Guotai Haitong: What’s Next After Trump’s Tariffs Are Rejected?

CITIC Securities APP has learned that Guotai Haitong released a research report stating that recently the U.S. Supreme Court ruled that the Trump administration’s imposition of reciprocal tariffs under IEEPA was illegal. Subsequently, Trump announced that he would temporarily impose a 10% global import tariff under Section 122 of the Trade Act of 1974. The firm believes that the risk of re-inflation remains high, and the new tax rates and tax rebate disputes have increased policy uncertainty. The market expects that the volatility of the US dollar and US Treasuries will temporarily rise but with limited magnitude, and attention is focused on how to patch the system.

Guotai Haitong’s main points are as follows:

1. How to patch after the reciprocal tariffs are overturned?

On February 20, the U.S. Supreme Court ruled that the Trump administration’s imposition of reciprocal tariffs under IEEPA was illegal. Following this, Trump stated at a press conference that he would temporarily impose a 10% global import tariff under Section 122 of the Trade Act of 1974.

Short-term patch: Section 122 temporary tariffs. After the reciprocal tariffs were ruled illegal, the only effective tariffs remaining are Sections 232 and 301 tariffs, with an average tax rate dropping from 17.6% to 9%. In the short term (150 days), the tariffs can be maintained at roughly the same level using the 122 clause. In the medium to long term, Section 232 industry tariffs and Section 301 country-specific tariffs will become the main patches.

Medium to long-term patches: Section 232 and 301 tariffs. By 2025, Section 232 tariffs have been applied to automobiles, steel, aluminum, copper, furniture, trucks, and semiconductor products (most of which have been exempted). Also, investigations into pharmaceuticals, aircraft, critical minerals, drones, wind turbines, robots, industrial machinery, and polysilicon have been initiated or are ongoing, with results expected in the first half of 2026.

Products related to the Section 232 investigation account for about 20% of US imports. To fill the gap left by the overturned reciprocal tariffs, tariffs would need to be increased at a 40% rate. Major import sources for these products include China, Mexico, the EU, Vietnam, and Canada. Attention should be paid to the actual implementation of the Section 232 tariffs and their country-specific impact. Experience from 2025 indicates that goods imported from the EU and Canada have a higher pass-through efficiency for inflation.

2. Overturning reciprocal tariffs does not mean de-inflation; the firm believes the risk of re-inflation remains high:

First, under the expectation of case-by-case review, companies’ incentives to litigate should be considered. If companies have successfully passed tariff costs onto consumers, they may have little motivation to seek refunds, which also means that prices of related goods may not decrease.

Second, exporters have voluntarily borne some tariffs (reflected in US dollar depreciation, while US import prices have remained relatively unchanged), minimizing the impact of tariffs on product prices. A reduction in tariffs could even give exporters room to raise prices.

Third, considering that Trump and Bissett have both stated that alternative tariffs will largely retain the original rates and levels, and given the many uncertainties surrounding tax rebates, companies’ plans to pass tariffs downstream may not be significantly affected.

3. Impact on fiscal revenue: slightly increased pressure

Reciprocal tariffs account for nearly 60% of US tariff revenue, so the market is paying close attention to the fiscal impact.

In the short term, even if all refunds are issued (about $170 billion), the nearly $9 trillion fiscal balance is sufficient to handle it, with limited financing pressure.

In the medium to long term, tracking the implementation of Sections 232 and 301 tariffs is necessary. The US annual deficit is about $3 trillion. If reciprocal tariffs are overturned and no new tariffs are introduced, net bond financing needs would triple current levels, significantly increasing supply pressure.

The firm expects tariffs to ultimately decrease slightly by 2-3%, and slightly raise the fiscal deficit ratio by about 0.1-0.2%, with limited impact on US debt supply pressure.

4. Asset pricing: policy uncertainty re-ignited

The market has already anticipated that the Supreme Court would overturn reciprocal tariffs, and that the White House would seek alternative measures. The volatility of the US dollar and US Treasuries has temporarily increased but with limited scope. For Trump, IEEPA provides more bargaining chips compared to Sections 232 and 301. Market focus is on how to patch the system, and if the new patch is less effective than IEEPA, it may prompt Trump to seek more aggressive policy tools, reintroducing policy uncertainty and boosting gold performance.

Risk warning: Uncertainty regarding the Trump administration’s tariff policies.