Article

On May 28, 2025, the United States Court of International Trade issued a landmark decision in V.O.S. Selections, Inc. v. United States, blocking the enforcement of most of former President Donald Trump’s broad “Liberation Day” tariffs. The three-judge panel unanimously held that the tariffs, imposed under the International Emergency Economic Powers Act (IEEPA), exceeded the authority granted to the executive branch and permanently enjoined their operation. This ruling represents a significant judicial check on unilateral trade actions and has profound implications for market participants and investment strategies worldwide.

Background

President Trump unveiled the so-called “Liberation Day” tariffs on April 2, 2025, under Executive Order 14257. These measures imposed a 10% levy on virtually all imports into the United States, with escalated rates targeting goods from Mexico, Canada, and China, justified by alleged national emergencies relating to migration and fentanyl trafficking. Critics from across the political spectrum questioned using IEEPA—a statute designed to address genuine national security crises—as a basis for sweeping economic sanctions, prompting a coalition of states and businesses to file suit shortly after the announcement.

Legal Findings

The court’s opinion centred on two key legal doctrines: the statutory interpretation of IEEPA and the constitutional separation of powers. First, while IEEPA authorizes the president to regulate transactions in property during “unusual and extraordinary threats,” it contains no explicit provision permitting the imposition of general import tariffs. Second, invoking the major questions doctrine and nondelegation principles, the judges concluded that tariff authority lies exclusively with Congress under Article I of the Constitution and cannot be delegated implicitly through emergency-powers legislation. Consequently, the court ruled that the executive orders in question were beyond the president’s power and vacated them in their entirety.

Market Reaction

Equities and Currencies

Global equity markets rallied on news of the ruling. U.S. stock futures climbed over 1% in early trading, reflecting optimism that import-cost uncertainty would abate, while major indices in Asia and Europe closed higher on renewed risk appetite. Simultaneously, the U.S. dollar strengthened across the board—gaining 0.64% against the yen and 0.67% against the Swiss franc—as investors repositioned from perceived safe-haven currencies back into dollar-denominated assets.

Fixed Income

Safe-haven demand waned as bond investors rotated toward risk assets. U.S. Treasury yields climbed, with yields on both short- and long-term maturities rising as the court’s decision undercut fears of long-lasting tariff-driven inflation pressures. The Financial Times characterized the move as a resurgence of “bond vigilantism,” noting that investors demanded higher yields amid renewed policy uncertainty and shifting inflation expectations. 

Commodities

Commodity markets also felt the impact. Brent crude oil jumped by roughly $1 per barrel, buoyed by hopes for smoother trade flows and lower tariff-related costs in global energy supply chains. Conversely, gold prices dipped to a one-week low, down 0.6%, as safe-haven buying receded and funds rotated back into equities and riskier assets.

Implications for Investors

The court’s decision delivers immediate reprieve to sectors sensitive to import costs—namely consumer durables, industrial machinery, and retail—where profit margins had been squeezed by the threat of elevated tariffs. Equity analysts have begun adjusting earnings forecasts upward for these industries, while currency strategists have trimmed hedges that had anticipated extended dollar weakness under a prolonged trade conflict scenario.

However, the ruling also ushers in new layers of policy risk. The Justice Department has already filed an appeal, signalling a likely protracted legal battle that could ascend to the U.S. Supreme Court. Moreover, alternative legal routes remain available to the administration—such as invoking Section 232 (national security), Section 301 (unfair trade practices), or Section 201 (safeguard measures) of U.S. trade laws—to reimpose tariffs in a narrower form. As a result, portfolio managers are favouring shorter-duration fixed-income instruments and dynamic currency hedging strategies to navigate the heightened uncertainty.

Looking Ahead

The forthcoming appellate process will be critical in determining the durability of this decision. A Supreme Court affirmation would cement congressional primacy in trade policymaking, while a reversal could restore executive latitude for future emergency-powered trade actions. Concurrently, ongoing negotiations with the European Union, United Kingdom, and key Asian trading partners may need to recalibrate their strategies in light of this judicial check. Investors will be watching any legislative responses from Capitol Hill, where proposals to clarify or expand presidential tariff authority could emerge, further shaping the policy landscape and investment outlook. 

The U.S. Court of International Trade’s decision to enjoin former President Trump’s emergency-powers tariffs represents a watershed moment in U.S. trade jurisprudence and a catalyst for market volatility. While markets have cheered the ruling as a reprieve from trade-driven uncertainty, the ensuing legal and legislative developments will be pivotal in defining the future contours of U.S. trade policy. For investors, the episode highlights the importance of incorporating policy scenario analyses into strategic asset allocation and risk management frameworks.