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Welcome to Thoughts on the Market. I'm Michael Zezas, global head of Fixed income Research and Public Policy Strategy. Today we discuss the challenge against tariffs at the Supreme Court and how it might affect markets. It's Thursday, November 6th at 11:00am in New York. 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. That would seem to set up this hearing and a subsequent ruling, which could come as early as this month as a clear market catalyst. But like many policy issues affecting the economic and markets outlook, the reality is more complicated. Here's what you need to know. First, there's ample debate among experts about how the court will rule. That may seem surprising given the court's makeup. 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. That law is the International Emergency Economic Powers act, or iepa. And without getting into too much detail, the law appears to have been designed to deal with economic crises and foreign adversaries, which the court might argue is not evident when considering tariffs levied against traditional allies. But the next important point is that a ruling against the Trump administration might not actually change much around US Tariff levels. How is that possible? It's because 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 for IPA. That could take time, as Section 301 requires a study to be submitted. But there are other temporary authorities that could bridge the gap. So the US can likely ensure continuity of current tariff levels if it wants, keeping tariffs more of a constant than a variable in our outlook. Of course, we have to consider ways we could be wrong. For example, the administration could use a ruling against it to refocus instead on product specific tariffs through section 232. That likely would result in US effective tariff rates drifting a bit lower, alleviating some of the pressure our economists see on consumer and corporate importers adding more support to risk assets. But 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. So bottom line, there's more tariff policy noise to navigate this year. It could bring some market volatility and maybe even a bit of upside, but 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. We're digging in on all that and we'll keep you in the loop. Thanks for listening. If you enjoy thoughts on the market, please leave us a review and tell your friends about the podcast. We want everyone to listen.
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