Court Ruling May Force Trump to Switch Tariff Tactics

For the week ending 30 May 2025

As of midday Friday, global equities were higher on the week amid continued twists and turns in the tariff saga. The yield on the US 10-year note declined 8 basis points to 4.42% from a week ago while the price of a barrel of West Texas Intermediate crude oil edged down $0.50 to $60.50. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 20.15 from 23.5 last Friday.

MACRO NEWS

US trade court rules Liberation Day tariffs illegal

The US Court of International Trade (CIT) ruled that President Trump does not have the power to impose tariffs under the International Emergency Economic Powers Act. The court ordered that the Trump administration must issue the necessary orders to cease implementation of the Liberation Day tariffs within 10 days. The court also struck down the fentanyl and immigration-related tariffs imposed on China, Mexico and Canada. On Thursday afternoon, the Court of Appeals for the Federal Circuit allowed the tariffs to remain in place while it considers the government’s filings. If the case goes to the US Supreme Court, the administration will argue that that the CIT’s decision harms the government’s diplomacy and intrudes upon President Donald Trump’s exclusive authority to conduct foreign affairs.

Despite the setback, the administration is studying other options to impose similar tariffs under existing authorities, including Section 122 of the Trade act of 1974, which would allow the president to impose tariffs of up to 15% for 150 days to address trade imbalances. Sectoral tariffs imposed under Section 232 of the Trade Expansion Act of 1962 on steel, aluminum and autos will remain in effect.

Late Thursday, US Treasury Secretary Scott Bessent said that trade talks with China have stalled and that the intervention of Presidents Trump and Xi Jinping may be necessary to jumpstart them. Trump followed up Friday morning in a social media post, saying that China has violated its agreement with the United States.

US, EU to accelerate trade talks

Prior to Wednesday evening’s court ruling, the European Union agreed to accelerate trade talks with the US. As a result, Trump said he will delay his threat to impose 50% tariffs on the region until July 9. EU officials reportedly held a good call with their US counterparts and said they are “fully committed” to constructive efforts to reach an agreement.

Revised Q1 US GDP figures showed a less robust consumer

The US economy contracted at an annual rate of 0.2% in the first quarter, a modest upward revision to the initial -0.3% reading. However, personal consumption rose only 1.2%, down from an earlier 1.8%, suggesting US consumers are exercising caution. Final sales to private domestic purchasers were solid at 2.5%.

Fed’s Powell, Trump meet

US Federal Reserve Chair Jerome Powell was invited to meet with President Trump at the White House on Thursday where they discussed growth, employment and inflation, the Fed said. Powell stressed that the policy path depends entirely on incoming data and what they mean for the economic outlook. Powell stressed that the Fed will set policy solely based on objective, non-political analysis. The White House said that Trump told Powell that he’s making a mistake by holding rates steady as high rates are putting the US at a disadvantage relative to China and other countries. On Wednesday, the minutes from the Fed’s May meeting showed that policymakers believe that policy is well positioned to wait for clarity on the economic outlook and that a cautious approach is appropriate amid high uncertainty.

US PCE drifted lower in April, trade deficit narrowed

The Fed’s preferred inflation measure declined in April, falling to 2.1% year over year at the headline level from 2.3% in March while the core rate declined to 2.5% from an upwardly revised 2.7% ahead of the full impact of any price pressures from tariffs. Personal income rose more than expected last month, gaining 0.8% from the month before, but spending rose just 0.2%. The US trade deficit narrowed an astonishing 46% in April, with imports declining nearly 20% from the month before amid tariff turbulence. The US reported a $87.6 billion April deficit, down from March’s $162.3. The improved trade balance should give US GDP a lift in Q2.

QUICK HITS

Analysts at Goldman Sachs said they expect tariffs to produce a one-time 2% rise in US inflation over about 18 months.

The Conference Board’s Consumer Confidence Index bounced sharply in May, rising to 98 from 85.7 in April, exceeding all economists’ forecasts.

Trump said the US could impose sanctions on Russia in the coming days, saying Russian President Vladimir Putin is “playing with fire” by failing to engage in serious negotiations to end the war in Ukraine. Reuters reported Wednesday that Putin’s conditions for ending the war include a written pledge that Nato halt any expansion eastward, which would rule out membership for all former Soviet republics, Ukrainian neutrality and sanctions relief for Russia.

In a throne speech delivered by King Charles III, Canadian Prime Minister Mark Carney vowed to lead Canada to the largest economic transformation since Second World War. The government promised a broad-based income tax cut, removing the federal sales tax on some new homes and to create a new agency to build more affordable housing.

Trump said this week that Fannie Mae and Freddie Mac will retain their implicit US government guarantees, and that the government will have an oversight role if they become public companies.

Companies surveyed by the EU Chamber of Commerce in China ranked a domestic slowdown in China as a bigger challenge for them than the trade war.

The Canadian economy grew at a faster-than-expected 2.2% clip in Q1, beating estimates for a 1.7% pace.

An annual Fed survey of US households, conducted last October and released Wednesday, showed that 73% of adults saw their personal financial wellbeing as “doing okay or living comfortably financially.” That figure was little changed from the 72% who felt the same way the year before.

The US may restrict sales of software used to design semiconductors to China.

On Friday, Bloomberg reported that the European Central Bank will increase its scrutiny of the private market exposures of European banks.

Nvidia reported solid quarterly earnings on Wednesday and said global demand for AI infrastructure remains strong.

The Bank of Korea cut its benchmark interest rate by 25 basis points to 2.5% and lowered its GDP growth forecast for South Korea to 0.8% this year. The Reserve Bank of New Zealand cut rates 0.25% to 3.25%, its sixth-consecutive cut.

US Treasury market jitters subsided this week, with auctions of two-, five- and seven-year notes all being met with solid demand.

The International Monetary Fund this week chided the United Kingdom for persistently weak labor productivity.

OPEC+ is reportedly considering an oil production increase in excess of the previously discussed 411,000 barrels a day from July.

 THE WEEK AHEAD

Monday: global manufacturing PMIs

Tuesday: eurozone CPI, unemployment; US factory orders, JOLTS

Wednesday: global services, composite PMIs

Thursday: ECB meeting, US unit labor costs

Friday: eurozone retail sales, GDP; US nonfarm payrolls, Canada unemployment

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.