UBS: If Trump's tariffs are overturned, the Federal Reserve may welcome the opportunity to cut interest rates as the US finances come under pressure

UBS analysis pointed out that if the US Supreme Court rules that Trump's tariff policy is illegal, it is expected to force the US government to refund about 140 billion US dollars to importers, equivalent to 7.9% of the estimated federal budget deficit in fiscal 2025. If the US government loses the case, the huge tax refund will immediately trigger a fiscal shock, and may lead to the formation of a structural low-tariff trade environment. If trading partners do not retaliate, this environment will ultimately benefit the US economy and stock market. UBS estimates that the government is likely to use legal tools such as Sections 201 and 301 of the Trade Act of 1974 to rebuild tariff barriers, but this process will take several quarters and lead to less flexibility in trade policy. While the refund will deliver a windfall for importers, its impact on the broader market is likely to be limited as the cost of tariffs has not significantly depressed S & P 500 earnings expectations. UBS believes the ruling could eventually lower the headline effective tariff rate, boost household purchasing power, ease inflationary pressures and give the Federal Reserve more room to cut interest rates. As long as trading partners avoid escalating countermeasures, this will generally be welcomed by stock market investors. (Jin Ten)