What a morning it has been so far this Thursday for the S&P/ASX 200 Index (ASX: XJO) and the share market. Investors were hot out of the gate this morning when the markets opened, sending the ASX 200 up by 0.4% half an hour after the opening bell.
But, as the day has worn on, investors seem to have gotten a case of cold feet, with the index dipping into red territory. At present, the optimism is back, though, with the ASX 200 now up 0.14% at just under 8,410 points.
This whipsawing market comes on the heels of some big news out of the United States of America.
A US court has just struck down President Donald Trump's prominent tariff-heavy trade policy.
As most Australian investors would be aware of by now, Trump has made the imposition of import taxes a centrepiece of both his trade and economic agenda. Trump started raising tariffs almost as soon as he was sworn in for the second time back in January. But the rubber really hit the road on 2 April, optimistically dubbed 'Liberation Day'.
That was when Trump, using emergency powers under the 1977 International Emergency Economic Powers Act (IEEPA), unveiled a range of new 'reciprocal tariffs' on almost every trading partner the United States has. These tariffs ranged from 10% for countries like Australia and the United Kingdom to as high as 50% for Lesotho.
Perhaps the most dramatic moments of this saga came when the Chinese government responded to Trump's initial 34% tariff by imposing its own. In a fast-escalating game of chicken, both countries ramped up their tariffs on each other before finally hitting a high of 145% (on China) and 125% (on America), respectively.
US court strikes down Trump tariffs
After widespread panic on both the global stock and bond markets, Trump paused these tariffs, with the exception of China, for 90 days.
Earlier this month, China and the US reached a deal in which the American tariff on Chinese imports was lowered to 30%, while China kept a 10% import tax on American goods.
But it seems that all of this may be moot now. A US court has just struck down the Trump Administration's entire tariff agenda.
According to reporting from CNBC, a Federal court has just ruled that Trump had exceeded his authority under the IEEPA by imposing these tariffs in the first place.
A number of businesses brought the lawsuit to court, alleging that the tariffs were unjustly imposed. The court agreed, with its judges writing:
The Worldwide and Retaliatory Tariff Orders exceed any authority granted to the President by IEEPA to regulate importation by means of tariffs…
The Trafficking Tariffs fail because they do not deal with the threats set forth in those orders…
The court does not pass upon the wisdom or likely effectiveness of the president's use of tariffs as leverage. That use is impermissible not because it is unwise or ineffective, but because [the IEEPA] does not allow it.
Under America's normal constitutional arrangements, Congress, not the White House, has the power to raise and spend revenue at the Federal level. However, the IEEPA gives the President the authority to impose sanctions and tariffs if the nation faces an "unusual and extraordinary threat" to its national security, foreign policy, or economy.
It appears Trump's declaration of an economic emergency to justify his administration's sweeping tariffs has not held water with the court.
Even so, the White House has already lodged an appeal to this decision, meaning it could, and probably will, work its way up to the Supreme Court.
How have the ASX 200 and other markets reacted?
This decision by the US Federal court has sparked a wave of jubilation on financial markets. US government bond yields have dropped in the past 12 hours, while the US dollar has gained some of its lost ground as well.
US futures for the stock market have surged, too, so we'll see if that optimism holds when the markets open tonight.
It looks as though ASX 200 investors, although initially excited by this news this morning, are tempering as the day wears on. All eyes will now be on Trump's next move.
