【True Insight Hong Kong Stock Experts】Trump Raises Global Tariff Rates; If US Stocks Plunge, It Will Boost the Dollar

Over the past weekend, U.S. President Donald Trump stated that he plans to raise the temporary global tariff rate to 15%, higher than the 10% level implemented after the Supreme Court rejected parts of his emergency tariff plan. This has intensified trade tensions just one day after the market reacted positively to the legal ruling.

In a 6-3 decision, the Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) does not grant the President the authority to impose comprehensive tariffs, reinforcing Congress's role in tax and trade policy.

Under current trade law, the higher tariffs would take effect immediately and last for up to 150 days, although the move could face legal challenges, such as issues surrounding potential tariff refunds. These refunds could total over $175 billion, having broader implications for fiscal policy and market liquidity.

Trump's announcement of raising global tariff rates highlights that trade tensions remain a core macro risk for investors even after the Supreme Court limited a key legal tool for the government. The market is now closely watching for further policy moves in the coming weeks.

First, we need to note several key points of the Supreme Court's tariff ruling. The IEEPA is the pillar for about half of the U.S. government's tariffs. Trump is now turning to other laws, such as Section 122 or Section 301, to restore these taxes. Up to 90% of these "illegal" tariffs could be restored before summer. In other words, the tariffs are not gone.

Despite the court ruling, it remains unclear whether Washington will refund the billions of dollars already collected. Furthermore, it is not yet clear how this will affect U.S. trade agreements with neighbors like Canada and Mexico, although the USMCA should protect these relationships from the worst impacts.

Additionally, the previously anticipated number of interest rate cuts by the Fed this year has failed to eliminate concerns that trade friction will hinder economic growth. If U.S. stocks experience a correction of over 10%, the Fed may find it even more difficult to decide on the timing of rate cuts.

The government is already facing a massive deficit of $1.8 trillion. If lower courts rule that the government must refund the illegally collected $175 billion in tariffs, the Treasury may have to increase borrowing by issuing more short-term notes and Treasury bills to make up for the lost cash. This additional debt supply could ultimately push up interest rates.

Due to expectations that U.S. stocks will face pressure, the U.S. dollar is expected to rebound significantly. Looking at Friday's closing price, the U.S. Dollar Index is likely to gradually test the important resistance zone of 99.50 to 100.50 in the coming weeks.

Written by: Professor Li Huifen, Greater Bay Area Family Office Association

(I do not hold the above-mentioned stocks)