Industrial: The US tariff ruling is a long-term narrative change brought about by limited administrative power. Attention is focused on the impact of lower tax rates on the A-share export chain.

Industrial released a research report, stating that on February 20th, the United States Supreme Court ruled 6:3 that the US tariff parity and fentanyl tariffs against China were unconstitutional. The ruling will be reflected in asset prices, with US stocks being supported and US bonds under pressure. At the same time, the ruling represents a long-term narrative change brought about by restricted executive power, increasing the "chaotic nature" of future US policies, stimulating "weak dollar assets" such as precious metals and US bond yields. Industries such as light consumer appliances, consumer electronics, batteries, automotive components, and medical devices, with significant exposure to US revenue and a significant presence in the ASEAN region with previously high tariffs, will benefit the most from this round of tariff reductions. The main points of the Industrial report are as follows: Introduction: On February 20th, the US Supreme Court ruled 6:3 that the US tariff parity and fentanyl tariffs against China were unconstitutional. Subsequently, Trump announced that additional tariffs imposed under the IEEPA would no longer be in effect and announced the implementation of new tariffs on 122 items globally, with a 10% increase, effective from February 24th. In addition, Trump plans to conduct a new tariff investigation, which is expected to take 5 months. The new tariffs exempt certain key minerals, raw materials, electronics, and machinery products. Trump also reiterated that the cancellation of the tax exemption policy for small parcels remains in effect. How to understand the Supreme Court ruling? First, tariffs fall under the statutory power of Congress. The ruling mentioned that Article I, Section 8 of the US Constitution clearly states that the power to levy taxes and tariffs belongs to Congress, and the framers did not grant any taxation authority to the executive branch. The Trump administration argued that because tariffs involve foreign affairs and national security, the court should assume that Congress intended to give the president broader discretionary power under IEEPA. However, the ruling states that the impact of tariffs on foreign affairs does not imply that Congress intentionally delegated its tariff powers through vague wording. Any delegation by Congress must be clearly and explicitly stated to be legally logical. Second, the reaffirmation of the "major questions doctrine." Chief Justice ROBERTS, Justices GORSUCH and BARRETT believe that the major questions doctrine should be applied in ruling on this case. The major questions doctrine states that when an administrative agency is making a rule that has significant economic and political implications, it must have explicit authorization from Congress, otherwise it may be ruled unconstitutional. On June 28, 2024, the Supreme Court ended the 40-year-old "Chevron doctrine," which stated that the court should maintain independent judgment and not simply defer to the administrative agency's interpretation of the law due to vague regulations. The end of the "Chevron doctrine" reshaped the boundaries of powers among the legislative, executive, and judicial branches, limiting the expansion of executive power. The ruling in case No. 24-1287 mentioned that with the failure of the "Chevron doctrine," the court's application of the "major questions doctrine" is more of a return to its origins rather than an innovation. Third, the interpretation of the IEEPA statute. Justices SOTOMAYOR, KAGAN, and JACKSON believe that even under a general interpretation, IEEPA does not authorize tariffs. The justices believe that IEEPA gives the president the power to "regulate imports" in emergency situations, but when Congress is dealing with both regulatory and taxation powers simultaneously, they always provide separate and clear provisions, which strongly indicates that the term "regulate" does not include taxation. In the half century since the enactment of the statute, no president has ever imposed tariffs using IEEPA. Therefore, the court's conclusion is fully supported by common statutory interpretation tools without the need to invoke the major questions doctrine. Fourth, the view of alternative tariffs in the ruling. Justice KAVANAUGH, who dissented from the unconstitutional ruling, believes that the ruling may not significantly limit the president's future authority to issue tariff orders. The court's conclusion today is that the president used the wrong statutory basis, relying on IEEPA rather than other regulations, to impose these tariffs, as there are many other federal laws that authorize the president to impose tariffs and may provide a valid basis for tariffs. Fifth, the limited discussion on refunds in the ruling. Justice KAVANAUGH believes that the ruling may have two major effects in the short term. The first is refunds. The ruling does not provide any explanation on whether and how the government will issue refunds, but oral arguments suggest that this process may be a "mess." The second is trade agreements. The ruling may impact various trade agreements that the US has already entered into. Why choose the 122 tariffs as an alternative measure? On one hand, the 122 tariffs can be implemented quickly without the need for any investigation. On the other hand, the 122 tariffs only require the condition of "the US facing significant trade deficits" to be triggered, with minimal judicial risk. The 122 tariffs authorize the US president to impose a uniform maximum tariff of 15% on all imported goods when the US is facing significant trade deficits. However, the 122 tariffs have a shorter duration, lasting a maximum of 150 days, and require approval from Congress for renewal. The 338 tariffs also do not require complex investigations, but this provision was created on the eve of the Great Depression and has never been used to this day. The 338 tariffs authorize the president to impose tariffs of up to 50% on specific countries discriminating against US products, without time limits or congressional constraints. However, the 338 tariffs are considered retaliatory tariffs and are legally not allowed to be unilaterally imposed. Using the 338 tariffs would likely lead to further legal challenges. Referring to the previous 5-month appeal period, the ruling may come into effect before the midterm elections, which is not advantageous to the Republican Party's election results and the power struggle between the executive and legislative branches. How will the ruling affect asset prices? First, the fiscal and monetary impacts of the decline in tax rates. The current 10% tariffs under the 122 tariffs are not sufficient to replace the "parity tariffs" announced on "Liberation Day" on April 3, 2025. In the short term after suspending the IEEPA tariffs, there may be a decrease in tariff revenue, leading to a slight decline in US commodity prices (inflation) and an increase in the fiscal deficit rate. This will be reflected in asset prices, with US stocks being supported and US bonds under pressure. However, as the "new tariff investigation" opens and new tariff rates are announced, the market will also react to new marginal changes. Second, the long-term narrative change brought about by restricted executive power. Unlike the fiscal and monetary impacts brought about by the alternation of "new and old tariffs," the most important significance of the 6:3 ruling by the Supreme Court is its impact on US politics. It is an endorsement of the contradictions between the executive and legislative branches and a denial of the expansionist interpretation of executive power by Trump. The contraction of executive power may further increase opposition forces at local and congressional levels in the US, increase the "chaotic nature" of future US policies, and stimulate "weak dollar assets" such as precious metals and an increase in US bond yields. Third, the impact of tariff reductions on the export chain of A-shares. Industries such as light consumer appliances, consumer electronics, batteries, automotive components, and medical devices, which have significant exposure to US revenue and extensive production or trade transfer capabilities in the ASEAN region with previously high tariffs, will benefit the most from this round of tariff reductions. How will the ruling affect US politics? First, the game around tariff powers may continue. The unconstitutional ruling on IEEPA tariffs as a significant and pivotal event may indicate strengthened scrutiny by the US Congress and judiciary, and the US government's willingness to implement alternative tariff policies remains, but the speed, breadth, and flexibility of their announcement and enactment may decrease. Second, the contradictions between the executive and legislative branches will be further highlighted. According to the US system, besides tariffs, major policies such as immigration laws and election rules must be decided by Congress. Apart from tariffs, Congress may also attempt to legislate to restrict Trump's other executive powers, leading to increased intensity in disputes surrounding issues such as mail-in voting and immigration policies. Third, alternative tariffs may affect international relations. China may see the ruling that IEEPA is unconstitutional as an opportunity for a downgrade in US-China tariffs. If Trump insists on replacing "parity tariffs" and "fentanyl tariffs" with alternative tariffs, it could pose a risk to US-China bilateral relations in 2026. Risk warnings Significant escalation of alternative tariffs by the US; Major changes in the external situation.