What is the impact of the Supreme Court's ruling on Trump's tariffs? UBS has simulated possible outcomes

A key ruling by the U.S. Supreme Court could undermine the core pillar of the Trump administration's tariff policy, forcing it to refund massive tax payments to importers and reshape America's trade barriers.

Previously, CCTV News reported that the U.S. Supreme Court will quickly review the legality of most tariffs imposed by the Trump administration, with oral arguments scheduled for November 5.

According to the Wind Trading Desk, UBS analysis suggests that while this move will trigger short-term market turbulence and put pressure on the U.S. fiscal outlook, if trade partners exercise restraint and avoid retaliation, a lower overall tariff environment could ultimately benefit the U.S. economy and stock market.

UBS's projections indicate that if the Supreme Court ultimately rules the tariffs illegal, the most direct consequence would be that the U.S. government may need to refund approximately $130 billion to $140 billion in tariff revenue. This amount would provide a windfall to U.S. importers who paid the tariffs, but it would also further worsen the already severe federal budget deficit, equivalent to 7.9% of the 2025 budget deficit.

UBS expects that the government will resort to other legal tools, such as Sections 201 and 301 of the Trade Act of 1974, to "rebuild tariff barriers," but this will be a process that takes several quarters and is less flexible. This process may trigger brief fluctuations in specific regional markets and industries, but if countries avoid retaliatory measures, the impact will be limited.

Should the President be Granted the Power to Impose Tariffs?

The case "Trump v. V.O.S. Selections, Inc." under review by the Supreme Court centers on whether the phrase "regulate imports" in the International Emergency Economic Powers Act (IEEPA) implicitly grants the president the power to impose tariffs, even though the statute does not explicitly mention "tariffs."

Opponents argue that the power to tax belongs to Congress, and large-scale tariff actions by the government require clearer authorization from Congress.

The outcome of the ruling is uncertain, with market predictions showing a slightly less than 50% probability that the Supreme Court will support the government, and expert opinions are divided. Due to the lack of precedent, the court may issue a mixed ruling, declaring some tariffs invalid while retaining other emergency tariffs.

How Will the Scale of Refunds Affect Finances?

If IEEPA tariffs are ruled illegal, the financial impact should not be underestimated.

UBS estimates that the government may be forced to refund $130 billion to $140 billion in taxes to U.S. companies.

From a macroeconomic perspective, this refund is only equivalent to 0.5% of the estimated U.S. GDP for 2025, which would have a negligible stimulating effect on the economy.

However, for federal finances, this amount is equivalent to 7.9% of the $1.8 trillion federal budget deficit for 2025, which will significantly impact the short-term fiscal situation.

In the long run, losing the flexible tariff tool of IEEPA may weaken the federal government's future tax revenues.UBS believes that if the government cannot fully compensate for this loss of revenue through other means, the deterioration of the fiscal outlook may lead to a steepening of the yield curve. Concerns about fiscal sustainability would push up long-term U.S. Treasury yields, while expectations of Federal Reserve rate cuts would anchor short-term yields.

How will businesses and the stock market respond?

For U.S. companies that directly pay tariffs, obtaining refunds will be an unexpected financial boon.

According to estimates from the U.S. Chamber of Commerce, about one-third of the refunds will flow to small companies with fewer than 500 employees, which will help improve their financial situation. For large publicly traded companies, although they can also benefit from the refunds, UBS points out that the direct costs of tariffs have not had a significant negative impact on the earnings forecasts of the S&P 500 index, so the positive effects of the refunds may also be negligible at the index level.

UBS believes that for the stock market, it is more important that the overall effective tariff rate in the U.S. may decrease as a result. This would enhance household purchasing power, supporting economic growth and corporate profits.

At the same time, easing inflationary pressures will provide the Federal Reserve with more room to cut rates—an outcome that stock investors would welcome. As long as trade partners do not retaliate, investors may be inclined to view this outlook positively.

How will the government rebuild tariff barriers?

UBS expects that once the IEEPA tariffs are overturned, the government will not sit idly by as the tariff barriers collapse, but will instead utilize a range of other legal tools for reconstruction. Possible options include:

Section 122 of the Trade Act of 1974: This is an untested option that allows for tariffs of up to 15% to be imposed to address balance of payments issues for a maximum of 150 days, without prior investigation.

Sections 201 and 301 of the Trade Act of 1974: These are more traditional tools. Section 201 addresses situations where imports cause harm to domestic industries; Section 301 targets unfair trade practices by specific countries. Although they require lengthy investigations, their legal basis is more solid.

Section 232 of the Trade Expansion Act of 1962: Tariffs imposed on the grounds of national security, which have been implemented in sectors such as automobiles, steel, and aluminum.

Section 338 of the Tariff Act of 1930: Another option under discussion, but also untested and may face legal challenges.

UBS analyzes that the government may first use Section 122 to quickly restore some tariffs, but this is only a temporary solution for 150 days. After that, the government will have to rely on more cumbersome but legally more reliable tools, such as Sections 232 and 301, to expand the scope of tariffs through formal investigations.

What is the outlook for future trade relations?

The limited retaliation from trade partners has resulted in a better-than-expected impact on the overall economy. UBS believes that countries may exercise restraint due to concerns about escalating tensions and deeper economic damage. Additionally, the legal challenges to the IEEPA tariffs themselves make retaliation seem untimelyAfter the ruling, this consideration may change.

During the 150-day window period under Article 122, the tariff landscape may not undergo significant changes. However, after this period, the government will lose the flexibility to impose arbitrary tariffs granted by the IEEPA, and trade policy will become more targeted.

UBS believes that countries with a long-term, large-scale trade surplus in goods with the U.S. are likely to become the initial targets of Section 301 investigations.

Ultimately, UBS concludes that if IEEPA tariffs are ruled illegal, the overall effective tariff rate in the U.S. will decrease, but the differences in tariff rates between countries will be greater than they are now. Rebuilding trade barriers with more targeted tariffs may cause temporary fluctuations in specific regional markets and industries, but as long as countries avoid retaliation, these fluctuations will be short-lived