President Trump Isn’t a Tariff King A sweeping trade court ruling puts the executive in his proper constitutional place.
The WSJ Editorial Board
In a ruling heard ’round the world, the U.S. Court of International Trade on Wednesday blocked President Trump’s sweeping tariffs. This is an important moment for the rule of law as much as for the economy, proving again that America doesn’t have a king who can rule by decree.
The Trump tariffs have created enormous costs and uncertainty, but now we know they’re illegal. As the three-judge panel explains in its detailed 52-page ruling, the President exceeded his emergency powers and bypassed discrete tariff authorities delegated to him by Congress. The ruling erases his April 2 tariffs as well as those on Canada and Mexico. (…)
No other President has used IEEPA to impose tariffs. As the trade court explains, Richard Nixon used the law’s precursor, the Trading With the Enemy Act, in 1971 to impose 10% tariffs for a short period to address a balance of payments problem. The Justice Department said Mr. Trump’s tariffs are no different.
Not so. As the panel notes, Nixon tariffs were upheld by an appeals court because they were a “limited surcharge” and “temporary measure calculated to help meet a particular national emergency, which is quite different from imposing whatever tariff rates he deems desirable.” The latter is what Mr. Trump did, at one point jacking up rates to 145% on China.
Congress also limited the President’s emergency powers in IEEPA to prevent overreach. “The legislative history surrounding IEEPA confirms that the words ‘regulate . . . importation’ have a narrower meaning than the power to impose any tariffs whatsoever,” the panel notes.
Mr. Trump invoked IEEPA because he wanted to impose tariffs as he sees fit. But the Constitution doesn’t let the President ignore Congress and do whatever he wants. (…)
The judges also say Mr. Trump’s fentanyl tariffs are unlawful because they don’t, as IEEPA requires, “deal with” their stated objectives. The government’s theory would permit “any infliction of a burden on a counterparty to exact concessions,” the panel notes. “If ‘deal with’ can mean ‘impose a burden until someone else deals with,’ then everything is permitted.”
Exactly. The court’s ruling effectively slams the door on IEEPA as a basis to impose tariffs. This means a future Democratic President can’t declare a climate emergency and wield tariffs to punish countries for CO2 emissions. Conservatives ought to cheer this restraint on one-man rule.
White House officials are attacking the trade court’s ruling as liberal judicial overreach, though the three judges were Reagan, Obama and Trump appointees. On Thursday the U.S. Court of Appeals for the Federal Circuit put a stay on the trade court’s ruling while it considers Mr. Trump’s emergency appeal. Meanwhile, a separate federal judge also ruled the tariffs illegal under IEEPA.
The White House boasts it will win at the Supreme Court, but our reading of the trade court’s opinion suggests the opposite. Mr. Trump’s three Court appointees are likely to invoke the major-questions precedent.
Mr. Trump has other laws he can use to impose tariffs, though most are more limited than his emergency claims. The most expansive is Section 338 of the 1930 Smoot-Hawley Act, which lets a President impose duties up to 50% on countries found to discriminate against the U.S. But no President has ever done so.
Mr. Trump would be wiser to heed the trade court’s ruling as the political gift it is and liberate his Presidency and the economy from his destructive tariff obsessions.
The court effectively told Congress to mind its own business.
Also in the WSJ:
(…) More tariffs are also in the pipeline. The Commerce Department on April 16 announced two new investigations into whether tariffs on pharmaceuticals and semiconductors were needed for national-security reasons. These investigations are widely expected to lead to 25% tariffs on these products. (…)
The U.S. imported $203 billion in pharmaceutical products in 2023. A study by Ernst & Young estimates that a 25% tariff on pharmaceuticals would raise drug costs for the industry by $51 billion annually and increase drug prices for consumers by 12.9%. Tariffs would be particularly damaging for generic-drug makers because they rely heavily on foreign sources for active ingredients.
A 25% tariff on semiconductors likewise would do enormous damage. It would increase costs and drive away U.S. manufacturers in the aerospace, robotics, autonomous vehicles and artificial-intelligence industries, which rely heavily on semiconductors. The Information Technology and Innovation Foundation estimates that a 25% tariff on semiconductors would reduce U.S. economic output and cost the average American $122 in the first year and $4,208 cumulatively over 10 years. (…)
Trump’s Tariff Options Slower, More Complex If Court Fight Fails
(…) While Trump has vowed to appeal all the way to the Supreme Court if needed, the message from his top aides has been that the president will not be denied his tariff push, and would simply turn to other authorities if needed. (…)
Possible alternatives include Section 232 and 301 powers, which Trump has used previously, or so-called Section 122 powers, which are heavily restricted. He could also seek congressional approval, though that option would be laborious and steal precious Senate floor time from other priorities like judicial nominations and his signature “one big, beautiful” tax bill. (…)
“Section 122 only gives you 150 days,” he [Navarro] said in a Bloomberg Television interview. “So there’s your answer right there.” (…)
Trump has already used Section 232 powers to enact tariffs on steel, aluminum and automobiles, all of which were enacted based on investigations that predated his current term. He’s launched other investigations to add other tariffs under the same authority, including on semiconductors and a raft of consumer electronics that carry them, pharmaceutical drugs, copper and other products.
