Asia’s markets exhaled — briefly — after the Supreme Court of the United States struck down President Donald Trump’s sweeping use of emergency powers to impose tariffs. But relief quickly gave way to apprehension. In trading rooms from Tokyo to Mumbai, the question is no longer whether Trump’s trade war can continue. It is how — and at what cost to a global economy already strained by geopolitical rivalry, debt burdens and industrial realignment.
On Friday, the high court ruled that the 1977 International Emergency Economic Powers Act (IEEPA) does not grant the president unilateral authority to levy broad tariffs. The decision marked a rare judicial rebuke of Trump’s expansive reading of executive power and delivered what many economists called a landmark affirmation of constitutional checks and balances.
At first glance, Asia appeared to be the beneficiary. Equity markets rallied Monday, with investors betting that a ceiling had been placed on Trump’s most disruptive trade tactics. The White House’s immediate fallback — a universal 15 percent tariff applied under alternate legal authorities — seemed, at least superficially, more limited and more vulnerable to legal challenge. The administration’s “Plan B” tariff, moreover, is constrained by a 150-day window, potentially buying time for negotiation.
Yet in Asia’s capitals, there is little illusion that the turbulence is over.
Trade analysts describe the ruling not as the end of Trump’s tariff era but as a reset. Other statutory tools remain at the administration’s disposal: Section 122 of the Trade Act of 1974; Sections 201, 232, 301 and 338. Each offers a different pathway to tariffs — whether justified by balance-of-payments concerns, national security arguments, unfair trade practices or retaliatory measures.
Bob Schwartz, senior US economist at Oxford Economics, characterized the ruling as signaling “more of a policy reset than a reversal.” The White House, he argued, is unlikely to retreat from its central thesis: that tariffs are leverage. The swift announcement of a 15 percent replacement tariff underscored, in his view, that trade uncertainty is merely shifting form rather than fading.
Chris Krueger, managing director at TD Cowen Washington Research Group, went further. Given Trump’s public ire against judicial constraints, he warned that escalation could come sooner rather than later. Asia has learned to expect abrupt announcements — often timed to maximize political impact at home.
Indeed, Trump’s trade policy has never been purely economic. It has served as theater, signaling toughness to a domestic base skeptical of globalization. The Supreme Court ruling narrows one stage entrance. It does not close the show.
For much of Asia, a universal 15 percent US tariff is painful but predictable. Exporters can model its impact. Supply chains can adjust pricing. Central banks can recalibrate forecasts. What unnerves the region is unpredictability.
The previous iteration of Trump’s trade war relied on episodic shock: tariffs against China, threats against Mexico over migration, punitive levies on Europe over defense disputes. The message was clear — trade measures were a tool of political coercion beyond commerce.
Michael Froman, president of the Council on Foreign Relations and a former US trade official, observed that the Supreme Court decision should curtail tariffs as punishment outside the trade domain — whether aimed at European countries over Greenland, Canada over electric vehicle imports, or Brazil over its domestic politics. But he cautioned that in the long run, the global economy is still likely to operate under higher tariffs than before Trump’s presidency.
For Asia, that means adjusting not only to rate levels but to a structural shift in US trade philosophy. Even if Trump’s authority is checked, the political appetite for protectionism in Washington has broadened across party lines.
Few capitals are watching more closely than Tokyo. Trump extracted what he called a US$550 billion “signing bonus” from Japan in exchange for capping tariffs at 15 percent. Last week, Prime Minister Sanae Takaichi announced the first tranche of $36 billion in potential US investments.
The arrangement now sits in legal limbo. If the Supreme Court invalidates the tariff framework under which the deal was negotiated, does Tokyo still owe Washington the full investment pledge? Japanese policymakers privately argue that the basis for the bargain has shifted.
Within the ruling Liberal Democratic Party, some see an opportunity to reset relations after what they describe as an “abusive dynamic” during Trump’s first term. South Korea faces a similar dilemma, having committed to a $350 billion investment package under pressure from Trump’s team.
Should Tokyo and Seoul reinterpret their obligations, it could trigger fresh confrontation. But failing to do so risks domestic backlash for appearing to subsidize an American policy that may not stand.
The court’s decision carries fiscal implications that extend well beyond Asia. JP Morgan economist Michael Feroli estimates that as much as $200 billion in tariff revenue may need to be refunded to US businesses. American states are also seeking restitution; Illinois Governor JB Pritzker has demanded payments to families affected by tariff costs.
The U.S. Chamber of Commerce quickly called for swift refunds, arguing that small and midsize businesses bore the brunt of higher import costs and supply chain disruptions.
If refunds materialize, they will widen an already daunting US budget deficit. With federal debt approaching $39 trillion, markets are sensitive to shifts in fiscal arithmetic. Mark Malek, chief investment officer at Siebert Financial, described tariffs as a “shadow tax” that helped fund spending without explicitly raising rates. Remove that revenue, he warned, and borrowing rises — pressuring bond yields higher.
Asia holds a large share of US Treasuries. Japan and China are among the biggest foreign creditors. Any surge in yields or dollar volatility quickly transmits to Asian balance sheets.
