feels the need to float larger product specific tariff levels before settling on more palatable levels similar to what happened in April.”
— Michael Zezas [02:34]

Strategic Takeaways for Investors

• Increased tariff policy “noise” is anticipated this year, likely driving some market volatility and perhaps providing short-term upside.
• Ultimately, current tariff levels are expected to prevail into 2026, making other issues—like corporate responses to tariffs and capital spending decisions—more important for the markets than small changes in tariff rates.

“The most likely outcome is that we circle back to the approximate levels we're at today setting up for 2026. That means other debates like how companies respond to tariffs and capital spending incentives are probably more important to the outlook than the level of tariffs themselves.”
— Michael Zezas [02:58]

Notable Quotes & Memorable Moments

| Timestamp | Speaker | Quote | |---|---|---| | 00:23 | Michael Zezas | “If the Supreme Court rules against the administration, it could undo much of the 4 to 5 times tariff increase that's taken place in the US this year.” | | 00:52 | Michael Zezas | “Three of the nine judges were appointed by President Trump…But it's not clear they'll agree that the president used his executive power in a way consistent with the law…” | | 01:35 | Michael Zezas | “…Section 301 gives the President wide latitude…this authority could be swapped in for IPA. That could take time…” | | 02:34 | Michael Zezas | “…might come with some volatility along the way if the administration feels the need to float larger product specific tariff levels before settling on more palatable levels…” | | 02:58 | Michael Zezas | “Other debates like how companies respond to tariffs and capital spending incentives are probably more important to the outlook than the level of tariffs themselves.” |

Timestamps for Important Segments

• 00:00 — Introduction & episode theme
• 00:23 — Supreme Court hears Trump tariff challenge; potential market impact
• 00:52 — Complexity of legal landscape and unpredictability of the outcome
• 01:35 — Alternative tariff authorities (Section 301) and practical implications
• 02:34 — Downside scenario: shifting to product-specific tariffs and temporary volatility
• 02:58 — Big-picture takeaway: other policy debates likely more impactful for 2026

Conclusion

Michael Zezas provides a nuanced look at why the Supreme Court’s looming decision on US tariffs may generate headlines, volatility, and policy “noise,” but is unlikely to meaningfully alter the tariff landscape for markets. For investors, the focus should remain on how companies adapt and invest given ongoing trade tensions, rather than obsessing over the outcome of this legal battle.