Trump's 10% global tariffs ruled unlawful; trade war risks resurge

Trump's trade agenda encountered a significant legal setback when a federal trade court ruled his 10% global tariffs unlawful, echoing the Supreme Court's earlier rejection of his tariff authority. The ruling underscores the administration's struggle to sustain tariffs without congressional approval, yet Trump has signalled he will continue pursuing levies through alternative legal and executive pathways. European carmakers have already absorbed an 8 billion euro hit from existing tariffs and face the prospect of 25% levies if the EU does not implement prior trade deal commitments. The uncertainty is weighing on European equity indices and FX markets.

The economic implications are broad but asymmetric. Energy importers, already stressed by Iran war supply shocks, now face additional tariff-driven margin compression. European industrial and automotive sectors are most exposed. US domestic manufacturing benefits from tariff protection, but supply chains are already pricing in higher input costs and slower demand. Agricultural exporters are caught between tariff retaliation risks and commodity price volatility. The debate in markets: is Trump's tariff program sustainable law, or a political gesture that will be neutralised by courts? Traders are hedging both scenarios, causing FX and equity volatility.

The key risk: Trump's tariff executive orders may proceed despite legal hurdles, creating extended litigation and business uncertainty. Companies are repricing investment plans assuming tariffs stick for 12-18 months. A comprehensive US-EU trade deal could ease tensions, but negotiations have shown little progress. For now, European equities are trading at a discount to US peers partly due to tariff overhang.