UBS: If Trump's tariffs are overturned, the U.S. Treasury faces pressure, and the Federal Reserve may see an opportunity to cut interest rates.

Deep Tide TechFlow News: On November 6th, according to Jinshi Data, UBS Group analysts noted that if the U.S. Supreme Court rules that Trump’s tariff policies are illegal, it is expected to force the U.S. government to refund approximately $140 billion in taxes to importers, which is about 7.9% of the federal budget deficit forecast for the 2025 fiscal year.

If the U.S. government loses the case, the massive refunds would immediately trigger a fiscal shock and could lead to the formation of a structurally low-tariff trade environment. If trading partners do not retaliate, this environment could ultimately benefit the U.S. economy and stock markets.

UBS estimates that the government is likely to use legal tools such as Section 201 and Section 301 of the Trade Act of 1974 to rebuild tariff barriers. However, this process would take several quarters and would reduce flexibility in trade policy.

While the refunds would provide unexpected gains for importing companies, since tariff costs have not significantly lowered earnings expectations for the S&P 500, the overall market impact may be limited. UBS believes that this ruling could ultimately lower the effective overall tariff rate, increase household purchasing power, ease inflation pressures, and provide the Federal Reserve with more room to cut interest rates.

As long as trading partners avoid escalating retaliatory measures, this development is generally welcomed by stock market investors.