Supreme Court tariffs ruling: what the IEEPA decision means

0:00The Supreme Court just undid the Trump tariffs and it's handed Wall Street $175 billion surprise. If you don't get what this means for your money, it means you probably have a social life and friends. But the big funds are going to eat your lunch before you even finish this video. Now, here's the thing, and this is what's driving me nuts. This ruling changes a lot about how tariffs work in the US. CNBC is busy arguing about politics. I'm instead going to show you exactly what the institutional guys on Wall Street are doing right now and how you can be part of that wave.

0:42By the end of this video, you're going to understand my 5-step tariff protection framework, which separates the investors who actually profit from this chaos from the ones who panic sell at exactly the wrong time. That sounds good. Stick around and let's get into it quickly.

1:00For those of you who don't know who I am, my name is Felix Prehn. I'm an economist and ex-investment banker. I've seen how these banks work on the inside and I've also got Winston here who is the smartest research hound in the world who did all the digging for this this very morning. I'm also the founder of the Go Academy where my Wall Street mentors, guys who worked in Wall Street for decades, teach regular investors how to think like professionals and how to act like professionals. We've taught well over 20,000 students these last 6 years. It's insanely satisfying.

1:33I'm also the co-founder of trademission.io who pinged me this news as I woke up this morning. So if you want to stay abreast of the news, go to Trade. There's a link down below. There's a free trial there and it'll literally ping you the news that matters, but it'll also give you customised news just for your stock. You can set that up in there very easily both on the app and also on the website.

1:58So what are we going to do? We're going to run through the framework, what we can actually do about this. Not is it right, is it wrong, not the politics, none of that noise. So first, what actually happened? Because the media is making this way more confusing than it needs to be. On February 20th, the Supreme Court dropped a 6 to 3 ruling that struck down Trump's IEEPA tariffs. That's the International Emergency Economic Powers Act. It's a law from 1977 that was originally meant for sanctions and for freezing assets during emergencies. It wasn't intended for tariffs. The court basically said that this IEEPA thing does not authorise the president to impose tariffs.

2:45So the constitution gives Congress and only Congress the power to tax imports. Trump was essentially trying to use a law meant for freezing assets during crisis to impose taxes on foreign goods. And the court said, "No, that's not how this works." Now, it is worth noting who voted against this. Two of Trump's own appointees, Gorsuch and Barrett, they joined the majority. Trump's going to be pretty pissed off about that, I would imagine. Not a happy chap this morning. Trump called it deeply disappointing and said he was ashamed of certain members of the court. He accused justices of being swayed by foreign interests and a disgrace to our nation. So he took it quite well I think.

3:39But what investors are missing here, the court didn't just rule on the law. They used something called the major questions doctrine. Basically when a government action has massive economic impact, Congress needs to explicitly authorise it. You can't just let the president assume those powers. And the impact here is fairly massive. We're talking about roughly half of all the tariffs that were in place. Half, not all, but half. Markets have taken it relatively well. Why? Because it's essentially a removal of a tax.

4:17But what does it mean for us investors beyond today? Well, the Wharton budget model estimates that $175 billion with a B in tariffs have already been collected under this IEEPA authority which has now been ruled as a bit of a Trump power grab. No politics implied here. The Supreme Court said nothing about the money that's already been collected. Now there was a dissent by Justice Kavanaugh and he said the refund process is likely to be a mess. Translation, we created $175 billion worth of litigation chaos but that's somebody else's problem. Good luck. The lawyers are like, yay, litigation for years, more money for lawyers, they need it. I used to be a lawyer, I have some sympathy. It's a tough job. It's a boring job. It's a dull job. I couldn't stand it quite frankly.

5:16But companies like Costco are leading the charge against these tariffs and now they're lining up for potential refunds. So what does it mean for you? Well, if you own shares in major retailers, importers, or any company that's been paying these tariffs, there is potentially a $175 billion windfall that could be distributed to you. But don't expect the cheques in the mail tomorrow. These legal battles could take years. The procedural stuff alone could take absolutely forever and lawyers are therefore going to be making quite a lot of money for the foreseeable future.

5:56Now, Trump of course didn't take this lying down. Within hours of the ruling, he announced a brand new shiny big beautiful 10% global tariff under a different piece of legislation, the Section 122 of the Trade Act of 1974. I bet you were discussing that over your Weetabix this morning with your wife. Darling, what do you think about those Section 122 opportunities? Anyway, he said, the good news is that there are, this is Trump, that there are methods, practices, statutes, and authorities as recognised by the entire court in this terrible decision that are even stronger than the IEEPA tariff. So basically, they took away my toy, but I've got another one. I've got more lined up.

6:38And he made this threat crystal clear. Foreign countries that have been ripping us off for years are ecstatic. They are dancing in the streets, but they won't be dancing for long. That I can assure you. All right.

6:53Section 122, and I know this is a bit tedious, but you need to understand this. This is the big story, not just for this week, but literally for the remainder of the Trump presidency. This is going to be the story that'll impact your investments. So what does Section 122 actually allow? You might want to write this down because you're going to forget. Temporary tariffs up to 15% for 150 days max. After that, well, you need congressional approval. So we went from emergency permanent tariffs to temporary tariffs that might become permanent if Congress plays along.

