Wall Street wobbled on Trump’s China tech war escalation

·       But early Thursday, Wall Street Futures surged after a US trade court blocked Trump’s April 2 Liberation Day tariffs; NVIDIA earnings also helped

·       Trump may extend his reciprocal tariffs pause from July-August to December’25 after securing good trade deal promises for the US; sectoral tariffs may remain along with a 10% base tariff

·       Oil also recovered on the fading concern of Trumpcession; earlier oil slipped on the progress of Ukraine, the Gaza war permanent ceasefire, and Iran’s nuclear deal

·       FOMC minutes show Fed may not cut before September-December’25 amid lingering Trump tariffs and economic uncertainty; Gold slid on tariff stay

On Tuesday, May 27, 2025, U.S. stocks surged sharply after the long weekend, following the de-escalation of the U.S.-EU trade and tariff war. The US and global bond yields eased as concerns about a Trump recession faded amid easing tensions in global trade and tariff wars. Gold slumped on a stronger USD and fading concern of Trumpcession after Trump scaled back his 50% EU tariffs narrative. Wall Street and also Main Street are not very amused about Trump's tariff uncertainty and constant flip-flops, while Trump said he's not 'chickening out' on trade: 'It's called negotiation'.

Oil wobbled on Trump’s flip-flops on Iran and Russian sanctions, coupled with OPEC’s plan to potentially again hike production. But on Wednesday, OPEC reaffirms no production hike for June:

·       OPEC+ has agreed to use 2025 oil output levels for the 2027 baseline

·       OPEC+ to mandate the OPEC secretariat to develop a mechanism to assess participating nations' Maximum Sustainable Production Capacity (MSC) to be used as a reference for 2027 production baselines

·       We will closely review global oil market conditions, oil production levels, and the level of conformity with the document, assisted by the OPEC secretariat.

·       OPEC+ to discuss July output hike in a separate meeting on May 31st

·       OPEC reaffirms the level of overall crude oil production for OPEC/non-OPEC countries

Iran may agree to pause nuclear enrichment work temporarily if the US recognizes Tehran's right to enrich uranium for civilian uses, according to a report, citing two Iranian sources.

On Wednesday, May 28, Trump said:

·       I warned Israeli PM Netanyahu against Israel taking action against Iran while talks between Washington and Tehran are ongoing

·       When asked if he told Netanyahu not to take action that could disrupt the talks, Trump said: I did, and told him I do not think it is appropriate as the US and Iran are having very good discussions, and may reach a deal within a couple of weeks

·       I will seek a very strong document, as I do not trust" anyone

·       The Iran deal should allow American inspectors to go in and blow up Iranian Nuclear laboratories, but nobody will get killed during such potential action

·       We have enough petroleum from nations other than Iran

·       We can make a significant reduction in Iranian petroleum

·       We're going to see something sensible with Iran

·       Iran deal could happen over the next few weeks

US Envoy Witkoff on Gaza:

·       We're on the precipice of sending out a new terms sheet

·       We have good feelings about the temporary ceasefire in Gaza

Netanyahu Confirms the Death of Hamas Gaza Chief Sinwar and his brother, as hostages reached 600 days in captivity. Netanyahu is not very happy with the direct US-Iran and US-Hamas peace talks. On Wednesday, Hamas said: “We agree on an outline for Gaza ceasefire with Witkoff. We are waiting for a final answer on the Gaza ceasefire deal.”  

On May 28, a NYT report indicated that Trump and Netanyahu were said to have had a tense (heated) call on Iran. Israel has been continuing to insist on military action against Iran in recent days, as it remains concerned about the latter's nuclear program and whether the United States will be able to strike an agreement with Tehran.

According to the sources, disagreements on how best to deal with the situation led to "at least one tense phone call" between US President Donald Trump and Israeli PM Netanyahu, as well as a series of meetings between top officials from both sides. Sources familiar with the US-Iran negotiations revealed that, at best, some common principles would be declared, with the details under discussion still unknown.

Iranian Sources:

·       Any temporary halt to nuclear activity under a political agreement would also require the US to release frozen Iranian funds.

The IAEA Chief asked about the difference between the US and Iranian positions on enrichment in talks:

·       It's not impossible to reconcile the two points of view.

Trump’s Ukraine War and Russia/Putin stance:

Trump has been vocal about his frustration with the ongoing Russia-Ukraine war, pushing for a ceasefire and negotiations. On May 26, 2025, he called Putin “absolutely crazy” after Russia’s massive aerial attacks on Ukraine, which killed 13 people, marking a rare rebuke. He suggested increasing U.S. sanctions on Russia, saying “something has happened” to him. On May 19, 2025, Trump announced that Russia and Ukraine would start ceasefire negotiations immediately after a two-hour call with Putin, though Putin resisted a 30-day truce, and no firm timeline was set.

Trump has oscillated between praising his relationship with Putin and criticizing him, such as threatening secondary tariffs on Russian oil if peace talks fail, as mentioned on March 30, 2025. He’s also criticized Ukrainian President Zelenskyy for provocative rhetoric, urging him to tone it down. These comments reflect Trump’s broader approach of using a mix of diplomacy, threats of tariffs, and sanctions to address these conflicts while maintaining a personal rapport with leaders like Putin. Critics say Trump may be a Russian sympathizer or asset.