The Dollar Wildcard
Beyond tariffs lies a more destabilizing possibility: currency policy. Trump has long lamented what he views as an overvalued US dollar undermining manufacturing. Advisers have floated the idea of a “Mar-a-Lago accord,” echoing the 1985 Plaza Accord that coordinated dollar depreciation among major economies.
Attacks on the Federal Reserve form part of this narrative. Trump’s threats to dismiss Chair Jerome Powell reflect frustration with interest rates that he believes sustain dollar strength.
A deliberate weakening of the dollar could offer temporary relief to US exporters but would unsettle currency markets globally. Asian economies, many of which manage exchange rates carefully to stabilize trade flows, could face destabilizing capital movements.
Adding intrigue is the role of World Liberty Financial, a company partly owned by the president, marketing a cryptocurrency alternative to the dollar called USD1. Though framed as a stablecoin tracking the dollar, critics question whether the initiative aligns with broader efforts to reshape monetary leverage.
Speculation has also surfaced that Trump officials have discussed canceling portions of US debt held by adversaries such as China — effectively defaulting on specific obligations. Such a move would shatter confidence in US Treasuries and roil global finance.
Ironically, Trump’s tariff campaign has not shrunk America’s trade deficit with China. Despite sweeping levies, the deficit expanded to a record $1.2 trillion in 2025. Economists argue that tariffs shifted sourcing patterns but did not fundamentally alter consumption dynamics.
Harvard economist Gordon Hanson notes that globalization’s long arc of manufacturing decline in the US predates Trump. Tariffs, he says, have not restored industrial prowess. Structural investments in infrastructure, skills and technology matter more.
Yale economist Stephen Roach calls Trump’s tariffs a “shock to the world trading system” that redirected trade flows without reducing the overall deficit. Severing linkages with Europe, Mexico and Canada, he argues, risks diverting commerce rather than strengthening competitiveness.
Meanwhile, China under President Xi Jinping has poured trillions into electric vehicles, renewable energy, aerospace, artificial intelligence and robotics. Companies such as BYD are pushing technological frontiers, including ultrafast battery-charging systems that challenge global incumbents.
Asian policymakers observe that while Beijing invests in next-generation industries, Washington debates cultural politics around electric vehicles and climate policy. The contrast shapes perceptions of long-term competitiveness.
What truly unsettles Asia is the prospect of “Plan C.” As Trump’s domestic approval ratings slip and legislative prospects face headwinds, the temptation to deploy dramatic trade or currency actions could grow.
Some fear he might test constitutional boundaries by ignoring or delaying compliance with the Supreme Court ruling, daring enforcement mechanisms to respond. Others anticipate a drip of sector-specific tariffs designed to maximize leverage while avoiding sweeping illegality.
The possibility of targeted measures — against semiconductors, pharmaceuticals or critical minerals — looms large. Asia dominates supply chains in each domain.
Heather Long, chief economist at Navy Federal Credit Union, suggests the ruling will make it harder for the White House to impose tariffs without due process. But Diane Swonk of KPMG cautions that the administration anticipated legal setbacks and is prepared to “pull other levers.”
In practical terms, Asia’s strategy remains hedging. Governments are diversifying export markets, strengthening regional trade pacts and deepening domestic demand. The Regional Comprehensive Economic Partnership offers one platform. Bilateral deals with Europe and intra-Asian supply chain integration provide others.
Yet no market fully substitutes for the United States.
The Supreme Court decision carries symbolic weight. It affirms that American institutions retain capacity to constrain executive overreach. For allies, that matters.
Roach argues that the ruling sends an important message that US policy must be value-based rather than personalized by political whims. The reaffirmation of rule of law provides reassurance at a moment when geopolitical trust is fragile.
But symbolism does not eliminate structural tension. The global economy has entered an era of managed trade, strategic competition and industrial policy. Even without Trump’s most aggressive tools, tariffs are likely to remain elevated relative to pre-2017 norms.
For Asia, the challenge is navigating this landscape without becoming collateral damage. Export-driven economies must balance alignment with the US security umbrella against commercial ties with China. Currency managers must guard against volatility emanating from Washington. Sovereign wealth funds must weigh exposure to US debt against diversification.
Looking ahead, 2026 could prove more volatile than 2025. If growth slows and fiscal deficits widen, pressure on bond markets may intensify. Higher US yields would tighten global financial conditions, complicating policy for emerging Asian economies already managing debt burdens.
At the same time, technological rivalry accelerates. Semiconductor restrictions, AI export controls and green energy subsidies shape industrial geography. Tariffs are only one instrument in a broader strategic contest.
In capitals from Tokyo to New Delhi, policymakers understand that the Supreme Court’s ruling offers breathing space, not resolution. The mercantilist instincts of the current White House have not dissipated; they have merely encountered constitutional guardrails.
Asia’s rally may reflect optimism that the worst-case scenario has been averted. But investors are seasoned enough to know that in the age of Trump, volatility is policy.
As one Singapore-based strategist put it privately: “The court reminded the world that America has institutions. Now we wait to see how America’s politics responds.”
