Chinese Water Torture on Trade

The US Court of Appeals has ordered the tariffs under IEEPA to stay in place during the case. This is not indicative – the lower court did the same and then held unanimously that the tariffs are unlawful. Oral arguments are set for July 31, a long time for the tariffs to remain. The case will be heard en banc, by 8 judges appointed by Democrats and 3 appointed by Republicans. Aside from the self-evident merits of the case, the partisan composition of the panel ensures the tariffs’ defeat. Next will be the Supreme Court, where the tariffs will lose again. Then Trump will need a new law to use. The result will be shrunken and watered-down tariffs. The China “deal” this morning is no deal at all, only a reiteration of last month’s “reset” which wasn’t a reset. With the tariffs facing defeat in the courts, counterparty nations have no incentive to negotiate. But perhaps next week’s FOMC will have no incentive to be so hawkish about the supposed inflation risks of tariffs The economy remains in a pro-growth equilibrium, but a fragile one.