CITIC SEC: US equivalent tariffs are illegal. Can "reciprocity" be achieved?

CITIC SEC released a research report stating that the Supreme Court of the United States ruled that Trump's tariffs based on the IEEPA were illegal. The Trump administration's attempt to "" may lead to a reemergence of global tariff expectations. For China, influenced by the stability of the "ceasefire period" and Trump's visit to China, it is expected that the overall level of tariffs imposed by the United States on China may decrease. At least during the low tariff window, China's exports of labor-intensive products may benefit relatively. Looking ahead in the coming months, tariff negotiations between the United States and various economies may bring about many disturbances, especially with a focus on the potential games before Trump's visit to China. The Supreme Court ruled that Trump's tariffs based on the IEEPA were illegal, and the Trump administration's attempt to "" may lead to a reemergence of global tariff expectations. According to Reuters, on February 21st, the Supreme Court of the United States ruled that the International Emergency Economic Powers Act (IEEPA) does not authorize the president to impose large-scale tariffs. The ruling stated that when Congress authorizes the executive branch to exercise tariff powers, it usually provides clear and strict provisions, which are not found in the IEEPA. Chief Justice Roberts of the Supreme Court said that the government's interpretation of the IEEPA as giving the president the unilateral power to impose unlimited tariffs and adjust them at will exceeds the scope of the law itself. In the opinion written jointly with Justices Gorsuch and Barrett, Roberts made it clear that Trump's imposition of tariffs under the IEEPA violated the "major questions principle." The "major questions principle" is a principle that the Supreme Court of the United States has increasingly emphasized in recent years. The core of this principle is that if an executive branch attempts to implement a policy that has enormous economic and political implications and has never been seen before in history, it must demonstrate a clear and unambiguous authorization from Congress, and cannot rely on vague and broad interpretations of the law. Given Trump's many alternative mechanisms to promote his tariff policy, global financial markets have generally responded positively, but with limited enthusiasm. Following the stabilization of tariff expectations with many trade agreements gradually being locked down since last year, subsequent phases may reenter a period of chaos. On the day the ruling was announced, the U.S. S&P 500 index rose by 0.69%, and with increasing concerns about interest rate cuts, the U.S. dollar index fell by 0.09%, while under fiscal pressure, the yield on 10-year U.S. Treasury bonds rose by 0.33%. The European stocks similarly reacted relatively positively. Globally, it is expected that the Trump administration will try various alternative mechanisms for tariffs and maintain stable implementation of trade agreements after the enforcement of the 122 tariffs, where the result of the 301 investigations may be crucial. However, due to rule restrictions, Congressional constraints, and midterm election pressures, CITIC SEC believes that it will be somewhat difficult for it to completely replicate the previous equal tariff pattern. Specifically, Trump's potential alternative tariffs can be divided into three categories. First, the 122 tariffs are used to address international balance of payments, covering a wide range, implemented quickly, but with a maximum tax rate of 15%, a duration of only 150 days, and cannot be targeted at specific economies. On February 20th, Trump signed an executive order imposing a 10% 122 tariff on imported goods starting from February 24th, lasting for 150 days, but exempting industries already covered by the 232 tariffs and certain goods under the U.S.-Mexico-Canada Agreement. On February 21st, Trump announced that the tariff would be raised to 15%. According to the process, if the 150-day 122 tariff needs to be extended after it expires on July 24th, it must be legislated by Congress again (or requiring 60 votes in the Senate), CITIC SEC believes that new alternative mechanisms may need to be sought after it expires. Second, the 301 tariffs are used to address so-called unfair trade practices, can be targeted at specific economies, or specific industries within specific economies, and are seen as a potential focus. According to Reuters, on February 20th, the U.S. Trade Representative's office announced the initiation of a new round of 301 investigations covering most major trading partners. CITIC SEC believes that if directed towards economies that have previously been subject to 301 investigations (such as China, Brazil, Vietnam, India, the United Kingdom, and the European Union), the measures may take several months to come into effect and theoretically can be connected with the expiration of the 122 tariffs. However, before the results of the 301 investigations are finalized, economies with relatively high IEEPA tariffs, such as China, Canada, Mexico, and ASEAN, may face a period of low tariffs for several months. It may take a year or more for new tariffs to be implemented on other economies that have not been subjected to a 301 investigation. Third, the 232 tariffs are used to address what is deemed harmful trading practices to national security, primarily targeting specific industries rather than countries, and have a longer investigation period. At present, many of the announced 232 tariffs by the U.S. have been postponed for implementation or face significant resistance to enforcement. Therefore, CITIC SEC expects the 232 tariffs to not be a major tool in this round of alternative tariff mechanisms. Additionally, the 201 and 338 tariffs require investigation by the International Trade Commission (ITC), which has a longer process, leading CITIC SEC to assess them as not a priority option. In summary, it