Harvard's Jason Furman: SCOTUS tariff ruling ends Trump’s ability to arbitrarily adjust tariffs
Summary
- The Supreme Court ruling effectively ends President Trump's ability to "arbitrarily and capriciously" adjust tariffs based on whims or political ads, restoring some rule of law.
- However, Trump is currently utilizing Section 122 (imposing a 10% tariff, potentially up to 15%) under the guise of a balance of payments deficit, despite legal experts (and Trump's own lawyers) conceding no such deficit exists.
- Economic data contradicts the pro-tariff narrative: US manufacturing has lost jobs almost every month since tariffs began due to rising intermediate input costs and retaliation against US exports.
- Business investment and reshoring commitments (measured in the hundreds of billions) are now facing a "huge question mark" due to policy uncertainty.
- Macroeconomic uncertainty is at historic highs, creating a market environment where extreme volatility is "rational" as investors overreact to limited data points (e.g., the recent AI unemployment report).
Trade Ideas
Jason Furman
Former Chair of the Council of Economic Advisers
"We've lost jobs almost every single month since the tariffs went into effect... You're raising the price of intermediate inputs. You're damaging the economy. You're hurting American exports." The macro narrative that tariffs protect domestic industry is false according to the data. Tariffs are increasing the Cost of Goods Sold (COGS) for manufacturers who rely on global supply chains for parts (intermediate inputs), squeezing margins and forcing job cuts. SHORT US Manufacturing/Industrials that rely on imported components, as their input costs are rising while export competitiveness falls. Trump successfully pivots to a different legal framework that subsidizes domestic production enough to offset input costs.
Jason Furman
Former Chair of the Council of Economic Advisers
"Affordability is the word everyone's using, and they really do link tariffs to the lack of affordability... I expect most countries to keep their existing deals, but then new deals will be sort of TBD." While the SCOTUS ruling limits the *volatility* of tariff rates, the baseline tariffs (Section 122) act as a consumption tax. If "affordability" is the primary consumer constraint, discretionary spending and retail volumes will remain suppressed as costs are passed down. AVOID Retail and Consumer Discretionary sectors exposed to import tariffs until the Section 122 legality is resolved. Courts strike down Section 122 tariffs entirely, leading to a deflationary boom for imported goods.
Jason Furman
Former Chair of the Council of Economic Advisers
"The right way to think about the world is... to be much, much more uncertain than we've been... almost a certain rationality to volatility, because there's no great reason to believe any particular thing about the future." Furman argues that the market's "knee-jerk" reactions (like the sell-off on the AI unemployment report) are actually rational responses to a "flat prior" environment. When certainty is low, small pieces of new information cause massive repricing. LONG Volatility as a hedge against policy whipsaws and macro data sensitivity. The administration clarifies policy rapidly, reducing uncertainty and crushing volatility premiums.
Jason Furman
Former Chair of the Council of Economic Advisers
"There's also a whole number of commitments that have been made... to reshore in the United States... Now I imagine there's a huge question mark as to whether they do ultimately get fulfilled." The "Reshoring" and "Industrial Renaissance" trade relies on companies actually spending the capex to build US factories. If uncertainty causes these commitments to pause or cancel, the order books for industrial construction and machinery firms will dry up. WATCH capital expenditure announcements closely; if cancellations tick up, Short Industrial Construction. Companies may be forced to reshore regardless of cost due to geopolitical mandates, sustaining the trend.
