The new tariff plan announced by President Donald Trump risks turning the administration's trade policy into a central and potentially vulnerable issue in the midterm election campaign, writes The Wall Street Journal.
Signs of unease among Republicans over Trump's tariffs/PHOTO:AFP
Friday's decision by the US Supreme Court, which ruled that the White House's use of emergency powers to impose global tariffs was illegal, forced the administration to quickly seek legal alternatives. Just hours after the verdict, the president announced that he would introduce new tariffs under two separate legal bases – one temporary and one potentially more permanent.
But their implementation could take months. Some tariffs require congressional approval to be extended beyond five months, while others require extensive investigations before implementation. The calendar thus pushes major tariff decisions into the height of the summer, shortly before the November election, when many Republicans will be particularly sensitive to criticism of inflation and the cost of living.
Tensions in Congress
Signs of unease among Republicans are already visible. Last week, six Republican lawmakers voted with Democrats in the House of Representatives to limit the president's tariff powers. In the past year, the Senate has passed three similar resolutions with narrow bipartisan support.
Kevin Brady, a former Republican congressman and chairman of the Ways and Means Committee in Trump's first term, said the prospect of lawmakers being called upon to vote on rate hikes that would directly affect their constituents is “not a comfortable one.” “Conventional wisdom says there's no support for it,” he added.
House Speaker Mike Johnson said the administration and Congress “will decide in the coming weeks the best way forward.”
A lost legal instrument
The Supreme Court decision marks the culmination of a year of legal wrangling over the unprecedented use of tariffs. Since last April, Trump has relied on the International Emergency Economic Powers Act (IEEPA), a 1977 law that had not previously been used to impose tariffs. Choosing this legal basis allowed him to introduce taxes almost instantly, using them as a pressure tool in trade negotiations and beyond.
But the Court ruled that applying IEEPA for this purpose is illegal, undermining a key mechanism of the president's economic strategy.
Wilbur Ross, former Commerce Secretary in Trump's first term, said the ruling “weakens the president's negotiating power” because legal alternatives are either time-limited or require complex investigations.
The alternatives: temporary solutions and long-term investigations
In an attempt to quickly rebuild the tariff regime, the president invoked Section 122 of the Trade Act of 1974, which allows the imposition of tariffs of up to 15 percent for 150 days, to correct persistent trade imbalances. Trump initially announced a global tariff of 10%, which he later increased to 15%.
This measure could work as a transitional solution until more permanent tariffs are introduced under Section 301 of the same law – a mechanism used in his first term for tariffs on China.
The administration could also expand sectoral tariffs already imposed under the current mandate under the Trade Expansion Act of 1962 through Section 232, which target products such as steel, aluminum, automobiles and lumber. These tariffs are unaffected by the Supreme Court decision and could become an even more important pillar of trade strategy.
Uncertainty for the business environment
However, many unknowns remain. Approximately $130 billion has been collected through fees imposed under the IEEPA. More than 1,000 companies have applied for refunds in the event that these taxes are finally canceled, but the Supreme Court has not established a clear mechanism for returning the amounts, leaving the matter to the lower courts.
Business leaders have called for swift clarity, while the president has suggested the litigation could drag on for years. “We will be in court for the next five years,” he told a news conference.
A major electoral stake
Amid these legal and economic uncertainties, the tariff debate risks becoming a dominant issue in the midterm election campaign. For Republicans seeking re-election, the balance between supporting the president's agenda and voters' concerns about prices and economic stability could become increasingly difficult to maintain.
As the White House looks for new tools to support its trade policy, the clash between strategic goals and domestic political realities appears to be entering a decisive phase.
Investors are withdrawing their capital from the US market
US investors are redirecting their capital to foreign markets at a pace not seen in at least 16 years, amid diminishing returns in the technology sector and the increasing attractiveness of investments outside the United States, Reuters reports.
In the past six months, US-registered investors have withdrawn about $75 billion from US financial instruments. Since the start of 2026, capital outflows have reached $52 billion — the highest level for the first eight weeks of a year since 2010, according to data provided by LSEG/Lipper.
This trend is despite the depreciation of the dollar against other currencies, which would normally make foreign investment more expensive for US investors. But the development suggests that the strategy of diversifying away from US assets — originally adopted by international investors — is gaining ground among US investors as well.
End of an era?
After the global financial crisis of 2009, the “Buy America” strategy — which involves directing capital to American assets, especially the stock market — generated consistent gains. The robust economy, rising corporate profits and the dominance of the technology sector have underpinned the outperformance of US stocks relative to other regions.
Recently, excitement over artificial intelligence propelled the S&P 500 to record highs last year. That advance gave markets a buffer against uncertainties generated by President Donald Trump's unpredictable trade and foreign policy, as well as tensions over the independence of the Federal Reserve.
Searching for alternatives
However, as concerns about the risks and high costs of AI-based technologies intensified, Wall Street's appeal began to wane. The very high valuations of big tech companies have caused investors to become more selective, with many identifying more attractive opportunities outside the US.
A February survey by Bank of America shows that fund managers are reducing their exposure to US stocks in favor of emerging markets at the fastest pace in five years.
LSEG/Lipper data indicates that since the beginning of the year, US investors have directed about $26 billion into emerging market stocks. The largest capital inflows were recorded in South Korea ($2.8 billion) and Brazil ($1.2 billion).
Over the past 12 months, the S&P 500 is up about 14%. During the same period, Japan's Nikkei 225 rose 43% (in dollars), the STOXX Europe 600 rose 26%, the CSI 300 rose 23%, and the KOSPI doubled in value.
revaluations
Investors are rethinking their exposure to tech giants involved in the development of artificial intelligence, such as Nvidia, Meta and Microsoft, amid perceived excessive valuations. More are looking for opportunities in traditional industrial companies and so-called “defensive stocks” — stocks associated with stable sectors such as utilities or consumer goods — well represented in Germany, the United Kingdom, Switzerland and Japan.
According to Laura Cooper, global investment strategist at Nuveen, Wall Street's rotation — from growth stocks to value stocks — is playing out on a global scale amid cyclical recovery in the European and Japanese economies.
Despite these developments, the US market remains more expensive in relative terms. The S&P 500 trades at a multiple of about 21.8 times estimated earnings, compared with about 15 in Europe, 17 in Japan and 13.5 in China.
LSEG/Lipper data shows that since Donald Trump's return to the White House last January, US investors have placed almost $7 billion in European equity instruments. By comparison, in the first four years of his previous term (2017–2021), outflows from such assets totaled about $17 billion.
“Looking long term, we may be witnessing the beginning of a large global capital turnover”, say the analysts.
