Less Dumb Investing

First, read this: ‘An Enormous Usurpation’: Inside the Case Against Trump’s Tariffs – POLITICO

Then, read this: A federal court is about to decide whether to strike down Trump’s tariffs

I’m assuming you read the articles, per my request. If not, you absolutely should. The articles do a much better job explaining the upcoming court cases than I could.

From the Vox article: “On Tuesday, May 13, a three-judge panel of the US Court of International Trade will hear a lawsuit asking it to strike down President Donald Trump’s recently imposed tariffs. The case is known as V.O.S. Selections v. Trump.”

My opinion on the legal merits of Trump’s tariffs is that there are very few legal merits. I refer to three separate but easily discernible arguments. (1) A long-standing trade deficit with a nation does not constitute a national emergency, which was the legal grounds when Trumpty Dumpty relied on the International Emergency Economic Powers Act of 1977. (2) In addition, the IEEPA of 1977 does not explicitly give Trump the power to use tariffs as a form of economic influence. There are more arguments, but (3) the third one I focus on is that Congress may have erred against the Constitution when it delegated the authority to issue any tariffs at all to the executive branch.

Based on those arguments outlined above, I think there’s a reasonable and likely chance that an injunction is issued. Which brings me to the next important item: The Federal Rule of Civil Procedure 65, or the FRCP 65. I don’t have a legal background, so I asked Microsoft CoPilot to provide a quick summary:

Federal Rule of Civil Procedure 65 governs injunctions and restraining orders. It sets specific requirements for two types of orders that courts may issue before a full trial on the merits: preliminary injunctions and temporary restraining orders (TROs).

FRCP 65 would likely be the relevant governing procedural doctrine on how quickly an injunction gets issued. From the research I was able to do, it seems that there should be no real difficulty in getting an injunction issued quickly. An important distinction is that you would most certainly issue an injunction after a hearing, not prior. Those injunctions would be preliminary in nature, so a final injunction wouldn’t be issued until a full trial has been completed.

Why FRCP 65 matters is it provides somewhat of a framework for how quickly an injunction or TRO can be issued. That allows me to assume a conclusion that, if I am correct about the illegality of Trump’s tariffs, then a nationwide pause on the tariffs would be issued within a short amount of time of the hearing’s conclusion. It could even be the same day of the hearing.

So, let’s make an assumption that the tariffs are paused on a legal basis. One question I’ve heard over and over again revolves around Trump’s unwillingness to accept legal outcomes. We’ve seen it with the deportation cases where there’s a clear unwillingness to agree with the court’s decision, and we’ll likely see it with any pause in tariffs. However, I think this situation is different enough for several reasons.

1. The current Supreme Court tends to have a narrow interpretation of the Constitution and laws.
2. The constitution has explicitly authorized only Congress to collect tariffs, outlined in Article 1, Section 8.
3. The legal basis for the tariffs was not based in an executive order, but a law passed by Congress

Regarding item 1: regardless of your political affiliation, you can likely agree that the current Supreme Court takes a narrow/originalist view of constitutional arguments. That is opposed to the liberal view, which is known as broad interpretation. The conservatism of a court may rest with its political ideologies, but the true conservatism of a court revolves around how they interpret the laws as written vs. as implied. I know there’s more nuance than that, but for the purposes of this argument, I stand stubbornly here.

Remember, the International Emergency Economic Powers Act of 1977 does not explicitly authorize tariffs. In fact, the law states (paraphrased) that the president can regulate international commerce only after declaring a national emergency, which is in response to an unusual and extraordinary threat. I find it highly unlikely that this court will agree with Trump’s use of this act. They will likely read the law narrowly, as they have been ruling.

Which also ties into item 2. If we assume that the court maintains a narrow interpretation of the Constitution, then the court will find that Congress erred in delegating the authority of tariffs to the president at all. Unlike so many other issues, the Constitution is pretty clear on this one. I’m not sure if the Chevron Doctrine could hold as a legal counter, or perhaps better counterarguments exist (again, not a lawyer), but there’s a very real chance that the court finds that law unconstitutional.

Regarding item 3, I think that Trump has been able to ignore the court rulings on his executive orders by using the “I dunno” or the “not my problem” defense. But if the court rules that the basis of his tariffs, and ultimately the power to issue tariffs via the executive branch, is unconstitutional, then his options are immediately limited.

There are a lot of assumptions here, but let’s assume I’m right about everything. Well then, what are Trump’s options at this point? He can ask Congress to authorize tariffs, but we know the Republican Senate won’t go for it. He could try to ignore the ruling, but then you end up in a constitutional crisis, and likely you’ll get a response from both the judicial and legislative branches. But ultimately, it causes a delay that would extend years.

Because of these factors, I’m comfortable going long in the stock market next week and potentially the week after. If we continue on our current path, a recession will absolutely be coming. But I think we’ll likely end up taking the road never traveled. My guess is that the market will experience a sharp, short term rally extending several days. I’m positioning myself to benefit from that rally if it happens, but not get overly hammered if it doesn’t.

Of course, there’s a million counterarguments to mine. And most of them have validity. We’re entering uncertain times, so just be prepared to be wrong, like I have been before.

Disclaimer: Despite my background in finance, I am not a registered financial advisor, and all thoughts are my own. Thus, this article and any previous and subsequent articles do not constitute financial advice or a reflection of actions I may take. I also may not take the actions written in my articles. My holding period can range from zero to infinity, and I am not telling you to follow my trades. You are responsible for your path and your own decisions, but you can and should use mosaic theory to develop strategies. I’ve been wrong before and will be wrong again.

This article does not constitute an offer or solicitation to buy or sell any investment, security, or commodity mentioned herein or affiliated with the author. Furthermore, it does not constitute an offer or solicitation in any jurisdiction where such an action would be unlawful under applicable securities laws. While I strive to provide accurate and reliable information, readers should assume that I may hold positions in the investments discussed and could benefit if market conditions favor those positions. However, I am under no obligation to disclose my past, present, or future trading activities. Additionally, I may benefit from changes in the valuation of other companies, securities, or commodities covered in this article.”