30 May 2025

Jonathan Sparks

Chief Investment Officer, UK, HSBC Global Private Banking and Wealth

A torrent of water has passed under the bridge since “Liberation Day” on 2 April . Having walked back on the bill-boarded tariffs in less than a week, US President Trump’s tariffs have now been struck an almost fatal blow by US courts. In another dramatic twist this week, the US Court of International Trade struck down President Trump’s sweeping global tariffs, calling them illegal and throwing his entire trade agenda into disarray. For nearly two months, Trump's tariffs have been the overriding driving force for markets, effecting goods from China, Canada, Mexico, and, frankly, the entire global trading economy. Yet, piece by piece the threat from tariffs has been walked back, first with a three-month extension, and now by the courts. With each step, the equity market has moved higher and now the narrative on tariffs may have to take a supporting role to that of AI innovation.

The ruling on tariffs is hard to brush off too. A three-judge panel said that Trump’s emergency powers didn’t justify the broad “Liberation Day” tariffs he had imposed, as well as earlier duties on steel, aluminium, and solar products. This means that in one stroke, a huge chunk of those tariffs has been swept aside, at least for now. With Trump appealing the decision, the tariff juggernaut looks to be heading towards the Supreme Court. In the meantime, the rule throws up several questions. What does this mean for the agreed trade deal with the UK, now that the court has struck down Trump's use of the International Emergency Economic Powers Act (IEEPA) for “leverage” in trade talks? How is Trump going to argue that his new spending bill will be paid for? What does this mean for other trade deals that were in the pipeline? And do importers have the right to claw back previous tariff payments?

The response from investors was swift and upbeat. The dollar shot up to a one-week high, and US Treasury yields ticked higher as traders started to price in the idea that removing these tariffs might be good for growth and trade. After all, those tariffs had put a serious drag on global supply chains and added costs for US companies and consumers alike. This is on top of an already buoyant market mood. Tuesday’s US consumer confidence data was far more upbeat as households dialled back their fears on inflation and recession. In addition, chip-producing superpower, Nvidia, reported above-consensus revenue growth and claimed that there is still “exponential growth” for AI computing demand.

Asian and European markets also jumped on the optimism train. Japan and South Korea’s stock markets rose more than 1.5%, and even Europe opened up strong. It’s clear that for all the drama around trade wars, investors still want to believe in a world where goods can move freely, and growth can stay on track.

Is this all too good to be true? Arguably, yes, as the ruling doesn’t mean the end of tariffs altogether. Trump does have other tools at his disposal, although not that are as broad reaching as using the IEEPA. For instance, he could still apply smaller, targeted tariffs using other legal powers. Let’s not forget that the Supreme Court is also weighted towards the Republicans.

Legal challenges for a start. Also, with Trump rattled and already facing political pressure from dialing down previous tariffs, there is a risk that he lashes out. Some in the administration are already talking about ways to pivot, maybe using other levers to keep up the pressure on foreign rivals. But for now, markets are reacting like this might be the start of a more balanced chapter in global trade.

Bond markets are watching this too. Yields on 10-year Treasuries jumped four basis points to 4.52% after the ruling, reflecting both relief over trade prospects and wariness about what comes next. So, where does all this leave us? For now, the market’s takeaway is that a major source of trade friction might be gone, at least temporarily. Investors have seized on that as a sign that the worst of the tariff drama could be behind us, with a chance for smoother trade relationships and a bit more economic breathing room. Furthermore, the bounce in consumer confidence will remind investors of last year’s optimism and talk of “US exceptionalism”.

This no doubt helps our recent upgrade to US equities and our broader overweight on equity. At the same time, the political volatility is a reminder of why we feel so strongly about hedging risk with a well-diversified portfolio, more varied and alternative asset classes, and gold.

Source: Bloomberg