White House Press Secretary Karoline Leavitt pointed to Section 232 powers as a warning to nations that might see the court setback as leverage. (…)
Navarro also pointed to Section 301 powers, which Trump has used against China and which require laborious investigations akin to the 232 probes, and to Section 338 powers. The 338 powers hail from a 1930 law that allows a president to impose tariffs of up to 50% on countries that discriminate against the US; they have never been enacted, according to the Congressional Research Service. (…)
While the court cases continue, Navarro signaled the White House may reveal its intentions shortly, saying that US Trade Representative Jamieson Greer will outline the administration’s response to recent tariff rulings the “next day or two.”
Bessent Says US-China Talks ‘Stalled,’ Pushes for Trump-Xi Call
(…) “I would say that they are a bit stalled,” Bessent said of the talks in an interview with Fox News Thursday.
(…) Bessent said he sees the personal involvement of both country leaders as essential.
“I think that given the magnitude of the talks, given the complexity, that this is going to require both leaders to weigh in with each other,” Bessent said. (…)
Bessent said in the interview that a couple of large trade deals are near. Among talks in more advanced stages, he plans to meet with a Japanese delegation Friday in Washington. (…)
“We have not seen any of that in terms of our trading partners,” Bessent said. “They are coming to us in good faith and trying to complete the deals before the 90 day pause ends. We’ve seen no change in their attitude in the past 48 hours.”
Underlying Growth is Slowing as Profits Shrink
A 0.2% contraction compared to a first estimate of 0.3% may appear mild, but the underlying details are not encouraging. Corporate profits fell 3% and a key yardstick of underlying private demand slowed from 3.0% to 2.5%.
Arguably the most consequential shift in the revisions is that with the softer growth in consumer spending and resulting boost to inventories, growth in real final sales to domestic private purchasers came down to just 2.5% from the prior estimate of 3.0%. Since this measure serves as a gauge of underlying demand (by excluding trade, inventories and government spending) it diminishes the argument that excluding trade, the economy is doing fine. This measure has begun to slow off of the 3% pace registered on average last year.
When the initial estimate of Q1 GDP became available in April, we suggested the report be considered through the lens of businesses and households trying to get ahead of the tariffs. That approach, in our view, allows many of the big pieces of the report to fall into line. What changes in today’s revision is not a page-one re-write of that story, but rather one in which we now have greater details. In a nutshell, the details are not terribly encouraging.
Growth in consumer spending was weaker. The already modest estimate of 1.8% growth was pared to just 1.2% with weaker spending in services and non-durable goods still enough to offset a 3.8% rate of decline in durable goods spending. Softer spending suggests a back-up in inventories and that is indeed how things played out, with today’s estimate of inventory accumulation resulting in a 2.6 percentage point boost; that lift is about four tenths of a percentage point more than in the earlier estimate.
The growth in business fixed investment was unchanged at 7.8% with the predominant theme being one of strong equipment outlays, particularly for computer and electronics products.
What has not changed materially is the way international trade exerted more of a drag on GDP than it ever has in numbers going back more than 80 years. Specifically, trade lopped 4.9 percentage points off of first quarter growth (up from 4.8 previously). This is not because trade activity was grinding to a halt, but rather because imports shot up as firms tried to pull forward needed industrial supplies and retailers stocked their shelves with consumer goods.
Source: U.S. Department of Commerce and Wells Fargo Economics
Profits: Slowing, Not Collapsing
The profit estimates do a good job of summarizing growth in the first quarter—slowing but not yet collapsing. But the big thing worth emphasizing here is timing. Although tariffs have been the primary tool in the belt of the Trump Administration since day one, the largest escalation in the trade war did not come until the start of the second quarter with ‘Liberation Day’ in early April. Even as things have been deescalated since, the effects of this all takes time to show up, and other than a pull-forward in demand into the first quarter, it is too soon to see much of a negative growth impact.
To that end, it’s little surprise that U.S. firms remained profitable in Q1, but profits fell amid a slowing in the underlying economy. Pre-tax profits slipped $118 billion or by 3% during the quarter. That reversed over half of the fourth-quarter profit gain, but the level of profitability remains elevated, with profits still up about 5.5% compared to the start of last year. In the world of tariffs, firms’ profitability becomes all the more important in determining the trajectory for economic growth.
