UBS: Repeal of Trump Tariffs Could Put Pressure on US Fiscal Situation, Creating Opportunity for Fed Rate Cut

November 6th. As analyzed by UBS Group, if the US Supreme Court determines that Trump's tariff policy is illegal, it is anticipated that the US government will be required to refund approximately $140 billion in tariffs to importers. This amount is equivalent to 7.9% of the estimated federal budget deficit for fiscal year 2025. In the event that the US government loses the case, the substantial tax refund will promptly trigger a fiscal impact and may lead to the establishment of a structurally low-tariff trade environment. If trading partners do not retaliate, this environment will ultimately be beneficial to the US economy and stock market. UBS estimates that the government is likely to utilize legal tools such as Section 201 and Section 301 of the Trade Act of 1974 to reconstruct tariff barriers. However, this process will take several quarters and reduce trade policy flexibility. Although the refunds will bring unexpected gains to import companies, the impact on the overall market may be limited as tariff costs have not significantly depressed S&P 500 earnings expectations. UBS believes that the ruling may ultimately lead to a decrease in the overall effective tariff rate, an increase in household purchasing power, a reduction in inflationary pressure, and provide the Fed with more room for interest rate cuts. As long as trading partners avoid escalating retaliatory measures, this will generally be welcomed by stock market investors. (FX678)