In the ever-hopeful world of stock market investors, the news yesterday of a ninety-day grace period where the US reduces tariffs on China from 145% to 30%, and in turn, China on the US from 125% to 10% is good news. Welcome back to a form of financial relativism where one person's economic and trade restrictions should not be a hinderance to how another’s ever-bull tendencies may be expressed. What happens after ninety days is ignored, so is how this new development cures the motivation of President Trump to combat the ballooning trade deficit between the US and China.

This market appeasing moratorium, for that is what this is, as evidenced last week with the leader of the so-called free world hawking "you better go out and buy stocks now, let me tell you", probably adds more intrigue than clarity. Whatever paths were being plotted by the likes of central banks will also have to be put on hold. The Bank of Japan’s quandary on when to go ahead and raise rates as it has been itching to do has just been given more time in which to fret and will the same amount of stimulus come from the People’s Bank of China now the reason to do so is now moot, well at least for three months. No doubt in that time more tariff deals will be done in similar pattern with that of the UK and investors will rest a little easier, but there is something of kicking the can down the street about this Sino/US agreement. Even the wider legalities of tariffs are under scrutiny, see below, but for the moment investors are given free rein, and it really is a remarkable testimony in resilience.

Oil prices might just be a more reliable litmus test as to the state of world trade. The fervour of equity investors has long been passing by our market as it remains resolute in representing how economies are burning energy, manufacturing stuff and how it is pushed around the globe. Not for us the dizzy notions of buying anything to do with AI, and while the amazing development in technology will help get more oil from the ground efficiently, it will not conjure up any more customers to use it. The stock market driven move by Washington does not change the amount of OPEC+ oil coming back, a possible Ukraine agreement which sees Russian supply welcomed back on to the seas and a nuclear agreement where pariah status is lifted from those that receive black gold from Iran.

Tariffs get their day in court

What is going unnoticed is how the author of the global trade war, one Donald J. Trump, might just be in contravention of US trading rules. Opponents of any description to many of this US Administration’s ministering are often not heard from, they are drowned out by the Trump-pets of distortion and the go-to challenge of “fake news” lambast, which is apparently an adequate enough response and reason to not engage in debate. What has driven constitutionalists to distraction is the use of the International Emergency Economic Powers Act of 1977 (IEEPA). The Legal Alliance of the Americas describes how the IEEPA empowers the president to address any “unusual and extraordinary” external threats to the national security, foreign policy, or economy of the U.S. upon declaration of a national emergency under the National Emergencies Act (NEA). They are ordinarily used in the application of sanctions, be they individual, corporate or national. The acts therefore enable a president to freeze assets, prohibit or regulate the importation of any property in which a foreign country or foreign national has any interest or the monies held within.

The IEEPA/NEA are usually only invoked when a definition of threat to national security, economy or foreign policy is detected and thereby with such a wide remit, the acts do have interpretative variation and indeed can be suited to one’s needs. Up and until this current regime, no US President since 1977 has used the authority of the IEEPA with regard to tariffs. Even before President Trump was sworn in, the prospect of decades-old legislation undergoing a form of gerrymandering which does not adhere to etiquette or even the spirit of the laws saw much grumbling in legal circles. Having stepped up to power and immediately brought fruition to the anticipated overreach, there now follows an action by interested and affronted parties against Trump’s IEEPA/NEA applications. The US Government’s liberal sprinkling of global tariffs now faces challenge in the Court of International Trade. According to many media sources, this hitherto little-known three-judge, federal court has control of the nation’s trade disputes and presides on how tariffs are levied and at what rate, will sit in judgement on current tariffs and who may impose them. Plaintiffs will make a case, starting today, that the President has overstepped constitutional authority, point out the dire consequences for domestic and international economies and that “Liberation Day” born out of an “emergency” has no legal basis.

The basis in which Trump evoked IPEEA and NEA he argued, were large deficits that combined with structural imbalances of the global trading system causing a threat to the economy and national security of the United States giving him leave to declare a national emergency. This is a serious turn of legal events and one the world ought to take note of, for a win for the Administration will set a precedent in executive controls. The President will be given power to set and impose tariffs on any country and bearing in mind this Commander-in-Chief’s ability to hold a grudge and change his mind, the forward outlook for tariffs becomes even murkier than it is now. Trading partners must already be fearing the ephemeral nature of agreements; a resulting dismissal of the plaintiffs’ case can only mean future trading deals with Uncle Sam will not be worth the paper they are written on. From a layperson perspective, and a prejudicial inclination that Americans love to hangout a court case, this may not be over with very quickly. But be assured, this very important and not much known about case will make lawyers of investors, traders, analysts, commentators, brokers and all who spend their days nosing around what tariff affects have over markets and the price of a barrel of oil.

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