By: Aaron Wall, CFA
Partner, Portfolio Manager
Volatility picked up this week as companies continue to report earnings and investors continue to assess their expectations for the future path of AI spending.
We also continue to miss key economic data as the government shutdown extends into its sixth week. Today, the Bureau of Labor Statistics would have released its October jobs report. Private data suggests continued softening in the labor market, but the lack of consistent data makes it difficult to infer where the Fed may be heading with interest rates in December.
Are Trump's Tariffs Legal?
The Supreme Court held oral arguments this week for the case regarding President Trump’s existing tariff policy. The case is specifically reviewing whether the administration’s use of tariffs under the International Emergency Economic Powers Act (IEEPA) is constitutional.Enacted in 1977, the president can invoke the IEEPA to deal with extraordinary foreign threats, and if the president declares a national emergency, he is granted certain powers to address the emergency.
The main question up for debate is whether tariffs are a component of these powers. The law, under section 1702, broadly states that the president can “regulate … importation”.
The court seemed skeptical of the argument that this would grant unilateral power to the president. Key questions were raised by the justices.
- Would this law, written as broadly as it is, violate the “major questions” doctrine, which implies that major questions of political or economic significance cannot be delegated from Congress to the executive branch without clear delegation?
- Does this law, if it grants the president unilateral ability to tariff, unconstitutionally delegate some of the power of the purse from Congress to the executive branch?
- If the tariffs are declared illegal, will the government need to refund payments that have already been collected?
It will be very interesting to see how the justices resolve this issue and at what speed they deliver a decision. If declared illegal, the administration will likely revert to the more clearly defined process that it used in the past during the first trade war with China. These measures will take a bit longer to enact, and the process is clunkier.
The important takeaway for investors is that although this is an important decision, it is unlikely to completely remove the tariff risk in the long term. We’ll be watching closely for a decision in the next few months and share our thoughts once it’s released.
