133 billion tax refund tsunami incoming? Trump's tariff policy ruling may trigger a market explosion

The U.S. Supreme Court is expected to make a ruling on Friday regarding the legality of Trump’s tariff policies, risking over $133 billion in potential refunds. The case questions whether the President’s imposition of tariffs under emergency economic powers exceeds legal limits, with lower courts already raising doubts about the justification for the tariffs. If the government loses, importers who have paid tariffs may be eligible for refunds, which could put pressure on finances and disrupt trade relations. The market is on high alert, with trade and manufacturing stocks, forex markets potentially experiencing sharp volatility, and the crypto market possibly rising due to increased demand for safe-haven assets.

Chain Reaction of the $133 Billion Refunds

The potential refund amount exceeds $133 billion, reflecting revenue collected from Trump-era tariffs over the years. Mandatory refunds could create fiscal pressure and potentially disrupt trade relations and corporate balance sheets. Companies affected by tariffs have long fought for their interests, arguing that tariffs distort prices and supply chains. If the ruling favors them, it would confirm their claims and set a precedent for challenging similar trade measures in the future.

What does $133 billion mean? It’s roughly about 3% of the U.S. federal annual tax revenue or 0.5% of U.S. GDP. If this money needs to be refunded quickly, the government may require Congress to approve an increase in the debt ceiling or cut other spending. This process could take months or even years. Until then, uncertainty will dominate market expectations.

For businesses, the impact of refunds is highly complex. Companies that have passed tariff costs onto consumers will see direct profit increases if refunded. However, those that absorbed tariff costs may recover refunds but might not regain lost market share. Additionally, the accounting treatment and tax implications of refunds require professional analysis and could trigger new legal and accounting disputes.

The impact on trade relations is equally profound. Trump’s tariff policies mainly targeted China, the EU, and other trading partners. If the Supreme Court rules these tariffs unconstitutional, the U.S. government may need to renegotiate trade agreements with these countries. Whether the deteriorated trade relations from recent years can be repaired depends on political will and economic considerations.

Dual Market Volatility Expectations for Stocks and Crypto

Markets are closely watching the ruling outcome. An unfavorable decision could trigger short-term volatility, with trade and manufacturing stocks likely leading the impact. Forex markets may also experience intense swings, as refunds will affect U.S. fiscal health and the strength of the dollar. If markets anticipate that the U.S. government will need to increase debt to pay refunds, the dollar could weaken, boosting dollar-denominated assets like gold and Bitcoin.

Three Market Scenarios Based on the Ruling

Scenario 1 (Government wins): Markets stabilize quickly, reinforcing executive trade powers, alleviating investor concerns, and risk assets rebound.

Scenario 2 (Government loses): Short-term sharp volatility, trade stocks plummet, the dollar weakens, and safe-haven assets and cryptocurrencies may benefit from uncertainty.

Scenario 3 (Partial victory): Ruling recognizes some tariffs as legal but others as unconstitutional, refunds are scaled back but uncertainty persists, leading to market turbulence and consolidation.

Cryptocurrency markets may also react. Traders often view legal and policy shocks as liquidity events. Increased uncertainty tends to boost demand for alternative assets. This phenomenon has appeared during past macroeconomic turbulence. When traditional markets face policy risks, some capital flows into decentralized assets like Bitcoin, which are not controlled by any single government.

However, crypto markets’ reactions can also be negative. If the ruling triggers widespread panic and liquidity crises, investors may sell all risk assets (including cryptocurrencies) for cash. Such “disorderly sell-offs” occurred during the March 2020 pandemic onset and the aggressive Fed rate hikes in 2022. Therefore, crypto investors should prepare for both upward and downward volatility.

Investors are currently awaiting clearer outcomes. The ruling could be announced as early as Friday. Until then, caution remains the market’s main theme. Many institutional investors may choose to reduce or hedge positions before the ruling to mitigate potential shocks. This preemptive trimming can itself trigger market volatility, creating self-fulfilling expectations.

Two Policy Paths After the Ruling

If the court rules the tariffs invalid, policymakers may act swiftly. Congress might attempt to redefine trade authority, passing new legislation to authorize the President to impose tariffs under specific conditions. New legislation could also be introduced to prevent future disputes. This legislative process could take months, leaving the legal status of Trump’s tariffs in a legal vacuum during that period.

If the court upholds the tariffs, markets may stabilize quickly. This outcome would reinforce executive trade powers and eliminate major investor concerns. The Trump administration would gain clear legal backing to push its trade agenda more aggressively. However, it could also provoke retaliatory measures from other countries, increasing trade war risks.

In any case, this decision marks a pivotal moment. It will have profound implications for trade policy, legal boundaries, and market behavior, far beyond this week. The core issue in this dispute concerns the scope of presidential authority; opponents argue tariffs exceed legal limits. The Supreme Court’s ruling will ultimately determine the legality of these tariffs and set boundaries for executive power for decades to come.

For crypto investors, this ruling offers a case study on how macro risks influence crypto markets. It’s advisable to maintain moderate positions, set stop-losses, and be prepared to seize opportunities amid volatility. Historical experience shows macro shocks often create excellent buy or sell opportunities, provided one is prepared in advance.