7:28But you see, countries that have negotiated deals with Trump, they basically got reset. Europe, the Soviet States of Europe, went from 15% to a 10% tariff. Japan went from 15 to 10. India from 18 to 10, South Korea from 15 to 10, Vietnam from 20 to 10. China, they are facing 35% total because the new 10% tax goes on top of an existing 25% tax under a different authority. Doesn't affect steel aluminium tariffs. They're still there. Those things are under a different law.

8:02All right, before we get into my 5-step tariff protection framework for the coming years, if you're serious about learning how to read situations like this and learn how to benefit from this and any other crisis, any other disaster that comes your way, I made a 17-minute video for you. It teaches you the Wall Street rules for picking stocks in literally 17 minutes. Used to be a 4-hour video. I really, really cut it down. There are no oohs and aahs in there. And you can watch it at felix.org/getfree. It is completely free.

8:35So now that you've taken note of that link, which of course is down below in the description, make sure you take notes for the framework. So here's the actionable stuff. Here is what I learned from my Wall Street mentors, guys who've worked in banking for decades and they lived through trade wars. So this volatility, as bankers like to say, creates opportunity.

9:00And here is what my old goat mentors have taught me. When trade policies shift dramatically, most investors react emotionally. They panic sell or they chase the hot thing too late or whatever. And the framework is designed to help you think systematically instead of emotionally. So let's break it down step by step. That's the beginning of a song, isn't it? Baby, if you get that reference, put it down below in the comments. We're feeling very silly this morning, aren't we, Winston?

9:32So here, step one, and this is huge. Understand where we actually are. Not where the headlines are, but what actually happens. So before the ruling, the US effective tax rate was 16.9%, the highest rate since 1935 when things went a little haywire in my country of birth. Are we allowed to joke about that yet? I don't know. So we literally went back 90 years in trade policy, thankfully nothing else.

10:02And after the ruling was struck down and these tariffs, the tariff rate is now 9.1%. Still pretty high, the highest since 1946. Yes, when things got a little bit better in my home country. But it's a meaningful, very meaningful reduction. Now, does that mean the US is now on some sort of economic apocalypse? No, it is not. Now this is deflationary. There is an estimate out there by the Yale Budget Lab and I don't know what colour their politics are. So I always take any statistic with a large pinch of, I was going to say cocaine, I meant salt. Don't do drugs, children. It wouldn't actually, I wouldn't recommend it. If you're already this mad it's probably a bad idea.

10:49Tariffs. So for 1% higher tariffs, you get about 0.1% inflation. Excuse me, I'm writing with a mouse. I haven't unpacked my little pen yet from our travels. So what does that mean? Well, we got 9% less tariffs, so we might get about 0.8% less inflation, which would actually bring us into really, really low inflation.

11:22But Trump has added back another 10% on top. So we could be back to slightly fewer tariffs. This is what Goldman Sachs are saying, but they're saying materially more trade uncertainty. So they're basically saying we're not out of the woods. We're not even close. The uncertainty is a risk factor you got to account for.

11:41One of the things we really watch for, and then step number 2 is understanding which sectors in your portfolio are the most exposed to tariffs, and most people miss this. They just think about this stock is that stock. Zoom the heck out. So the current breakdown is this. After the Supreme Court ruling, the sectors facing the highest tariffs are metals, the steel, aluminium, they're still getting hit. Automotive stuff still are getting about 15%. Electronics and tech hardware, they are very much impacted.

12:15But what most people miss is that the lower tariffs in some areas mean higher competition for certain companies. So there's this tariff winner triangle stuff. So the domestic producers who don't import much, they might not actually like this because now their foreign competitors can now sell cheaper. But if you're importing a lot, it'll reduce your cost base.

12:43And then the reshoring guys, the companies that help other businesses move manufacturing back to the US, think the industrial automation, construction, logistics, they might not love this all that much because they quite like the high tariffs because it was an incentive to bring stuff back to good old USA. And then do you know who really loves this? Banks, Wall Street, they love uncertainty. Why? More volatility means more trading volume, which means more commissions. So when Goldman Sachs says materially more trade uncertainty, JP Morgan are going woo, doing a little happy dance.

13:19So what do we do here? Well, you want to watch the second order effects and this is where it gets a bit more in depth and I'm sorry this is a fairly dense video because there's so much going on here. Tariffs don't just affect the products being tariffed, they have a ripple effect to the whole economy. So the chain reaction is on the screen here. Higher tariffs mean higher import prices mean higher inflation. Higher inflation means interest rates stay higher for longer. Higher rates mean a stronger dollar. US exports become less competitive.

