Commerzbank’s Thu Lan Nguyen notes that recent US Supreme Court rulings have thrown US tariff policy into disarray, with President Trump responding by announcing and then raising a new global tariff. She argues that markets focused on the fiscal implications and on tariffs as a foreign policy tool, raising questions for Dollar investors about what instrument might replace tariffs if they are constrained.

Tariffs as key Dollar policy lever

"How have the foreign exchange markets reacted to developments so far? The dollar weakened on Friday after news of the court ruling broke. While the depreciation was moderate, the reaction is nevertheless not trivial."

"However, the market appeared to focus primarily on a different aspect: the fact that tariffs are an important source of funding for the government’s expansionary fiscal plans. Not only would a rollback of the tariffs deprive the US Treasury of a future revenue stream, but the tariffs already collected would likely have to be refunded."

"This problem now seems to have been addressed by the government making it clear that it will pursue other avenues to continue levying tariffs. Do not be misled by the fact that the newly introduced global flat tariff is only permitted to remain in place for 150 days. There are quite a few other “sections” the administration can rely on to introduce tariffs."

"And we can be certain that the people in the White House will pull out all the stops. Forget the fiscal implications, forget the consequences for trade policy. If one thing has become clear, it is that, from the US president’s perspective, tariffs are the ultimate instrument for enforcing foreign policy objectives."

"As a USD investor, I would fear the potential instrument he might deploy instead far more than any tariff..."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)