There was a modest compression in margins in the first quarter. As a share of national income, after-tax profits slipped to 12.8%. While that’s lower than the average registered last year, margins remain elevated. At face value, this suggests firms have the ability to absorb at least some tariff-induced cost pressure at the macro level, but firms are likely going to try to pass costs on to preserve margins. Perhaps more importantly in this on-again, off-again trade-war environment, elevated profits provide cushion for firms to act strategically, such as holding a bit more inventory to weather the increased uncertainty.
- Data Center Construction Contributing One Percentage Point to GDP Growth A strong tailwind to US economic growth over the coming years.
Goldman Sachs analyzed US power demand growth in 1Q2025 using both bottom-up and top-down approaches and conclude that US power demand has been solid, despite the GDP growth slowdown and macro-economic uncertainties.
Using the bottom-up approach, the average/median yoy growth rate in 1Q2025 npower sales in the US is 2.0%/1.8% (weather and leap-year adjusted).
Using the top-down approach, the 1Q2025 yoy growth rate in US total power demand is 3.9%, vs 1.0% yoy in the past two decades.
Obscure Tax Item in Trump’s Big Bill Alarms Wall Street
The item — introduced in legislation that passed the House last week as Section 899 and titled “Enforcement of Remedies Against Unfair Foreign Taxes” — calls for, among other things, increasing tax rates for individuals and companies from countries whose tax policies the US deems “discriminatory.” This includes raising tax rates on passive income, such as interest and dividends, earned by investors who are potentially sitting on trillions in American assets.
Cloaked in technicalities, the implication of the “revenge” measure, as it’s quickly becoming known, is clear to analysts: If signed into law, it would further drive away foreign investors at a time when their once ironclad confidence in Treasury bonds and other US assets has already been shaken by Trump’s erratic trade policies and the nation’s deteriorating fiscal accounts. (…)
Among those potentially affected: institutional investors including sovereign wealth funds, pension funds and even government entities, as well as retail investors and businesses with US assets. (…)
The provision amounts to “weaponization of US capital markets into law” that “challenges the open nature of US capital markets by explicitly using taxation on foreign holdings of US assets as leverage to further US economic goals,” George Saravelos, head of FX research at Deutsche Bank AG, wrote in a report on Thursday. “We see this legislation as creating the scope for the US administration to transform a trade war into a capital war if it so wishes, a development that is highly relevant in the context of today’s court decision constraining President Trump on trade policy.”
Section 899 takes aim at countries including Canada, the UK, France and Australia that impose “digital services taxes” on large technology companies such as Meta Platforms Inc. The clause also targets countries using provisions in a multi-country deal for minimum corporate taxes.
The measure would boost the federal income tax rate on passive US income earned by investors and institutions based in the targeted countries, first by five percentage points, then rising by another five points each year to a maximum of 20 points above the statutory rate. (…)
The risks related to the section 899 provision are seen by some as even more pressing after the US court order on Wednesday that blocked many of Trump’s tariffs on imports. Tariffs are considered a key source of revenue to fund Trump’s tax cuts, a signature part of his “big, beautiful bill.” Without them, the question is where the administration will find the money to fund them. (…)
“The problem is that before Trump has a chance to use the new tool, its very existence may unsettle bond markets.” (…)
Amid the race between tax cuts and tariff revenues, Wolf Richter has a graphical
Chinese Students Ditch US Plans as Trump Vows Crackdown on Visas
(…) Zhou Huiying, founder of Shanghai-based consultancy Lideyouwei Education Technology, said at least 30% of her clients have either canceled plans to study in the US or are applying to schools in places like Australia, the UK and Singapore as back ups. She believes that ratio may increase to about 50% if the Trump administration announces new restrictions on Chinese students.
Typically, families that target America for higher education would only focus on US colleges and rarely look at universities in other nations, Zhou said, but now many are having second thoughts. (…)
The visa woes “impact not only school life, but also plans for after graduation,” she said. “It is highly likely that new rules would also negatively affect potential jobs.”
Jensen Huang, NVDA’s CEO, yesterday:
- We want all of the world’s AI researchers and developers to be building on American stacks.
- Without the American technology, the availability of China’s technology will fill the market.
- 50% of the world’s AI researchers are in China.
- China’s market is now $50B, growing to $200B+ before the end of this administration.
- The platforms that succeed are the platforms with the most developers.
- We want the world to prefer the American technology for their stacks.
- Software is now a giant part of our stacks.
Chinese tech groups prepare for AI future without Nvidia Tougher US export restrictions on advanced chips give added urgency to testing of domestic alternatives
Alibaba, Tencent and Baidu are among those starting to test alternative semiconductors to meet surging AI-related internal demand and client needs, according to industry executives. (…)
The tightening of controls added urgency to Chinese tech groups’ moves, with their existing Nvidia stockpile only able to sustain AI development until around early next year, according to insiders with knowledge of the matter. (…)
Shen Dou, head of Baidu’s AI cloud group, last week told analysts the company could choose from a range of chip options — especially for problem-solving inference processing — to replace Nvidia’s.
