US court blocks most tariff hikes but Trump may revive them using other powers: GS

A U.S. court has blocked approximately $200 billion in tariffs imposed by the Trump administration on imports from Canada, China, and Mexico, ruling that the use of the International Emergency Economic Powers Act (IEEPA) exceeded constitutional limits. Goldman Sachs strategists estimate this blocks 6.7 percentage points of effective tariff hikes, but the administration is expected to utilize alternative trade authorities like Section 122 and Section 301 to reimpose similar tariffs, potentially targeting specific sectors under Section 232. While the ruling is a setback, Goldman Sachs anticipates the administration will likely pursue its tariff ambitions through different legal avenues.

Analysis

A U.S. Court of International Trade ruling has invalidated tariff increases on approximately $200 billion of imports from Canada, China, and Mexico, which were implemented by the Trump administration under the International Emergency Economic Powers Act (IEEPA). The court determined that the administration's invocation of IEEPA, citing justifications such as the fentanyl crisis and chronic trade deficits, surpassed constitutional authority as these did not constitute an "unusual and extraordinary" trade-related threat. Goldman Sachs strategists estimate this decision blocks 6.7 percentage points of effective tariff hikes. Despite this legal setback and the requirement to cease collection of these tariffs within 10 days (though no refunds on duties already paid are mandated), the administration is expected to pursue alternative legal avenues to maintain its tariff strategy. These alternatives include Section 122 of the Trade Act of 1974, permitting tariffs up to 15% for 150 days, and Section 301, which has no caps on tariff levels or duration. Goldman Sachs anticipates the White House will likely utilize Section 122 for an immediate broad tariff, followed by targeted Section 301 investigations, and potentially Section 232 for sectoral tariffs, particularly on pharmaceuticals and electronics. Consequently, while the ruling introduces near-term uncertainty, Goldman Sachs projects that the administration's tariff ambitions will largely persist, with most of the anticipated revenue from these tariffs still expected to materialize through these alternative mechanisms.

Key Decisions for Investors

• Investors should anticipate continued trade policy uncertainty as the administration is likely to employ alternative legal authorities, such as Section 122 and Section 301, to reimpose tariffs following the court's block on IEEPA-based duties.
• Monitor developments closely for indications of new tariff implementations, particularly across-the-board measures under Section 122 or targeted actions under Section 301 and Section 232, which could affect specific sectors like pharmaceuticals and electronics, and trade with Canada, China, and Mexico.
• While the immediate court ruling offers a temporary reprieve from certain tariffs, the underlying protectionist stance appears unchanged, warranting caution for companies with significant import exposure or complex international supply chains.