Don't just focus on August 1st; this key ruling by the U.S. court is the biggest variable in trade?

The global market is holding its breath for the trade negotiation deadline on August 1, but a recent report from JP Morgan warns that an earlier and more decisive event—the court showdown on July 31—has been severely underestimated by the market.

According to news from the Wind Trading Desk, the report released on July 20 indicates that the market's focus may have overlooked a more disruptive event. A ruling from the U.S. Court of Appeals for the Federal Circuit is set to be issued on July 31, which will examine whether the U.S. government has the authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA).

As previously reported by CCTV News, on May 28 local time, the U.S. International Trade Court blocked the tariff policy announced by President Trump on April 2 from taking effect, ruling that Trump overstepped his authority by imposing comprehensive tariffs on countries that export more to the U.S. than they import. Subsequently, the U.S. Court of Appeals for the Federal Circuit granted the Trump administration's request to temporarily suspend the overreach "injunction" issued by the U.S. International Trade Court.

This legal event was only temporarily suspended and not concluded; the U.S. Court of Appeals for the Federal Circuit is scheduled to hear the appeal on July 31. The outcome of this judicial ruling on July 31 will directly affect the legality of the "reciprocal tariffs" and "fentanyl-related tariffs" imposed by the U.S. under the IEEPA.

This legal showdown could fundamentally change the current trade standoff, with implications that may surpass the highly anticipated trade agreement negotiation deadline on August 1. JP Morgan's report warns that if the court ultimately rules against the U.S. government, it could render the August 1 trade negotiation deadline and any agreements reached "meaningless," and may force the White House to turn to other legal tools, thus initiating a period of trade turmoil that could last for months and be even more unpredictable.

JP Morgan believes that current U.S. trade policy has significantly intensified. The tariff measures announced by the U.S. government in recent weeks have not only raised the previously expected average effective tariff rate to potentially over 20%, but have also unexpectedly included countries like Brazil, Canada, and Mexico in the crackdown, raising the tariff rate on copper to a high of 50%. According to CCTV News, in June this year, the White House stated that President Trump announced an increase in tariffs on imported steel, aluminum, and their derivatives from 25% to 50%, with this tariff policy set to take effect at 12:01 AM Eastern Time on June 4, 2025.

White House "Plan B": A Path to Greater Uncertainty

JP Morgan believes that tariffs are central to the current U.S. government's economic agenda, so even if the government faces setbacks in court, it will not scale back its tariff policy but will instead turn to other legal tools, referred to as "Plan B."

The report predicts that if tariffs based on the IEEPA are ultimately prohibited by the court, the government may take the following series of actions:

• Activate Section 122: Impose a 15% tariff on all countries under the justification of "addressing international balance of payments issues or preventing a significant depreciation of the dollar" (for a maximum of 150 days)
• Increase of Section 232 tariffs: Raise tariffs on steel, aluminum, and automobiles from 25% to 50%, aligning with the copper tax rate, and accelerate investigations into semiconductors, pharmaceuticals, and timber to include them in the tariff network.
• Invoke Section 338: Impose taxes on countries that "discriminate against U.S. commercial interests" (such as the digital services tax in Australia, the EU, Canada, and India).
• Complete Section 301 investigation: Finish resource-intensive targeted product investigations against major trading partners (such as the EU and Brazil).
• Final integration: Ultimately incorporate tariffs fully into the Section 301 and Section 232 framework.

JP Morgan emphasizes that this "Plan B" path, while maintaining an average tariff rate around 20%, will "increase trade uncertainty." More importantly, the impact of tariffs based on Sections 301 and 232, targeting specific countries and products, will be "vastly different" from tariffs based on IEEPA.

Potential Risks Under Market Complacency

The report concludes that the market has so far "basically shrugged off" the newly announced tariffs by the U.S. This optimism is understandable, due to reasons such as the potential extension of the August 1 deadline, the final negotiated tax rates possibly being lower than announced levels, and the rapid rebound of the market following previous tariff threats.

However, JP Morgan has issued a clear warning: The court ruling on July 31 may render the August 1 deadline and all trade agreements "meaningless."

If IEEPA is struck down by the court, the August 1 negotiations will lose significance.

At that point, the market will have to face a completely new situation: the U.S. government will initiate a series of more complex and unpredictable tariff tools, leading to several months of heightened uncertainty.

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Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account individual users' specific investment goals, financial conditions, or needs. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk