Chapter 1: What is the main topic discussed in this episode?
Today's number, $150 billion. That's how much the U.S. government could be refunding importers now that the majority of tariffs were ruled illegal. That's right. Welcome to an emergency episode of Prof G Markets. Ed, let's get right into it. The Supreme Court just struck down the majority of President Trump's tariffs.
In a 6-3 decision, the justices ruled he exceeded his authority by imposing the tariffs without congressional approval. This marks the first time the court has struck down one of his second-term policies. Stocks rose on the news. So, essentially, Ed...
These tariffs were implemented under sort of an unusual rule, the International Emergency Economic Powers Act, that's usually only deployed during 9-11 or imminent war or some sort of extraordinary action. And the Supreme Court said, no, you really don't have the authority to do this without Congress's approval. So it feels like a big deal. What are your initial thoughts on it?
My initial thought is we are experiencing our second Liberation Day. I would say to you, happy Liberation Day, Scott. We're finally liberated. I don't think that we're going to see these tariffs.
Chapter 2: What was the Supreme Court's ruling on Trump's tariffs?
I mean, put it this way, I don't think that Trump is going to go down without a fight here. So I think that's probably why you're seeing this reaction from the markets, which I would say is kind of tepid. I mean, I think there's an element of markets trying to understand what is actually happening here. How is this all gonna play out? How is it gonna work?
But I think there's another side to this, which is, is this actually going to mean that tariffs are going to disappear suddenly? And I think the answer to that question is probably not. But, you know, I think this is a good moment for the Supreme Court. I'm glad that they had the spine here because it's true. We're not in an economic emergency right now.
And that was the card that Trump played to have these powers that are more like the powers of a king. And so I think what the Supreme Court has said here is, no, this is power that resides with Congress. If you're going to implement a tax on the American people, which is what this is, despite whatever Trump will say about it, if you're going to do that, you need to get congressional approval.
And that's not something he did. So basically they're saying, put it to Congress. And then the question will be, will Congress be down for this? I think the answer is going to be no, but we will see. What are your initial reactions to this?
In a weird way, I think this sort of benefits Trump in the short term because it's an elegant off-ramp. You can say, I tried, it made sense, but the Supreme Court overruled me.
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Chapter 3: How did the markets react to the Supreme Court's decision?
And I do believe, I was shocked the markets weren't up more. I mean, there's certain sectors that were especially, the tariff losers have spiked, right? Elf Beauty's up 2%, Restoration Hardware's up 9%. Crocs up more than 4%. Stanley Black & Decker, 3%. Williams-Sonoma up 4%.
The companies that got especially hard because of tariffs because they bring in... You know, we don't manufacture a lot of furniture anymore inside of the U.S. So in the short run, I actually think he might be a winner here because I think the economy in the short run will get a boost here. If you look at what effectively has happened, about 15% of our GDP is...
And then, loosely speaking, the average tariff is 20%. So that's a 3% hit to GDP, if you will. But some of those companies managed to wiggle out of them. So call it 2%. But that 2% was nothing but really just taking money in the street and burning it. It wasn't money being invested for growth. It was money that we were paying the government.
and that reduced consumer or increased pricing for domestic consumers, and then likely increased or decreased the market for our goods overseas because there's going to be some form of a reciprocal tariff. Now, the medium and long-term damage has already been done here. This is
This is essentially, you're seeing this, you're seeing Canada leading the way around creating new trading zones and Europe doing deals with Mercosur. Everyone's for the first time ponying up, not the first time, but a lot of Western nations are much more open to to doing trade deals with China, you never hear the term Uyghurs anymore, right?
It's not, everyone's like, okay, we can no longer afford to be socially conscious with imprisoned Uyghurs, where we can't trust America, they've gone batshit crazy, so we're gonna start different, you know, rerouting our supply chain. So in the short run, I actually think it might be beneficial for the president because I do think the stock market and the economy are going to register an uptick.
But the damage has been done here. The lack of trust, the inconsistency, the general notion that, okay, we have to— build our own weapons, and we have to develop our own trading alliances.
I mean, Canada is just not going to, regardless of this decision, Canada is going to try and diversify away from this very scary number, and that number is 75, and that is 75% of their exports coming to the U.S. And they're going to say, we can't make ourselves as vulnerable again.
So even though in the short term, this will be great for Canada, it'd be really interesting to see what's happened to the Canadian stock market.
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Chapter 4: What does the ruling mean for the authority of the President?
in reaction to that, because they are the ones that were likely hurt the most. I think China It may go up a little bit, but China's gone from 17% of their exports going to the U.S. down to 10%. They've already said, we need to diversify away from this batshit crazy administration.
But this is going to be—and the other thing I was immediately curious on is hedge funds like Diameter Capital were buying the paper, were buying the claims, and I wonder what's happened to those. I actually think there's probably still a good trade there because if the Supreme Court has said this is illegal—
I have a difficult time seeing how the claimants, and that is people paying these tariffs, won't at some point get their money back.
Yeah, well, I think the value of those refunds has definitely skyrocketed. And this was something that we said was probably a good trade a few months ago. By the way, something is also kind of funny is that the guys over at Cantor Fitzgerald, i.e. the children of Howard Lutnick, were one of the biggest buyers of those tariff refund claims. So they're going to be a big winner coming out of this.
Something you also said there about... Trump, this kind of is a win for Trump potentially. Something I would add onto that, I agree with that. I would add that Trump loves being the antagonist. And this was something that almost played into his hand during the previous administration, where a lot of things happened that got in his way.
And it was a great excuse to say to the American people, I would have done it this way, but these people didn't let it happen. There was the Russia, Russia hoax. There was the deep state that was getting in my way. So far in this administration, this is probably the first time where a very, very large and powerful body has actually put a stop to Trump.
We'll see if that actually is what transpires here. But this is the first time where someone with a lot of power said, no, we're not gonna let you do it your way, which in an interesting, ironic way might actually be a benefit to Trump, because again, he loves this positioning. He loves being in the place where he says, they wanted to stop me.
We tried to do what we could, and the elites, the economists, the experts, the expert class, they said, no, we're not gonna do it that way. And so I think that that could actually be some juice for him politically. I think it will also take some energy perhaps away from what's happening with Epstein. It might also help him in terms of his issues on affordability.
He can say, you know, things would have been different had SCOTUS not gotten in the way. And I'm anxious and worried that that might actually be a benefit to him going forward. But... you have to give the Supreme Court its credit here. I mean, this was clearly the right decision. This is not a power that is supposed to be in the hands of one person.
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Chapter 5: What are the implications of tariff refunds for importers?
I mean, effectively, Congress has become the Duma, and that is, it is symbolic. Even Republican congressmen are resigning saying, this job fucking sucks. I'm not doing anything. I have no power. No one listens to me. No one in the White House is interested in meeting and talking about anything because he just tells...
He just tells the Speaker of the House what to do and the Speaker of the House uses Congress like his bitch and ignores them and doesn't even bring things to the floor. I mean, Mike Johnson is not the Speaker of the House. He's Trump's mouthpiece. He's Trump's acolyte. So it's just ridiculous that he claims to be representing the House of Representatives.
I think even his own constituents, Republicans, are like, okay, bitch, you're not doing it. You don't speak for me. All you do is show up and try and run roughshod over me. So this is, to a certain extent, the big winner here.
Chapter 6: How might this ruling affect Trump's political strategy?
is Congress. Because what they've said is, effectively, the ruling is you have to get congressional approval. Congress is supposed to control the purse. They're supposed to be the ones that approve expenditures or something like this, tariffs. They're supposed to be the ones that can say yay or nay. And that has been taken away from them.
And what you effectively see, the minority party is sort of used to being ignored. But I think the folks who are really fed up here and probably are for this ruling are the Republicans in Congress. Because one, they don't like tariffs. They tend to be more economic free markets. And two, this was an example that they weren't even consulted on. They just run roughshod.
So it'll be interesting to see what happens in the market a couple of days. Really interesting to see what happens with these claims, whether they think that they're going to get this money back. And also, we're just going to find, I think, That people are going to say, no, you've been abusing me and you claim you've changed and you want me back. Fuck that. I'll be at my sister's.
I'm taking the kids. I think we're just going to see, again, a continued rerouting of supply chain around America. The damage has been done.
And in a lot of ways, the biggest loser here is actually the consumer, because if these tariff refunds go through, they will be issued to the importers who have the receipts. They'll say, yes, we had to pay you this amount. We have the receipts here. Give us the money back. But the consumers, the American people, don't have those receipts.
And as we've seen in all the studies, 90% to 95% of the tariff costs have been passed on to the consumer. So in a very ironic and kind of dark way, the people who are going to get their money back are the corporations who...
were the ones who have those receipts with the federal government, but then who passed that money down onto the consumer, and it was the consumers who ended up having to pay the price. But are consumers going to get their money back? Are we going to have tariff refunds for the American people? I don't think so. We don't really have the receipts here.
So I think that's going to be another sort of downfall for the American consumer here. And it's something that probably won't get enough attention because these are kind of complicated economic concepts.
Yeah, right. So to your point, it's unlikely Restoration Hardware is going to send everyone a 20% refund on whatever they bought in the last three or six months, right? Right. The analysis so far shows that the average American household has been paying $1,300 more a year because of these tariffs. That should logically go away.
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Chapter 7: What are the long-term effects of the tariffs on international trade?
And I think it's exactly to your point. These tariffs didn't work for America. And at the same time, it was this double whammy of also pissing off all of our allies abroad, which will probably make things more expensive for Americans structurally. This isn't just something that's going to exist in a vacuum. The damage has already been done.
We've already ruined our relationships with a lot of these countries. They're already sick of us. Yeah, I think this is going to be a problem for a long time.
Our entry into Iraq, these tariffs, I'm trying to think what the other own goals have been. What are the distractions? I mean, what's next here? Anyways, Ed, good to see you in London. Safe travels. And this has been another Hot Take. From Prop G Markets. Thanks, everybody.