A potential US Supreme Court ruling against the legality of US President Donald Trump’s tariffs is expected to compel the government to refund around US$140 billion (HK$1.09 trillion) to importers – equivalent to 7.9 percent of the projected 2025 federal budget deficit, according to UBS Group.
That would also trigger significant short-term fiscal pressure and force Washington to rebuild trade barriers through alternative legal mechanisms, the Swiss bank said.
In a report, UBS outlined the profound implications of the Court's upcoming review of "Trump v. V.O.S. Selections," which challenges whether the International Emergency Economic Powers Act implicitly grants presidents authority to impose tariffs.
A ruling against the administration would create an immediate fiscal shock through massive refunds while potentially leading to a structurally lower-tax trade environment that could ultimately benefit the US economy and stock market if trading partners refrain from retaliation.
The bank estimates the government would likely employ other legal tools including Sections 201 and 301 of the Trade Act of 1974 to reconstruct tariff barriers, though this process would take several quarters and result in less flexible trade policy.
While the refunds would provide a windfall for importers – with approximately one-third flowing to small businesses – the broader market impact might be limited as tariff costs haven't significantly depressed S&P 500 earnings forecasts.
UBS suggests the ruling could ultimately reduce overall effective tariff rates, boost household purchasing power, ease inflationary pressures, and provide the Federal Reserve with more rate-cutting flexibility – developments that would generally be welcomed by equity investors provided trade partners avoid escalating retaliatory measures.
