Investing.com -- The S&P 500 rallied on the back of a U.S. court decision striking down key tariff measures, but Barclays warns that the move may not lead to a sustained improvement in risk appetite.
While U.S. equity futures jumped 1.5% to 2% after the ruling, the broader market reaction was more restrained, with Barclays noting that “traditional flight-to-quality currencies are not seeing major losses,” and that the Shanghai Composite rose less than 70 basis points.
The ruling suspends the enforcement of both reciprocal and fentanyl-related tariffs, which were central to U.S. President Donald Trump’s trade policy.
“Without both reciprocal and fentanyl tariffs, the tariffs on China, for example, collapse – at least for now,” said Ajay Rajadhyaksha, managing director of global FICC research at Barclays.
He expects a period of uncertainty lasting four to eight weeks as the administration likely appeals the decision, possibly all the way to the Supreme Court.
The temporary removal of tariffs may prompt companies and households to accelerate imports, front-loading activity ahead of a potential legal reversal. However, Rajadhyaksha warns that this trend could widen the U.S. trade deficit in the first half of 2025 and reduce expected tariff revenue.
“If front-loading means that a lot of 2025’s imports occur in an era of very low tariffs (for a few months), 2025 tariff revenues at least are going to disappoint,” he said.
The legal setback also complicates the administration’s tax bill pitch, which relied in part on projected revenue from tariffs. “This ruling arguably weakens the political argument for a new, fiscally expansive tax bill,” Rajadhyaksha continued, and may stall both trade negotiations and fiscal policy planning.
While near-term growth may benefit from increased import flows, the strategist concludes that “it is not clear that this is a catalyst for a sustained new risk-on, given the complications it could pose for tariff revenues, the tax bill, and bond markets.”