13:53Less competitive exports mean a bigger trade deficit. More pressure for tariffs. You see this weird cycle. It's a really weird one, right? It's a feedback loop. Now this ruling is just throwing a wrench even into the whole loop. So the tariffs being struck down, less inflation, and we could get a Fed that could cut more. I mean, we're going to get a new el presidente at the Fed anyway, and he's going to cut rates, and he's now got an opportunity to cut rates even harder because there's going to be less inflation, and that's why the market is cautiously optimistic. It's seen as easing inflation pressures, which is good for growth stocks.

14:30Now, step 4. This is my favourite. This is how I make my money. And it's why most retail investors go horribly wrong. Instead of trying to predict what will happen next, we just watch what the big money is actually doing. And most retail investors just don't understand that because they're too caught up in some love affair with a particular stock. We don't care about the stocks. We just put our money into whatever the big money is putting their money into.

14:55So how do you track smart money? Well, you could watch 13F filings. You could also just chew the phone book. You could monitor sector ETF flows. Yeah, that might actually be quite useful. And you could follow options market activity or you could just jump out of the nearest window which is probably a little bit more fun. There is a simpler way of doing it and it is essentially looking at, yeah, you could look at ETFs, you could look at industry data if you got access to it.

15:22In our mentoring programme, we actually have a whole tool for this, a dashboard that does a lot of the hard heavy lifting for you. And we literally want to look at what sector is the money flowing into, what industry is the money flowing into, and then we want to follow and we want to pick out, cherry pick the best in those sectors. And that sounds a lot more complicated than it actually is.

15:41But what's the smart money doing right now? Well, let me walk you through it. So at the moment, they're reducing import retailers because there's going to be a lot of uncertainty. Are they going to get refunds? Are they not going to get refunds? All that kind of stuff. They're looking at still more domestic industrials. I still think that theme is going to continue. Could be some opportunities there if they get penalised. And cautiously adding to big tech. So like we saw yesterday Apple, Nvidia, Google really popped, which I'm happy about because I did a contrarian buy on that one.

16:11And what I'd recommend you do is make a checklist. Always start with a checklist, he says. And I love a good old checklist in a spreadsheet. Check what's your exposure and keep abreast of the actual policy. Easiest way to do that, just sign up to Trade Vision. Make sure you turn on the news alerts and that way you actually know what's going on there.

16:33And then set your trip wires. That's the most important thing. Every single position in my portfolio has a trip wire that triggers if the stock drops too much. And that's how I take profits. And that's how I avoid large losses. You will always have small losses. That's part of the game. But you do not need to have large losses. That is a choice. That is self-flagellation because you feel like it, like those lunatics who walk through the streets and beat themselves. Sorry, they are religiously affiliated. Apparently not meant to call them lunatics, but it's a pretty mad thing to do, isn't it?

17:07That's also most retail investors, right? I used to be one of those. We don't do that anymore. But what's Wall Street's take on this? Goldman Sachs says there's slightly fewer tariffs, materially more uncertainty. We're going to get more ups and downs in the coming days and weeks. Short term, some relief because we think, yay, less tariffs, more money, lower inflation, woohoo! But massive uncertainty in the medium term.

17:29This also makes the midterm elections in November in the US much, much more important. Why? Because Congress is going to have to approve these tariffs to really make them stick. And therefore, a Trump sweep will mean the tariffs will be there to stay. And once you pass a law that imposes taxes essentially, they rarely go away if you hadn't noticed. But if he messes it up and Democrats win some of it, then nothing will happen at all and therefore tariffs will be permanently lower. That's the choice here.

18:09So in summary, you know what just happened? The IEEPA tariffs are struck down. That's about half the tariffs. There could be $175 billion refund. That would take years of litigation. There is a 10% new global tariffs. In reality, tariffs are only a little bit lower, not significantly. You understand that? Look up which sectors benefit. Watch the dollar, the rates, track the smart money. Watch the 17-minute video I made for you because that really teaches you how to track the smart money. It's much, much easier than you think.

18:42And realise that in 150 days the new Section 122 tariffs expire and therefore there's going to be wobbles around that one. Yes, wobbles. And your job is to have a portfolio that's resilient. It's not a portfolio that does 100% a year. No, it's a portfolio that does relatively well in crisis. That's what the pros do.

19:07And that's why the big banks have been around for hundreds of years because they usually don't get wiped out in these moments. And don't talk to my friends at Lehman or Bear Stearns. Actually, one of my mentors is an ex Bear Stearns guy. But yes, he says it wasn't his fault and we pretend to believe him on that one.

19:29But generally speaking, they actually do very well from a trading point of view in these scenarios because they have risk management, risk management, and risk management, and they know how to follow the big money flows. So learn that my friends, felix.org/getfree, links down below. And if you got some value out of this video, well, share it with a friend or even a golden retriever bird and say thank you to Winston for all the hard research that he did after all that hiking this morning. Winston. Winston. Hey, come on. Any final words? Any final wisdom? Come on.

20:05He says, "I've done a lot today. I've snoozed on the research. I've drooled on the research. Come on over here." What do you make of the tariff changes? You think it's going to be all right?

20:18I think he thinks it's going to be all right. I wish you a beautiful week. $150 billion, that's a billion with a B, being pumped into artificial intelligence by just four companies. And where that money lands and where it