Highlights of Trump’s comments about Russia/Putin and the Ukraine war: May 27-28

·       What Vladimir Putin doesn’t realize is that if it weren’t for me, lots of really bad things would have already happened to Russia, and I mean REALLY BAD. He’s playing with fire!

·       I can't tell if his Russian counterpart Vladimir Putin truly wants to end the Ukraine war.

·       But I'll let you know in two weeks after more negotiations have taken place.

·       The US Special Envoy to the Middle East Steve Witkoff is doing a phenomenal job mediating the talks between Russia and Ukraine and dealing with Putin very strongly.

·       Asked about his comment that Putin is "playing with fire," Trump said "I'm not gonna tell you exactly" what potential consequences to Russia if the conflict does not end would be, but stressed that "words speak pretty loud---I will be willing to negotiate with both Putin and Zelensky.

·       I will sit down with Zelenskyy and Putin if necessary

·       I'm working on Putin

·       Trump on why he didn't impose Russia sanctions: I don't want to screw up a deal

Meanwhile, Ukrainian President Zelensky has proposed a trilateral meeting with US President Donald Trump and Russian President Putin to push Russia to end the three-year bloody war:

·       If Putin is not comfortable with a bilateral meeting, or if everyone wants it to be a trilateral meeting, I don't mind. I am ready for any format

·       Russia was amassing more than 50,000 troops on the front line around the northeastern Sumy border region

·       President Trump needs to impose tougher sanctions targeting Russia's financial and energy industries due to Putin’s continued airstrikes and refusal to accept a ceasefire

Russia said:

·       Russia has offered Ukraine an exact date and venue for the 2nd round of discussions in the coming days to exchange memorandums on the peace settlement

·       Russia expects a response from Ukraine ASAP to meet in the coming days

·       Russian Foreign Minister Lavrov: Russia proposes the next round of Russia-Ukraine discussions take place on June 2nd in Istanbul

Ukraine’s Defence Minister:

·       I have handed over the Ukrainian version of the memorandum to the head of the Russian delegation

·       Ukraine is not opposed to further meetings but is waiting for the memorandum from the Russian side

Highlights of other comments by Trump:

·       Trump on Musk comments: We will negotiate the bill, I'm not happy about all aspects of it; Bill has a way to go

·       Musk earlier expressed dissatisfaction over Trump’s tax cut bill, which may fuel fiscal deficit & debt, undermining DOGE efforts.

·       Musk says Trump's big bill undermines DOGE; the president counters with political reality.

·       TikTok is different than Nippon

·       I would need China's approval on TikTok

·       I would like to save TikTok

·       I have a warm spot for TikTok

·       Trump on TikTok deal: China is never easy

Our great Mortgage Agencies, Fannie Mae and Freddie Mac provide a vital service to our Nation by helping hardworking Americans reach the American Dream — Home Ownership. I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the U.S. Government will keep its implicit GUARANTEES, and I will stay strong in my position of overseeing them as President. These Agencies are now doing very well, and will help us to, MAKE AMERICA GREAT AGAIN!

On late Wednesday, Wall Street slips, led by techs after an FT report, indicating Trump ordered US chip designers to stop selling to China. The Trump administration has told US companies that offer software used to design semiconductors to stop selling their services to Chinese groups, in the latest attempt to make it harder for China to develop advanced chips. Several people familiar with the move said the commerce department had told Electronic Design Automation groups, which include Cadence, Synopsys and Siemens EDA, to stop supplying their technology to China.

The US Commerce Spokesperson then clarified:

·       The US is reviewing exports of strategic significance to China and has suspended some export licenses while the review takes place

There was also another report by WSJ that Elon Musk tried to derail Sam Altman's big  AI deal in Abu Dhabi. Musk warned Trump wouldn't bless the OpenAI deal unless XAI was added. Trump approved the Stargate deal in the UAE despite Musk's protest.

A US trade court blocks Trump's April 2 reciprocal tariffs.

On late Wednesday, May 28, 2025, the U.S. Court of International Trade (CIT) unanimously ruled that President Trump exceeded his authority by imposing sweeping tariffs on April 2, 2025, under the International Emergency Economic Powers Act (IEEPA). These "Liberation Day" tariffs included a 10% baseline duty on imports from most countries, with higher rates (11% to 84%) for nations with significant U.S. trade deficits, such as China (30%), Canada (25%), and Mexico (25%). The court found that IEEPA, a 1977 law typically used for sanctions, does not grant the president "unbounded authority" to impose tariffs, as Congress holds exclusive constitutional power over commerce. The ruling also struck down separate tariffs on China, Canada, and Mexico tied to fentanyl trafficking, stating they did not directly address the cited emergency but aimed to create economic leverage, which IEEPA does not permit.