“We believe that over time, domestically developed self-sufficient chips, along with increasingly efficient homegrown software stacks, will jointly form a strong foundation for long-term innovation in China’s AI ecosystem,” Shen said.
“We are actively exploring diversified solutions to meet rising customer demand,” Alibaba chief Eddie Wu said on an earnings call earlier this month. On another earnings call, Tencent president Martin Lau said his company was trying to be more efficient in how it used chips, while considering alternative products.
“We should have enough high-end chips to continue our training models for a few more generations going forward,” Lau told analysts, adding that Tencent could “potentially make use of other chips” to meet growing inference needs.
A think-tank affiliated with China’s state security ministry this month said that while Washington’s export controls were painful, they had “sparked a surge in independent innovation in domestic high-end AI chips with Huawei’s Ascend chip series the prime example”. (…)
Necessity is the mother of all inventions, e.g. DeepSeek.
The Chinese startup DeepSeek said Thursday that the new version of its R1 AI model offers improved mathematics, programming, and general logic.
“Its overall performance is close to other top international models such as [OpenAI] o3 and [Google] Gemini-2.5-Pro,” the company wrote, adding that the model has reduced so-called hallucinations by up to 50%.
It’s hardly an overstatement to say that R1 put Hangzhou-based DeepSeek on the map. The AI model stunned top AI executives and investors earlier this year—and sent their shares plunging—by offering comparable performance to their industry-leading AI models at a fraction of the cost.
DeepSeek said the upgraded R1 “has been further optimized for essays, novels, prose and other genres” and can output longer works with more sophisticated structures and writing style.
It is also substantially improved in complex reasoning tasks.“We believe that the thought chain of DeepSeek-R1-0528 will be of great significance to the research of reasoning models in academia,” the company wrote, “and the development of small models in industry.”
After a tough year in 2024 as battery prices declined, analysts see revenue from CATL’s power battery systems topping $68 billion by 2029, a steep increase from the $35 billion it reported in 2024. In the same period its energy storage battery revenue may grow from $8 billion to $22 billion. CATL, which controls 35% of the global EV battery market, was ahead of rivals with an operating margin of 15% and R&D spending of $2.58 billion in 2024. It also maintained better debt to equity ratios and free cash flow.
CATL’s Hong Kong listing is designed to help fund a battery plant in Hungary, adding to a facility in Germany and a planned factory in Spain. Trade tensions with the US and Republican efforts to sunset clean energy initiatives have led CATL to try to shield itself by licensing its technology, increasing research and development, and sourcing materials from more neutral regions. First-quarter R&D expenses increased 11%.
CATL will need to keep innovating to stay on the cutting edge and maintain market dominance. Among the top takeaways from the April Shanghai auto show were CATL’s Shenxing battery that charges to 520 kilometers in five minutes, its cheaper Naxtra sodium-ion battery and its Choco-SEB battery swapping system.
Canada: Labour market weakness is getting scary
There are two key surveys from Statistics Canada that monitor the country’s labour market: the Labour Force Survey (LFS), which is household-based, and the Survey of Employment, Payrolls and Hours (SEPH), which is business-based. While the LFS is timelier and widely followed, economists often turn to SEPH to validate or challenge emerging labour market trends.
Those hoping for reassurance were likely disappointed by this morning’s SEPH release, which confirmed the weakness already observed in the LFS.
March data revealed a third consecutive monthly decline in private sector employment, with a cumulative net loss of 78K jobs, a magnitude only seen during recessions. Over a similar period—from January to April—the LFS reported a comparable pullback of 70K jobs.
Both surveys point to Ontario as the epicentre of layoffs. What stands out most in recent months is the breadth of the downturn: both surveys indicate that 71% of private sectors have contracted over the past three months.
As today’s Hot Chart illustrates, such a broad-based diffusion of weakness has historically occurred only during recessions.
Drug Deficit
The US total trade deficit in goods was about $1.2 trillion in 2024. About one-sixth of that amount was in pharmaceutical goods. This chart shows how that part of the trade deficit turned noticeably higher beginning in 2018. What happened?
The answer was in the 2017 TCJA tax bill, which contained complex provisions allowing companies to move taxable income offshore. Big Pharma quickly relocated much of its US production to low-tax Ireland—enough to show up in the trade data. The amount
zoomed even higher in recent months as the companies moved inventory back to the US to front run tariffs.Getting this manufacturing activity back doesn’t require tariffs. A few tweaks to the tax code would probably do the trick. (John Mauldin)
Nvidia reported yesterday and Jensen Huang gave several interviews. This is what I found most significant from what Huang said: