GM. This is Milk Road Macro, the macro newsletter that’s sticking around longer than Trump’s tariffs (and with fewer court dates).
Here’s what we got for you today:
- ✍️ What happens next with Trump tariffs?
- 🎙️ The Milk Road Macro Show: How Prediction Markets Could Forever Change The Macro Landscape w/ Robin Hanson
- 🍪 Gold hit a record high of more than $3,500 an ounce
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WHAT HAPPENS NEXT WITH TRUMP TARIFFS?
A large chunk of Donald Trump’s sweeping global tariffs are “illegal”.
That was the verdict given last week by a US court.
Trillions of dollars of global trade are embroiled in this legal fight.
And it also has big implications for financial markets.
So is this the end of the line for tariffs?
No - far from it, actually.
There’s plenty more twists and turns to come in this saga.
So, what happened with the court ruling last week?
What happens next?
And what does it all mean for markets?
Let’s take a look…
So, what happened last week?
In May, the Court of International Trade ruled that some of President Trump’s sweeping global tariffs were "unconstitutional".
This ruling applied to duties imposed under IEEPA (International Emergency Economic Powers Act), which hit nations across the globe with steep tariffs.
The Trump administration appealed the ruling immediately and the case was passed to the US Court of Appeals.
And last Friday, the Court of Appeals ruled that the IEEPA tariffs were illegal and that the President had “exceeded his authority”, in a 7-4 decision.
The ruling applies to Trump’s “Liberation Day” global tariffs, affecting extra levies placed on Mexico, China and Canada among many other countries.
The decision also covers Trump’s so-called reciprocal tariffs that took effect on August 7 for dozens of nations that had failed to reach trade deals at that time.
So, what happens now?
The Trump administration is legally allowed to keep tariffs in place until mid-October.
But they will now almost certainly escalate the matter to the Supreme Court.
I guess you could call that the “final step” in the process, with the Supreme Court being the highest court in the land.
But this means the process will drag on for months and months - potentially until next summer, according to some legal experts.
And while it drags on, it’s likely that all tariffs will be able to remain in place.
“ALL TARIFFS ARE STILL IN EFFECT!” Trump said in a post on Truth Social shortly after the latest court ruling was issued.
A final Supreme Court ruling against Trump’s tariffs would upend trade deals and also force the Government to contend with demands for hundreds of billions of dollars in refunds on levies already paid.
But what happens in the meantime?
Wendy Cutler, former diplomat and negotiator at the Office of the US Trade Representative, believes this latest court ruling could make ongoing trade talks harder.
She thinks that other nations may be more likely to drag their feet as the legal process winds on.
Cutler wrote that India, hit by a 50% tariff, “must be rejoicing”, while China “must be weighing its stance in making concessions in ongoing talks”.
“EU efforts to secure domestic approval of its deal may be called into question, while Japan and Korea, who apparently have made oral deals with little in writing, may choose to slow-walk current efforts until there is more US legal clarity, while still pressing for lower auto tariffs”, Cutler added.
It’s worth bearing in mind that even if the Trump team’s legal appeal fails, and IEEPA cannot be used, there are other statutes that could be explored to achieve the same goal.
So the story probably wouldn’t be over.
Bloomberg reports that officials have already prepared options to pursue tariffs through other means, including Section 232 of the Trade Expansion Act.
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WHAT HAPPENS NEXT WITH TRUMP TARIFFS? (P2)
What does it all mean for markets?
Tariffs are still hanging ominously over asset markets.
While tariffs seem a bit like “old news” at this point - many investors and analysts believe the hefty duties will eventually prove to be a significant headwind for US growth.
There’s not a whole lot of evidence for this, yet, with real-time growth estimates for the US looking strong.
Augur Infinity’s real-time estimate of US growth has been bouncing back strongly since April, after it plunged earlier this year.
And the Atlanta Fed’s GDPNow measure shows a resilient growth outlook for Q3.
But the tariff growth fears are still having a considerable impact on some investors’ views of the US economy and asset markets.
This is partly reflected in some measures of equity positioning, which remain subdued despite the recent rally in major US stock indices.
A meaningful portion of institutional investors are still “keeping risk on a leash”, according to Tony Pasquariello, Global Head of Hedge Funds at Goldman Sachs.
I took a deep dive into current positioning measures in the recent Milk Road Macro PRO report.
So what happens if a big chunk of the tariffs end up being struck down?
Surely that’s bullish for risk assets, right?
A major stumbling block holding many investors back would be removed.
Wrapping up
While this most recent court ruling could be considered a setback for the Trump team - it was largely expected.
And it certainly isn’t the end of the line for tariffs, by any means.
Many investors still have fears over tariffs negatively affecting the US economy.
But so far, there aren't really any major signs of this being the case.
Tariffs being removed is still a distinct, and probably underpriced, possibility that needs to be taken into consideration.
But, for now, it’s likely that Trump’s steep and sweeping global tariffs will remain in place for some time.
That’s it for this edition - catch you for the next one!
MARKETS & TARIFFS WITH ROBIN HANSON 🎧
In today’s episode, we sat down with Robin Hanson to talk about what’s broken in macro decision-making and how prediction markets might be the fix.
From Trump’s tariffs to the Fed’s rate calls, Hanson argues we’re flying blind because we reward status over accuracy. His solution? Let markets decide.
Here’s what we covered:
- Why tariffs that make no economic sense still stick around
- How prediction markets outperform experts (and why no one wants to use them)
- What futarchy is and how it could replace the Fed
- Why crypto-backed decision markets might be the future of governance
Tune in and see for yourself 👇
YouTube | Spotify | Apple Podcasts
BITE-SIZED COOKIES FOR THE ROAD 🍪
Gold hit a record high of more than $3,500 an ounce, taking its year-to-date gains to more than 30%. The price of the yellow metal moved higher this week, fueled by expectations of Federal Reserve rate cuts this year and growing concerns over the future of the central bank.
Treasury Secretary Scott Bessent said the Trump team may declare a “national housing emergency” in the coming months - although it’s not clear what this would mean. “We’re trying to figure out what we can do”, Bessent said.
Michael Saylor’s Strategy (formerly MicroStrategy), the largest bitcoin Treasury company, has officially qualified for inclusion in the S&P 500, the world’s largest equity index. Rebalance announcements will take place on September 5, and while Strategy now qualifies for inclusion, the S&P Dow Jones Indices committee retains discretion and must approve the change.
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