A federal court in New York has blocked the imposition of sweeping trade tariffs under an emergency powers law, prompting a significant rally in global stock markets. The court ruled that the tariffs exceeded the President’s authority, causing economic instability and leaving U.S. trade policy reliant on unpredictability. A three-judge panel at the Court of International Trade stated: “The Worldwide and Retaliatory Tariff Orders exceed any authority granted to the President by IEEPA to regulate importation by means of tariffs.”
The decision has led to reports that the administration intends to appeal.
A White House spokesperson remarked that it wasn’t “for elected judges to decide how to properly address a national emergency.”
Global markets responded positively to the news. In Japan, the Nikkei 225 index rallied by 1.9%, China’s SSE Composite rose by 0.8%, and Hong Kong’s Hang Seng increased by 1.1%. South Korea’s Kospi index also climbed by 1.8%.
The European markets mirrored this trend with the UK’s FTSE 100 futures rising by 0.82% at the market opening. Kevin Hassett, the White House economic adviser, expressed confidence that the trade court’s ruling would be overturned. During an interview with Fox Business Network, he indicated that ongoing trade negotiations would remain unaffected: “If there are little hiccups here or there because of decisions that activist judges make, it shouldn’t concern you at all.”
The latest figures from the Bureau of Economic Analysis show that the U.S. economy shrank by 0.2% in the first quarter of the year.
The contraction stems from weaker consumer spending and a rise in imports in anticipation of tariffs. This is the first economic shrinkage in three years, putting the U.S. on the brink of a technical recession, defined by two consecutive quarters of negative growth. Concurrent data show an increase in jobless claims, with filings rising by 14,000 to 240,000 for the week ending May 24.
Continuing jobless claims have expanded to their highest levels since 2021, indicating a challenging job market. Closer to home, the Office for National Statistics reported a 2.6% rise in household costs in the year to March.
Court limits tariff authority
This marks a slowdown from the 2.9% rate in December 2024. Private renters faced the highest inflation rate of 3.6%, while homeowners experienced a lower rate of 1.8%. The U.S. is also contending with increasing interest rates on its debt.
Recent tax legislation, largely financed through additional borrowing, is expected to add $5 trillion to U.S. debt levels. This has unsettled investors, especially those considering long-term bonds. Nvidia’s positive financial results have boosted European tech stocks.
Shares in ASML, a Dutch semiconductor equipment maker, rose by 2.4%, contributing to a 0.8% increase in the Stoxx Europe tech index. U.S. futures for the tech-heavy Nasdaq saw gains of up to 2%, with Nvidia shares up 6% in pre-market trading. The UK government aims to accelerate its trade negotiations with the U.S. following the court ruling.
Business Secretary Jonathan Reynolds is scheduled to meet U.S. Commerce Secretary Howard Lutnick in Paris next week. This effort is part of an attempt to cement a trade deal that has been in the works for months. Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, commented that while extreme tariffs might become less likely, the court decision introduces significant uncertainty, potentially impacting U.S. GDP growth due to reduced investment activities.
Overall, the blocking of the tariffs by the federal court has been met with a positive response by global markets but also introduces new elements of uncertainty and the potential for prolonged legal battles. The court’s decision signals a momentary reprieve from trade tensions, but the broader economic implications and potential appeals by the administration could continue to fuel market volatility. Investors and businesses are advised to brace for continued fluctuations and uncertainties in international trade policies.
