"Card-making out of thin air caught between finance and inflation"
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Caitong Securities pointed out that after losing the tariff legal battle, Trump swiftly enacted the lower-rate Section 122 to replace the unconstitutional IEEPA, essentially a “bluff” — maintaining pressure by manufacturing bargaining chips to win votes for the midterm elections.
Caitong Securities analysts Zhang Wei and Ren Siyu, in their latest report released on the 24th, analyzed Trump’s rapid shift after losing the tariff legal battle. For global investors, this report not only reveals the underlying logic of U.S. trade policy, but also points out how, in the context of a midterm election year, the White House is attempting to find a balance by playing legal games between a shaky fiscal deficit and angry voters’ inflation perceptions.
According to Xinhua News Agency, after the U.S. Supreme Court struck down the Trump administration’s tariff arrangements under the International Emergency Economic Powers Act (IEEPA), the Trump administration quickly invoked Section 122 of the Trade Act of 1974 to impose a uniform 10% tariff on global imports; Trump subsequently stated he would raise the rate to 15%.
The Political Art of "Bluffing"
The U.S. Supreme Court ruled the IEEPA tariffs unconstitutional, but this did not force Trump to surrender. On the contrary, he quickly resorted to Section 122 as a backup plan. According to the report, this is just Trump’s usual negotiating tactic—when the old chips fail, new chips are rapidly created to maintain leverage at the negotiating table.
“This rapid switch to Section 122 to replace IEEPA tariffs is another instance of Trump ‘bluffing’; the 15% maximum tariff is an anticipated bluff tactic, essentially maintaining a high-pressure trade stance to create bargaining chips for trade talks before the midterm elections and to win more votes.”
An Unexpected "Export Rush" Window
Ironically, Trump’s seemingly tough counterattack actually lowered tariff barriers in the short term. Previously, the nominal tariff under the IEEPA framework was as high as 20%, while the cap under Section 122 is only 15%. This technical rollback in rates has opened a brief arbitrage window for global traders.
“For countries previously facing higher actual rates, the Section 122 framework represents a new round of export rush opportunity; for U.S. traders, it’s also a new import rush window.”
The Extreme Pressure of the Next 150 Days
Investors should not become blindly optimistic due to the short-term rate drop. The report warns that Section 122 is just a prelude, and the real storm may come with subsequent 301 and 232 investigations. The next five months will be a period of intensive U.S. trade negotiations, and also a time of increased market volatility.
“The real strategy of the Trump team may be to maintain high pressure with Section 122 tariffs, and then launch intensive Section 301 and 232 investigations within a 150-day window... Through this cycle of ‘investigation-threat-negotiation-compromise’, they aim to achieve maximum pressure for greater trade negotiation results.”
Election Year Trapped Between Inflation and Deficits
Ultimately, all of Trump’s actions are bound by votes. He needs tariff revenue to fill a fiscal gap that accounts for 0.55% of GDP, but must also avoid inflaming grassroots voters with tariff-driven inflation. This dilemma means the 2026 tariff policy will maneuver within a very narrow channel.
“In the short term, every instance of Trump ‘raising tariffs’ is to ultimately ‘win votes’ when tariffs are reduced… The 2026 ‘bluff’ is likely to be sandwiched between fiscal and inflation factors, maneuvering within limited space.”
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