Dollar gains abate as traders digest what’s next for Trump tariffs

Leading up to the session, USD/JPY traded back up towards 146.00 before gradually slipping back to around 145.20 levels on the day. The pair is still up some 0.3% today but the gains are nothing to really shout about compared to earlier. The same goes for EUR/USD, which traded down to 1.1210 at the lows but is now up to 1.1275 on the day.

The US Court of International Trade may have ruled to block Trump’s reciprocal tariffs but it doesn’t mean it’s the end of that. Trump will appeal the decision and surely fast track the motion in the courts to try and get the ruling overturned. And as you would expect in Trump fashion, he will be loud about it and reaffirm strong belief in winning the appeal.

Some background on this from earlier:

As a reminder, the US Constitution gives Congress the power to impose tariffs but much of this power has since been delegated to the Executive Branch (led by the president) since the Trade Expansion Act of 1962. This means that the Executive Branch can call the shots on tariffs without the need for Congressional approval. And so, courts have allowed for the Executive Branch to retain this authority – at least until today when the latest ruling above is out.

So, that is what Trump is trying to challenge it would seem. I’m no legal expert but some hot takes on the situation is that the court decision is likely to be upheld.

However, Trump does still have other avenues to pursue if he really still wants to go forward with tariffs as seen here.

That being said, all other avenues are going to take a much longer time. That can range from anything between six months to a year. And while awaiting that, the supposed reciprocal tariffs should rightfully not be collected.

In turn, that marks a loss of income for the government in a time when the bond market is already signaling some degree of uneasiness when it comes to the US deficit. So, what becomes of Trump’s plans for tax cuts now too? That’s another point to consider in all of this.

And as much as Trump is going up against the world with tariffs, the fight against China continues to be one that he is especially adamant on winning.

What is disguised by tariffs is certainly further steps in the decoupling between the US and China. And in time, we will get heavier sectoral tariffs against China and all of that will surely be more evident. But for now at least, his plan has hit a snag.

On the one hand though, all of this might ease concerns about inflation at least. And that will perhaps make the Fed’s job a little easier in the short-term. But if Trump continues to pursue tariffs down other roads, it’s still going to be an issue for the central bank either later this year or early next year. So, the can is just being kicked down the road in that regard.

But also from a political perspective, how will all of this play into Trump’s image heading into the midterm elections in November next year?

In a time when the world moves on from one issue to another so quickly, it’d be easier for Trump to create chaos now and likely be forgotten by next year. But if we are still facing the issue of tariffs with potential impact on the US economy for Q2 or Q3 next year, that’s not going to be a good look for Trump going into the midterms. And that will be something that he has to consider as well.

There’s so much at stake and in essence, there’s even more uncertainty for markets to deal with now. There is scope for some short-term reprieve but depending on Trump’s response, the initial reaction we’re seeing might not hold in the big picture.

In any case, there’s no doubt Trump’s plans have hit a bit of a roadblock for the time being. But a diversion doesn’t necessarily mean a change in course at the end of the day. So, keep that in mind.