So the ruling handed down this week by the US Court of International Trade is a big deal. It has rescinded the Trump administration’s power to levy tariffs through the International Emergency Economic Powers Act. This decision marks a pivotal change in the US trade landscape, effectively nullifying the 10% blanket tariff imposed on various trading partners, including Canada, Mexico, and China. The ruling has immediate implications for national tariffs, which were set to go into effect in January 2024.
There is another significant detail that the court’s decision makes clear. The tariffs that were previously enforced will remain in effect for only 150 days at most. After this term, any further extension would need to be passed by Congress. This unfortunate confluence creates an urgent need for the Biden administration to determine what course to chart on trade policy going forward. In place of the blanket tariff, you can instead impose a tariff of up to 15% on the same products. Specifically, this is allowable under Section 301 of the Trade Act. Further, the administration should begin Section 301 investigations against all trading partners to re-establish permanent tariffs.
Since the court’s announcement, the US stock market has seen its biggest daily rise since the international financial crisis. MAJOR INDICES As of March 2, major indices have mostly recovered back to their values at the start of the year. Not surprisingly, at the open on Thursday, the NASDAQ Composite was up over 1.25%. This surge is the result of massive investor enthusiasm in response to shifting trade paradigms. Observers point to the market recovery as a response to the positive tariff determination. They argue that other economic indicators are driving this positive change.
Together with the tariff announcements, this morning’s Commerce Department has pushed Q1 US GDP more than a tick higher—from 2.0% to 2.1%. This is a positive correction that offers an even rosier picture of economic expansion, adding to the sentiment that’s made investors so confident in the market.
Though not all corporate earnings reports have created this kind of excitement. Salesforce (CRM) just came out with their numbers and completely missed the analysts’ expectations. As a result, they highlighted how most of that top-line revenue growth was due to foreign exchange gains, not due to organic growth. Investor optimism has been more subdued for this tech-centric sector, even as other industries have been reporting much better results.
In sharp juxtaposition to Salesforce, artificial intelligence behemoth Nvidia (NVDA) knocked it out of the park with its most recent quarterly earnings release. Their company announced an adjusted earnings per share (EPS) of $0.81, beating Wall Street’s projected EPS of $0.75. Immediately following the announcement, Nvidia’s stock jumped by $165 billion. They soared from $135 at Wednesday’s close to more than $143 at Thursday’s open, reflecting tremendous investor enthusiasm.
Taken together, the effect of the trade court’s ruling and greater positive economic signals has helped to breathe new life into a once-sputtering market. Investors tracking developments on the trade policy front and unfolding corporate earnings will be key to understanding how best to position one’s self in this changing market.