Tariff Concerns Resurface on Wall Street: What Are the Implications for Investors?

Key Takeaways

• Stocks fell sharply to start the week after President Trump announced new tariffs in response to a Supreme Court decision on Friday to strike down many of the sweeping import taxes he had imposed last year.
• The Supreme Court ruling raised questions about the likelihood of tariff refunds, the validity of bilateral trade deals negotiated last year, and how the Trump administration will revive its tariff agenda.

The Supreme Court on Friday threw a wrench in the gears of President Donald Trump’s efforts to reshape global trade, and ratcheted up uncertainty on Wall Street.

In a 6-3 decision, the justices ruled the president exceeded his authority when he invoked emergency powers to unilaterally impose tariffs on imports from most of the world. The ruling struck down those tariffs and ordered lower courts to resolve the matter of if, when, and how to distribute refunds. Trump has announced a new round of tariffs in response.

“This is a moment of great uncertainty and volatility—not just for consumers, not just for businesses, but also for our trading partners,” Natasha Sarin, Yale Law School professor and founder of the Yale Budget Lab, told CNBC on Monday.

Why This Is Important to Investors

Uncertainty about tariffs was a major stock market overhang throughout the first half of last year. Stocks climbed to record highs in the second half as the fog cleared, but Friday’s Supreme Court ruling has revived trade-related headwinds.

To a certain extent, the decision turned the clock back to last spring, when markets were rattled by uncertainty about tariff rates and their impact on the economy.

After gaining ground last week, major U.S. stock indexes fell sharply on Monday amid the renewed uncertainty. The Dow Jones Industrial Average dropped 1.7%, or more than 800 points, while the S&P 500 and the tech-heavy Nasdaq Composite slid 1% and 1.1%, respectively. (Read Investopedia’s coverage of the today’s trading action here.)

Investors have been heartened by how little tariffs have affected prices and profit margins in the past year. Inflation has accelerated in recent months, but less than many predicted. And the S&P 500 is on track to report earnings grew by double digits in the fourth quarter.

“The markets have been celebrating a lack of impact from tariffs for much of the last several months,” said Gina Martin Adams, Chief Market Strategist at HB Wealth. “Thus, there is little expected impact of tariffs embedded in market prices.”

Trump’s unwavering commitment to tariffs is a key reason why investors didn’t celebrate the Supreme Court’s ruling on Friday. The White House immediately began working to side-step the court’s decision, announcing a temporary 10% global tariff that it raised to 15% on Saturday. The new tariff will need Congressional approval to last longer than 150 days.

The court’s ruling also raises questions about the trade deals that countries around the world negotiated in order to avoid the struck-down tariffs. The European Parliament on Monday reportedly paused the process to ratify its trade deal, citing uncertainty about the U.S. trade regime.

Trump took to Truth Social on Monday to threaten higher tariffs on any country that “wants to ‘play games’ with the ridiculous" Supreme Court decision.

Related Education

The Basics of Tariffs and Trade Barriers

International (Global) Trade: Definition, Benefits, and Criticisms

Tom Cooney, international policy advisor at Capital Group, said he doesn’t expect countries with existing trade deals, like the U.K., Japan and Vietnam, to seek to renegotiate those deals in light of last week’s ruling. The administration, he argues, still has substantial leverage, both related to trade and not.

Meanwhile, unanswered questions about tariff refunds could hang over markets for some time. Cooney estimates refund lawsuits from importers and consumer groups “are likely to tie up lower courts for several years.”

Experts say the Trump administration is likely to pursue tariffs under sturdier legal authorities than the emergency powers invoked last year. Some predict the new tariffs will bring rates close to where they were before the court’s ruling.

Capital Group forecasts Trump’s replacement tariffs will push the effective rate up to a range of 13% to 14%, just a few percentage points below its average in recent months. Evercore ISI calculates about 90% of the vacated tariffs can be restored.

The revival of tariffs by other means is one reason “we wouldn’t chase any rebounds in import-heavy consumer retailers,” wrote Jeff Buchbinder, Chief Equity Strategist at LPL Financial, in a note Friday. Recent trading activity suggests many on Wall Street are thinking the same thing. Consumer discretionary stocks—some of the equities most directly impacted by tariffs—were sharply lower on Monday after rising modestly Friday.

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