What If It’s All Undone?
The last eight months on Wall Street have been dominated by the Trump Administration. Like it or not, that’s the reality.
Tariffs crashed the market in early April.
The delay of tariffs later that month caused a surge in stock prices.
Each “deal” seems to be cheered by investors.
We had all seemed to come to a kind of understanding. President Trump could talk big about tariffs, countries would offer some meaningless concession, companies like $Apple(AAPL)$ would be exempted, and the TACO trade would continue.
Friday threw that balance into turmoil.
A federal appeals court ruled most of President Trump’s tariffs illegal. From the BBC:
A federal appeals court has ruled that most of Donald Trump's tariffs are an overreach of his use of emergency powers as president.
The so-called reciprocal tariffs - imposed on nearly every country the US trades with - are being illegally imposed, the US Court of Appeals said on Friday.
The decision upholds a ruling in May from the Court of International Trade, which also rejected Trump's argument that his global tariffs were permitted under an emergency economic powers act.
Many of the tariffs that would be affected by the ruling stem from an announcement in April of a flat 10% rate on imports from all countries, which Trump said would even out "unfair" trade relations with the US.
The court did not halt the tariffs but instead said they would remain in place until mid-October, setting up a further legal challenge in the US Supreme Court.
This throws everything into chaos.
Should companies assume tariffs are still going to be in place or not?
Will tariffs be refunded if they’re overturned?
Should production be moved to the U.S. or another country based on tariff rates?
At the end of the day, the business world is likely frozen.
And why would anyone negotiate on tariffs now? Japan reportedly backed out of talks last week. China has been kicking the can for months.
No deal that’s been announced has been approved by Congress, so are they illegal, too?
Kissing the Ring and Ignoring His Rules
The reaction to deals with companies has been amusing.
$NVIDIA(NVDA)$ CEO Jensen Huang has been a regular at the White House, happy to give President Trump a photo op with one of the richest, most powerful people in the world.
He even made a “deal” to give the U.S. government 15% of sales to China in exchange for the ability to sell H20 chips, with the next step being Blackwell sales to China.
The only problem is, a deal with Trump personally isn’t a law or regulation a company can/will follow. And NVIDIA’s CFO said as much.
USG officials have expressed an expectation that the USG will receive 15% of the revenue generated from licensed H20 sales, but to date, the USG has not published a regulation codifying such requirement.
Why negotiate on anything if the punishment being levied isn’t enforceable?
Intel’s Deal and U.S. Investments in Companies
And then there’s the idea of investing in more U.S. companies. $Intel(INTC)$ has agreed to give the U.S. a ~10% stake, which isn’t really a new investment but rather a conversion of CHIPS Act funds into equity. But Commerce Secretary Howard Lutnick said last week the U.S. could invest in more companies like defense contractors.
Trump Pentagon weighing equity stakes in defense contractors like Lockheed, says Lutnick
The Trump administration is "thinking about" whether the U.S. should take stakes in top defense contractors, Commerce Secretary Howard Lutnick said.
Would that be legal?
Probably not. Maybe?
What If It’s All Undone?
So, I come back to my original question: What if it’s all undone?
What if tariffs are illegal?
What if trade deals are never completed?
What if the equity stake in Intel falls apart?
What if all of these press conferences are for nothing?
I’m not sure if it’s good or bad. But it’s not the stable environment investors and entrepreneurs have come to enjoy in the U.S., and breaking that trust with the drivers of economic activity is a great way to reduce the U.S. stock market premium.
And that would be bad for all of us.
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