Industrial Securities: The US tariff ruling is a long-term narrative change brought about by the limitation of administrative power. Focus on the impact of declining tariffs on the export chain of A-shares.

CryptoTimes APP has learned that Industrial Securities released a research report stating that on February 20th, the U.S. Supreme Court ruled 6:3 that U.S. reciprocal tariffs and tariffs on Chinese fentanyl are unconstitutional. The ruling will be reflected in asset prices, supporting U.S. stocks while pressuring U.S. Treasuries. At the same time, the decision signifies a long-term narrative shift due to limited administrative powers, which will increase the “chaotic” nature of subsequent U.S. policies, stimulate precious metals and other “weak dollar assets,” and push U.S. Treasury yields higher. Industries with large revenue exposure to the U.S., such as light industry appliances, consumer electronics, batteries, auto parts, and medical devices, especially those with significant capacity deployment or trade re-exports in the previously high reciprocal tariff ASEAN region, will benefit most from this tariff reduction.

Main points from Industrial Securities are as follows:

Introduction: On February 20th, the U.S. Supreme Court ruled 6:3 that reciprocal tariffs and tariffs on Chinese fentanyl are unconstitutional. Subsequently, Trump announced that tariffs imposed under IEEPA would no longer take effect, while the additional 10% Section 122 tariffs, imposed globally, took effect in the early hours of February 24th. Additionally, Trump plans to issue a new tariff investigation, expected to take about five months. The new tariffs exempt some key minerals, raw materials, electronics, and machinery. Trump also reaffirmed that the exemption policy for small packages remains canceled.

How to interpret the Supreme Court’s ruling?

1. Tariffs are a statutory power of Congress. The ruling states that Article I, Section 8 of the U.S. Constitution explicitly grants Congress the power to levy taxes and tariffs, and the framers did not delegate any taxing authority to the executive branch. (The framers gave “Congress alone” the power to impose tariffs during peacetime.) The Trump administration believed that because tariffs involve diplomatic affairs and national security, courts should presume Congress intended to grant the President broader discretion under IEEPA. However, the ruling indicates that the impact of tariffs on foreign policy does not imply Congress intentionally delegated its taxing power through vague language. Any delegation must be clear and explicit to be consistent with legislative logic.

2. Reaffirmation of the “Major Questions Doctrine.” Chief Justice Roberts, Justice Gorsuch, and Justice Barrett argued that the case should be decided under the major questions doctrine, which states that agencies must have explicit congressional authorization to enact regulations with significant economic or political impact, or else such regulations are unconstitutional. On June 28, 2024, the Supreme Court ended the 40-year-old Chevron doctrine, which held that courts should defer to administrative agencies’ interpretations of ambiguous statutes. The abolition of Chevron reshapes the separation of powers among the legislative, executive, and judicial branches, limiting administrative expansion. The ruling (No. 24-1287) notes that with Chevron’s demise, the application of the major questions doctrine is more of a return to original principles than an innovation.

3. Interpretation of the IEEPA statute’s text. Justices Sotomayor, Kagan, and Jackson argued that, based on ordinary interpretation, IEEPA does not authorize tariffs. They believe IEEPA grants the President emergency powers to regulate imports, but when Congress explicitly addresses regulatory and taxing powers separately, the term “regulate” does not include tariffs. Over the half-century of IEEPA’s existence, no President has invoked it to impose tariffs, let alone of this scope and magnitude. (It is also telling that in IEEPA’s half-century, no President has invoked the statute to impose any tariffs, let alone tariffs of this magnitude and scope.) Therefore, the court’s reliance on common statutory interpretation tools suffices to support this conclusion without invoking the major questions doctrine.

4. Views on alternative tariffs. Justice Kavanaugh, dissenting, believed the ruling might not significantly limit the President’s future authority to impose tariffs. The court’s conclusion is that the President chose the wrong legal basis—relying on IEEPA instead of other statutes—since many other federal laws authorize tariffs and could provide a reasonable legal basis.

5. Limited discussion on refunds. Justice Kavanaugh suggested the ruling could have two short-term effects: first, refunds. The ruling does not specify whether or how the government will issue refunds, but oral arguments indicated the process could be “a mess.” Second, trade agreements. The ruling might impact existing U.S. trade agreements.

Why choose Section 122 tariffs as an alternative?

On one hand, Section 122 can be initiated without any investigation, making it the fastest alternative.

On the other hand, Section 122 only requires “a significant trade deficit” as a trigger, reducing judicial risk.

Section 122 authorizes the President to impose tariffs up to 15% on all imports when facing a significant trade deficit. However, its implementation is short-term, lasting up to 150 days, with extensions requiring Congressional approval.

Section 338, which also does not require complex investigations, was established before the Great Depression and has never been used. It authorizes the President to impose up to 50% tariffs on specific countries that discriminate against U.S. products, with no expiration or Congressional restrictions, but it is a retaliatory tariff tool and generally not permitted for unilateral proactive use. Using Section 338 almost certainly invites legal challenges. Given the five-month appeal cycle in this round, the ruling could take effect before the midterm elections, potentially affecting Republican electoral prospects and the balance of executive-legislative power.

Impact of the ruling on asset prices?

1. Fiscal and monetary effects of tariff rate reductions. The current 10% Section 122 tariffs are insufficient to replace the “reciprocal tariffs” announced on April 3, 2025 (“D-Day”). After the suspension of IEEPA tariffs, short-term tariff revenue will decline, possibly leading to a slight decrease in goods prices (inflation) and an increase in fiscal deficit. Asset-wise, U.S. stocks are supported, while U.S. Treasuries face pressure. However, as the “new tariff investigation” begins and new rates are announced, markets will react to further marginal changes.

2. Long-term narrative shift due to limited administrative powers. Unlike the fiscal and monetary impacts of “new vs. old tariffs,” the most significant aspect of the 6:3 Supreme Court ruling is its political implications: it endorses the contradiction between the executive and legislative branches, and negates the expansionist interpretation of Trump’s administrative authority. A further contraction of administrative power could bolster opposition forces at local and Congressional levels, increasing the “chaos” of future U.S. policies, and stimulating precious metals and other “weak dollar assets,” along with rising Treasury yields.

3. Impact of tariff rate reductions on A-share export chains. Industries with large U.S. revenue exposure—such as light industry appliances, consumer electronics, batteries, auto parts, and medical devices—that have previously faced high reciprocal tariffs in ASEAN countries with significant capacity deployment or trade re-exports will benefit most from this tariff reduction.

Impact on U.S. politics?

1. Continued contest over tariff authority. The unconstitutionality ruling on IEEPA tariffs marks a pivotal and turning point, likely leading to increased Congressional and judicial scrutiny. The U.S. government’s willingness to introduce alternative tariff policies remains, but the speed, scope, and flexibility of implementation may decline.

2. Further highlighting of executive-legislative conflicts. Under U.S. system, major policies beyond tariffs—such as immigration and election laws—must be decided by Congress. Congress may also attempt to restrict Trump’s other administrative powers, especially on issues like mail-in ballots and immigration, escalating disputes.

3. Impact of alternative tariffs on international relations. China might interpret the IEEPA ruling as an opportunity to downgrade U.S.-China tariffs. If Trump insists on replacing reciprocal and fentanyl tariffs with alternative tariffs, it could pose risks to U.S.-China bilateral relations in 2026.

Risk warnings

Significant escalation of alternative tariffs by the U.S.; major changes in external geopolitical situations.