Will the next "black swan" be on November 5th?

After experiencing a series of tariff shocks, government negotiations, and the turbulence of a government shutdown, the U.S. market is approaching another critical juncture — on November 5, the U.S. Supreme Court will hear arguments regarding the legality of the Trump administration's series of tariffs.

This ruling could lead to two extremes: if the tariffs are ultimately deemed illegal, the White House may face the embarrassment of refunding billions of dollars in taxes, triggering dual chaos in trade and finance; conversely, if deemed legal, the president will gain near "monarchical" powers to unilaterally impose significant economic measures without congressional approval.

This is not just a legal lawsuit; it is a confrontation that will profoundly reshape the boundaries of presidential power and the direction of economic policy in the United States.

A Judicial Showdown Reshaping Presidential Power

At the core of this judicial showdown is the Trump administration's invocation of the 1977 International Emergency Economic Powers Act (IEEPA) as the legal foundation for imposing tariffs.

This act grants the president broad powers in response to a "national emergency," and this administration has defined the trade deficit as a "national emergency," thereby opening the door for a series of tariff measures.

The impact is significant: tariffs that took effect on April 2 have pushed the effective tariff rate on consumer goods in the U.S. to 17.9%, the highest level since 1934.

The White House expresses complete confidence in the legality of this move.

President's trade advisor Peter Navarro provided three defense arguments: the trade deficit constitutes an "unusual and extraordinary" external threat; the text of the IEEPA does not explicitly exclude tariffs from the "emergency" tools available; and these tariffs will be subject to periodic review by Congress.

However, the mainstream legal opinion stands in opposition.

Most legal scholars, including conservatives, believe the government's legal basis is quite weak, with a high likelihood of losing the case. The core logic lies in the "major questions doctrine," which states that any administrative action with "significant economic and political implications" must receive explicit authorization from Congress or the Constitution.

It is worth noting that Chief Justice John Roberts and other conservative justices have previously supported this principle.

The Sword of Damocles Over the Market

For Wall Street, this lawsuit is a Sword of Damocles hanging overhead, with the ruling's outcome leading to two distinctly different futures.

Currently, the market has somewhat factored in the impact of tariffs on pricing. For instance, Treasury Secretary Scott Basset has predicted that annual tariff revenues will exceed $500 billion in the coming years, which is seen as helping to reduce the fiscal deficit and has contributed to maintaining U.S. 10-year Treasury yields around 4%.

However, the paradox lies in the fact that White House advisors insist that tariffs are temporary measures that will end with the "state of emergency," while the Treasury has already planned them as a long-term source of revenue, exposing the logical contradictions and uncertainties in policy.

If the Supreme Court ultimately rules the tariffs illegal, the consequences will be chain reactions. First, the White House may need to refund businesses tens of billions of dollars in tariffs, directly impacting the finances. Second, the Trump administration's geo-economic strategy, centered on unilateral actions, will be fundamentally shaken. At that time, the government may turn to other legal tools, such as Section 232 of the Trade Expansion Act of 1962, to maintain tariffs. However, Section 232 only targets specific industries and has delay requirements before implementation, making its coverage and flexibility far less than that of IEEPA. This switch could cause "logistical turmoil" at best, and "policy chaos" at worst.

Conversely, if the Trump administration wins, the impact will be even more profound.

This means that the president's power will be greatly expanded, allowing for more freedom to bypass Congress and unilaterally implement significant economic decisions such as tariffs and capital controls, gaining a kind of "quasi-royal" power.

How will the market ultimately react? Perhaps it will digest this like other shocks throughout the year and eventually return to calm. But the risk is that if a loss ruling coincides with negative economic data such as rising inflation, worsening employment, and high deficits, the cumulative effect could trigger severe market turbulence