U.S. Economy: Confusion Surrounding Tariff Policy Continues
2025-06-02
■ The U.S. court temporarily suspended the enforcement of some Trump tariffs in the second instance.
■ Amid policy confusion, companies are showing signs of reducing equipment investment and employment.
The U.S. International Trade Court ruled on the 28th that many of the U.S. government's tariff measures were illegal and ordered them to be suspended, marking new developments in the judicial aspect of the tariff issue. For the first time, President Trump applied national security emergency provisions to tariff policy based on the International Emergency Economic Powers Act (IEEPA), bypassing Congress to impose retaliatory tariffs on Canada, Mexico, and China, as well as additional tariffs on illegal drugs. However, the U.S. International Trade Court determined that this practice was illegal. In response, the U.S. government immediately appealed, claiming that the ruling "undermined months of diplomatic negotiations." The second instance court (the U.S. Federal Circuit Court of Appeals) ordered a suspension of the ruling on the 29th. This means that the tariff suspension order will not take effect for now, and the case is expected to be submitted to the Federal Supreme Court.
This ruling does not impact the steel, aluminum, and automobile tariffs implemented under Section 232 of the Trade Expansion Act and Section 301 of the Trade Act. Additionally, semiconductors, pharmaceuticals, and other categories currently exempt from tariff increases have also been investigated as of April 1 in accordance with Section 323 of the Trade Expansion Act, and relevant tariff measures are expected to be announced within 270 days based on the results of the investigation. Even if the Trump administration ultimately loses this case, it may turn to other legal authorizations to implement similar tariff measures, leaving the outlook for U.S. tariff policy unclear.
In terms of economic indicators, strong economic activity data and weak market sentiment have started to diverge. As a leading indicator of equipment investment, core capital goods orders (non-defense capital goods excluding aircraft) fell 1.3% month-on-month, indicating weakening demand and suggesting that the economy may slow down after mid-year. Conversely, market sentiment has improved due to expectations of easing trade frictions. The Conference Board Consumer Confidence Index rose to 98.0 in May, a sharp increase of 12.3 points from the previous month, marking the largest increase in four years. However, the detailed data is not optimistic. The "employment gap," reflecting the employment situation (the difference between the perception of "many job opportunities" and "difficult to find a job"), decreased from 22.2% in December last year to 13.9%, indicating a worsening employment situation. The number of individuals continuing to apply for unemployment benefits each week is also on the rise. Assessing these trends, policy confusion may have led companies to begin reducing equipment investment and recruitment.
Based on the minutes of the Federal Open Market Committee (FOMC) meeting held on May 6 and 7, the Federal Reserve (FRB) remains inclined not to rush to adjust the policy interest rate. Most discussions centered on the impact of tariffs. Corporate surveys revealed that some companies "plan to pass on some or all of the tariff costs to consumers," while others stated that "they have limited or stopped hiring due to increased uncertainty." There were also reports on the 29th that President Trump requested a rate cut during his meeting with Chairman Powell. However, even after the FOMC meeting, tariff-related news such as the U.S.-China trade agreement continues to be frequently released, suggesting that the Fed's wait-and-see attitude may be further reinforced in the short term.
■ Amid policy confusion, companies are showing signs of reducing equipment investment and employment.
The U.S. International Trade Court ruled on the 28th that many of the U.S. government's tariff measures were illegal and ordered them to be suspended, marking new developments in the judicial aspect of the tariff issue. For the first time, President Trump applied national security emergency provisions to tariff policy based on the International Emergency Economic Powers Act (IEEPA), bypassing Congress to impose retaliatory tariffs on Canada, Mexico, and China, as well as additional tariffs on illegal drugs. However, the U.S. International Trade Court determined that this practice was illegal. In response, the U.S. government immediately appealed, claiming that the ruling "undermined months of diplomatic negotiations." The second instance court (the U.S. Federal Circuit Court of Appeals) ordered a suspension of the ruling on the 29th. This means that the tariff suspension order will not take effect for now, and the case is expected to be submitted to the Federal Supreme Court.
This ruling does not impact the steel, aluminum, and automobile tariffs implemented under Section 232 of the Trade Expansion Act and Section 301 of the Trade Act. Additionally, semiconductors, pharmaceuticals, and other categories currently exempt from tariff increases have also been investigated as of April 1 in accordance with Section 323 of the Trade Expansion Act, and relevant tariff measures are expected to be announced within 270 days based on the results of the investigation. Even if the Trump administration ultimately loses this case, it may turn to other legal authorizations to implement similar tariff measures, leaving the outlook for U.S. tariff policy unclear.
In terms of economic indicators, strong economic activity data and weak market sentiment have started to diverge. As a leading indicator of equipment investment, core capital goods orders (non-defense capital goods excluding aircraft) fell 1.3% month-on-month, indicating weakening demand and suggesting that the economy may slow down after mid-year. Conversely, market sentiment has improved due to expectations of easing trade frictions. The Conference Board Consumer Confidence Index rose to 98.0 in May, a sharp increase of 12.3 points from the previous month, marking the largest increase in four years. However, the detailed data is not optimistic. The "employment gap," reflecting the employment situation (the difference between the perception of "many job opportunities" and "difficult to find a job"), decreased from 22.2% in December last year to 13.9%, indicating a worsening employment situation. The number of individuals continuing to apply for unemployment benefits each week is also on the rise. Assessing these trends, policy confusion may have led companies to begin reducing equipment investment and recruitment.
Based on the minutes of the Federal Open Market Committee (FOMC) meeting held on May 6 and 7, the Federal Reserve (FRB) remains inclined not to rush to adjust the policy interest rate. Most discussions centered on the impact of tariffs. Corporate surveys revealed that some companies "plan to pass on some or all of the tariff costs to consumers," while others stated that "they have limited or stopped hiring due to increased uncertainty." There were also reports on the 29th that President Trump requested a rate cut during his meeting with Chairman Powell. However, even after the FOMC meeting, tariff-related news such as the U.S.-China trade agreement continues to be frequently released, suggesting that the Fed's wait-and-see attitude may be further reinforced in the short term.