U.S. Supreme Court temporarily suspends tariff ruling; market focuses on seven key issues

``` According to CCTV News, on January 9 local time, the U.S. Supreme Court stated that it would not make a ruling that day regarding the Trump administration's global reciprocal tariffs imposed under the International Emergency Economic Powers Act (IEEPA). This means the market may have to continue waiting for the next "opinion day." According to Zhui Feng Trading Desk, and as per a research report released on the 9th by Bank of America’s Aditya Bhave team, although the betting market thinks there is a high probability the tariffs will be overturned, regardless of the outcome, the government may use other statutory authorizations to fill the revenue gap, and the supportive tone of trade policy for this year's economic growth has not changed. If the IEEPA tariffs are struck down by the court, Bank of America expects bond yields to rise due to concerns over fiscal deficits, while the stock market will rise as pressure on retailer margins eases and the fiscal stance loosens. In this scenario, the administration is very likely to quickly invoke alternative legal clauses such as Section 122, Section 232, and Section 301 to try to recoup part of the tariff revenue, possibly causing sharp fluctuations in tariff structures in certain industries. Conversely, if the tariffs are unexpectedly upheld, the market reaction will be the opposite, with bond yields and stocks declining. Notably, current tariff revenue has already fallen short of expectations due to import substitution and exemption measures, with the actual collection rate at only 11.2%, significantly lower than the theoretical estimate of 14.5%. This has somewhat cushioned the direct impact of the decision on the real economy. During this key window as the ruling lands, investors urgently need to clarify the core logic from the probability of the ruling, to subsequent policy changes, to asset price volatility. The following are the seven key questions the market is most concerned about: Key Question 1: What will happen, and when will the ruling be delivered? The Supreme Court releases opinions at 10am EST on January 9. According to CCTV News, on January 9 local time, the U.S. Supreme Court stated that it would not make a ruling that day regarding the Trump administration's global reciprocal tariffs imposed under the IEEPA. This means the market may have to continue waiting for the next "opinion day." Bank of America indicated that this opinion may be released on some future “opinion day”. Key Question 2: What is the market betting on? At the time the Bank of America report was written, Kalshi placed the probability of "tariff being upheld" at less than 25%. This probability was between 35% to 40% before the November 5th oral arguments, and dipped to around 20% a few days after the arguments. Key Question 3: How much revenue are tariffs currently bringing to the treasury? Bank of America estimates that tariff revenue has recently been running at about $30 billion per month, or about 1.2% of GDP on an annualized basis. Of this, about 55%–65% (about 0.7%–0.8% of GDP) is attributable to IEEPA-related tariffs. This base means the ruling is not just a trade policy event but will also be included in the market's discussion framework for fiscal and deficit paths. Key Question 4: If the IEEPA tariffs are overturned, what alternative tools might the government use? Bank of America judges that if the IEEPA tariffs are overturned, the government will likely turn to other statutory authorizations to recover part of the revenue, with the first step likely using Section 122, which permits up to 15% tariffs for 150 days, after which Congress must extend. Bank of America expects the government might use this 150-day window to initiate more Section 232 (national security) and Section 301 (unfair trade practice) investigations. Even so, overall tariff revenue is likely to see a net loss, about 0.3% of GDP, or about $90 billion per year. More importantly, the final tariff structure may be more uneven: industries deemed to involve national security may face higher tariffs under the 232 and 301 frameworks; industries such as those linked to consumption may see a significant drop in tariff burden. Key Question 5: What is the main impact of the ruling on stock and bond markets? Bank of America’s baseline scenario: If the IEEPA tariffs are overturned, the market will factor in reduced tariff revenue and a widening deficit, pushing up long-term U.S. Treasury yields; at the same time, equities may rise due to easing pressure on retailer profit margins and an “implicitly looser fiscal stance”, with gains likely focused on sectors less covered by 232 or 301, such as consumer stocks. But the extent of the market response will depend on the details of the ruling, such as whether fentanyl tariffs are also struck down or only reciprocal tariffs, and whether tariffs already collected must be refunded. If the tariffs are upheld, Bank of America expects the opposite: stock markets and bond yields falling. Since the market is currently leaning towards an “overturning”, a surprise in this direction could have a greater price impact. Key Question 6: What does it mean for growth, inflation, and the Federal Reserve? Bank of America believes that, whatever the Supreme Court decides, trade policy overall this year is likely to remain supportive of growth. If tariffs are upheld, Bank of America expects the government may more quickly reduce trade uncertainty and push for more “market and growth friendly” results before the midterm elections, such as renegotiating the US-Mexico-Canada agreement. If tariffs are overturned, there may be macro-level benefit from a looser fiscal stance (larger deficit), but this tailwind will be partly offset by a new round of trade uncertainty. The short-term inflation impact may be slightly downward: retailers who had already passed tariff costs on to consumers may hold prices steady or even lower some prices; firms that had previously absorbed the cost themselves may have less incentive for further price increases. This may marginally provide the Federal Reserve with more room to cut rates further, but Bank of America also emphasizes the impact may be limited, since most FOMC members tend to “look through” tariffs’ one-off impact on inflation, and a looser fiscal stance may stimulate demand, bringing upside risk to future inflation. Key Question 7: Why is tariff revenue already below expectations, and how should the market interpret this? Bank of America points out that IEEPA-related tariffs are underperforming expectations, which in itself will weaken the net impact of the Supreme Court's ruling on the market and macro environment. According to the latest trade data, the effective tariff rate for November 2025 was 11.2% (Bank of America’s usual assumption is tariffs collected in a month correspond to the previous month’s imports). This level has been stable for three consecutive months. Based on the December daily Treasury reports, the effective rate for November imports may fall even lower. This does not fit with earlier expectations that rates would rise significantly after full implementation of the summer measures. Bank of America gives two reasons: First, importers have clearly shifted to low-tariff products and source countries; Bank of America estimates this substitution effect has caused the effective rate to drop about 3 percentage points. Second, the gap of more than 3 percentage points between theoretical and effective rates may come from exemptions and circumventions not fully accounted for, with the gap most obvious in the EU, where the theoretical rate is about 16%, and the effective rate about 9%. Similar “below-theoretical” situations also occur for major partners such as Switzerland, Brazil, Mexico, and India. For investors, this means that regardless of the ruling outcome, the “real leverage” of fiscal revenue and price transmission may be smaller than model assumptions, so the market is more likely to trade on the “alternative tariff paths” and sector redistribution, not just total macro impact. ~~~~~~~~~~~~~~~~~~~~~~~~ The above brilliant content comes from Zhui Feng Trading Desk. For more detailed interpretation, including real-time analysis and on-the-ground research, please join the [Zhui Feng Trading Desk • Annual Membership]. 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