The year-end black swan: "Reciprocal tariffs" rejected, Trump's Plan B triggers new market turmoil?

The U.S. Supreme Court's ruling on presidential tariff powers could become a significant variable in the market by the end of the year.

According to media reports, during oral arguments on Wednesday, Supreme Court justices expressed skepticism about Trump's authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA) of 1977, as the law does not mention tariffs but only includes provisions for regulating imports during a national emergency declared by the U.S. president.

However, the real challenge facing the market is that even if the government loses, the Trump administration still holds various alternative legal tools to reimpose tariffs. Goldman Sachs expects the court to make a ruling in December 2025 or January 2026. By the time of the ruling, the amount of tariffs imposed is expected to reach $115 billion to $145 billion, and the complex refund process could take months, prolonging the tariffs' impact on the economy.

This means that regardless of the court's ruling, the uncertainty surrounding tariffs is far from over, and the market may face a new round of volatility.

Clear Divisions Within the Court, Uncertain Ruling Outcome

The oral arguments on November 5 revealed a subtle dynamic within the Supreme Court. According to a previous article by Wall Street Insight, Goldman Sachs observes that currently, four justices may oppose the government's position, three support it, and two lean towards opposition but could swing either way.

The real-time market reactions to predictions confirm the uncertainty of the ruling. During the hearing, the market's perceived probability of the tariffs being upheld dropped from 40% to 20%, eventually stabilizing around 30%.

If a partial upholding occurs, Goldman Sachs expects that reciprocal tariffs are more likely to be overturned, as reciprocal tariffs contribute 6.2 percentage points to the effective tariff rate. Currently, IEEPA tariffs have raised the effective rate by approximately 7.6 percentage points.

Lengthy Refund Process, Economic Impact Will Persist

Even if the court rejects the tariffs, the market should not expect an immediate policy reversal. Goldman Sachs points out that refunds will not occur automatically and may take months or even longer, relying on importers to take subsequent legal action.

As of September, the government has collected approximately $89 billion in IEEPA tariffs. By the time of the court's ruling, this figure is expected to rise to $115 billion to $145 billion. The massive refund amounts and complex legal procedures mean that the tariffs' impact on the economy will persist for a considerable time.

Notably, economic experts Rosenberg and "Bond King" Gundlach stated in a discussion that the cancellation of tariffs could lead to greater chaos. On one hand, Trump may impose tariffs through other channels, leading to a surge in policy uncertainty; on the other hand, the substantial amount of refunded taxes will widen the U.S. fiscal deficit.

Trump Administration Holds Multiple Contingency Plans

More critically, a loss does not mean the end of tariff policy. Goldman Sachs analysis shows that the Trump administration has various alternative legal tools at its disposal.

If the IEEPA authorization is denied, the government can rely on other statutes such as Section 122 and Section 301 of the Trade Act of 1974, Section 232 of the Trade Expansion Act of 1962, and Section 338 of the Tariff Act of 1930 These legal provisions authorize the president to impose tariffs in response to specific situations such as trade unfairness or international balance of payments deficits.

Goldman Sachs assesses that the government can quickly reimplement similar tariffs through other legal provisions, especially against major trading partners. The ultimate result may be a slight reduction in tariffs for a few small trading partners, while the net impact on major trading partners is negligible, with actual tariff rates potentially decreasing by only about 1 percentage point