is expected that the Trump administration will try various alternative tariff mechanisms and maintain stable implementation of trade agreements after the enforcement of the 122 tariffs, where the outcome of the 301 investigation may be crucial. However, these tariff tools are subject to Congressional constraints and may take some time to be implemented. As the midterm elections draw near, pressure is mounting in the United States, making it somewhat difficult for Trump to replicate the previous equal tariff pattern. Therefore, it is advisable to closely monitor changes in the attitudes of the U.S. Congress and voter expectations. According to a YouGov poll conducted until January 21st, 69% of American voters believe that tariffs have raised prices, and 74% oppose further tariffs. The House of Representatives has previously passed resolutions opposing Trump's tariffs on Canada. For China, influenced by the stability of the "ceasefire period" and Trump's visit to China, CITIC SEC predicts that the overall level of U.S. tariffs on China may decrease, at least during the low tariff window, China's exports of labor-intensive products may benefit relatively. On one hand, China and the U.S. are still in a "ceasefire period" of the trade war, and with the legal foundation of U.S. policies being shaken, any significant increase in tariffs through alternative mechanisms in the short term may be seen as an escalation of the trade war. On the other hand, according to a report from Reuters on February 20th quoting sources from the White House, Trump plans to visit China from March 31st to April 2nd, and an escalation of the trade war may not be beneficial for achieving Trump's goals during this visit. Therefore, for China, CITIC SEC expects that the aforementioned alternative tariff mechanisms may appear to a certain extent, but the overall level of tariffs may decrease, possibly lower than the level before the Supreme Court ruling took effect. Assuming a 15% 122 tariff is enforced, the U.S. tariff rate on China may decrease by about 5%, which would be favorable for China's overall exports this year. Moreover, considering the time process of mechanisms like the 301 investigation, CITIC SEC believes that the probability of the U.S. imposing a significant number of new tariffs on China before Trump's visit is relatively low. At least during the low tariff window, CITIC SEC believes that China's exports of labor-intensive products may benefit relatively. China's labor-intensive products such as toys, shoes, furniture, bags, and clothing have a high proportion of overseas revenue and face a large exposure to U.S. exports. This reduction in tariffs on China will likely lead to short-term benefits for China's labor-intensive product exports. Regarding tariff refunds, it will still take time for lower courts to make rulings, and the entire process is expected to take several years. The Supreme Court has referred the Trump tariff case back to the U.S. International Trade Court to handle refund arrangements, and lower courts may take several weeks to several months to clarify the scope, procedures, and timetable for refunds. In terms of refund recipients, the taxpayers of the IEEPA tariffs are the importers, so the refunds will be paid directly to the importers, not the consumers. In terms of the refund timeline, it will only be formally initiated once lower courts make their rulings. For reference, in the "US v. US Shoe Corp" case in 1998, it took about five months from the court's ruling becoming effective to initiating refunds, with the entire process lasting about three years. Given the scale of the IEEPA tariffs this time, it is estimated that the refund start time may be after 2026, with the overall execution period lasting several years. Regarding the refund amount, according to data from the U.S. Customs and Border Protection, as of December 14, 2025, the U.S. had collected $133.5 billion in IEEPA tariffs. The Tax Foundation estimates that by February 20, 2026, related revenues could reach $160 billion. Historical experience shows that such refunds do not necessarily cover the entire amount collected. For example, in the "US v. US Shoe Corp" case, the Supreme Court ruled that the harbor maintenance tax did not apply to exports, ultimately resulting in a refund of about $600 million, representing about 60% of the total amount collected; in the 2006 U.S.-Canada softwood lumber tariff dispute, the U.S. negotiated and refunded about $4 billion out of $5 billion collected, representing approximately 80%. Looking ahead in the coming months, tariff negotiations between the United States and various economies may bring about many disturbances, and special attention should be paid to the potential games before Trump's visit to China. For China, if Trump's visit to China proceeds, CITIC SEC believes that investment in the U.S. manufacturing industry may become a focal point of discussion, but it is expected that progress will require the U.S. to reduce investment barriers and improve policy stability as a prerequisite. Additionally, topics such as commodity purchases and trade balance, technology sanctions, and geopolitical hotspots may also become focal points of discussion. However, the recent ruling by the Supreme Court will seriously affect Trump's bargaining power, and it is crucial to monitor the ongoing games in February and March; whether Trump chooses a strategy of "actively creating bargaining chips" will be a key factor influencing market expectations. For the global stage, the statements from various economies generally indicate that the tariff pattern is likely to continue. On one hand, the U.S. may consolidate existing agreements, strengthen institutional arrangements to lock in achievements; on the other hand, for economies that have not yet reached consensus or have political differences, the U.S. may still exert pressure through alternative tariff mechanisms, expanded investment reviews, export controls, or delayed market access through trade or non-trade means.