The decision, prompted by lawsuits from small businesses (e.g., V.O.S. Selections) and 12 Democratic-led states, halts most of these tariffs, though sector-specific levies (e.g., on steel, aluminum, and autos under Section 232 of the Trade Expansion Act) remain unaffected. The Trump administration filed an immediate appeal to the U.S. Court of Appeals for the Federal Circuit, with potential escalation to the Supreme Court. The White House, via spokesperson Kush Desai, argued that trade deficits constitute a "national emergency" harming American communities and defense, asserting that courts should not interfere. But critics hailed the ruling as a defense against unlawful and economically devastating policies. The court (CIT) also ordered that the tariffs that the Trump administration has collected so far be "vacated." The Trump administration filed an appeal just minutes later.

Options before Trump admin:

·       Appeal in a Higher Court including the Supreme Court (already done)

·       Section 232: Tariffs under this remain unaffected by the ruling

·       Section 122: Balance-of-Payments Authority of the Trade Act of 1974 allows the president to impose an additional 15 percent tariff on imports for 150 days. A further extension would require Congress's approval.

Following the U.S. Court of International Trade's ruling on May 28, 2025, blocking President Trump's April 2, 2025, tariffs imposed under the International Emergency Economic Powers Act (IEEPA), Trump has several potential avenues to pursue his bellicose tariff & trade agenda.

Appeal the Ruling 

As noted, the Trump administration has already filed an appeal with the U.S. Court of Appeals for the Federal Circuit. This appeal challenges the court's decision that IEEPA does not grant the president authority to impose broad tariffs and that the tariffs on China, Canada, and Mexico related to fentanyl trafficking were unlawful. If the Federal Circuit upholds the ruling, Trump could escalate the case to the Supreme Court, where the conservative majority might interpret presidential powers more favorably, given the court's history of deference to executive authority in national security matters. However, this process could take months or years, delaying tariff implementation.

Section 122 of the Trade Act of 1974: Balance-of-Payments Authority 

Section 122 allows the president to impose tariffs of up to 15% on all imports for 150 days to address balance-of-payments deficits, which Trump has cited as a national emergency. This authority does not require an emergency declaration under IEEPA, making it a viable alternative to bypass the court's ruling. However, extending tariffs beyond 150 days requires congressional approval, which could be challenging given a divided Congress (Republican-controlled House, Democratic Senate). Trump could argue that the U.S. trade deficit—$971.12 billion in 2024—justifies this action, but political and economic backlash, including inflation risks, might complicate implementation.

Section 232 of the Trade Expansion Act of 1962 

The court’s ruling explicitly left Section 232 tariffs unaffected, as they were not part of the IEEPA-based challenge. Section 232 allows the president to impose tariffs or quotas on imports deemed a threat to national security. Trump previously used this authority during his first term for steel (25%) and aluminum (10%) tariffs and has already applied it in 2025 for autos and other sectors. He could expand Section 232 tariffs to cover additional goods, such as semiconductors or critical minerals, by citing national security concerns like supply chain vulnerabilities. The Department of Commerce, which oversees Section 232 investigations, can expedite reports to justify new tariffs. However, overuse risks international retaliation and domestic pushback from industries facing higher costs.

Other Legal Authorities 

·       Section 301 of the Trade Act of 1974: Trump could use Section 301 to impose tariffs on countries for "unfair" trade practices, as he did against China in 2018. This requires a U.S. Trade Representative investigation but offers flexibility to target specific nations or products without relying on IEEPA. 

·       Trading with the Enemy Act (TWEA): Though more restrictive than IEEPA, TWEA allows trade restrictions during wartime or declared emergencies. Trump could attempt to invoke this, but it would require a stronger legal justification than IEEPA and face similar judicial scrutiny. 

·       Proclaiming a New National Emergency: Trump could declare a new emergency under a different statute or redefine the scope to fit IEEPA’s requirements, though this risks further legal challenges if courts deem it pre-textual

Potential Executive Actions and Policy Adjustments 

·       Negotiate Voluntary Export Restraints: Trump could pressure trading partners like Canada, Mexico, or China to agree to voluntary export limits, avoiding formal tariffs while achieving similar outcomes. 

·       Customs Service Actions: The administration could direct U.S. Customs and Border Protection to increase scrutiny or impose administrative fees on imports, indirectly raising costs for foreign goods. 

·       Regulatory Pressure: Trump could use executive orders to prioritize domestic procurement (e.g., “Buy American” policies) or impose non-tariff barriers like stricter regulations on imports.

·       Legislative Push: Trump could seek new legislation from Congress to explicitly grant tariff authority, though this is unlikely given the thin majority control of the Senate and the polarized political climate. Alternatively, he could lobby for budget provisions or trade-related bills to bolster his agenda, leveraging Republican House support. The US Senate is already active in securing full control of Tariffs from the White House (President Trump) back to Congress.

Constraints and Considerations 

Each option faces hurdles. Judicial review could delay or block new tariffs, especially if courts find them inconsistent with congressional intent. International retaliation—such as Canada’s threatened 25% tariffs on U.S. goods or China’s restrictions on critical minerals—could escalate trade wars. Domestically, tariffs risk inflating consumer prices (e.g., a 10% tariff could raise inflation by 0.3-0.5%, per economic estimates) and alienating businesses reliant on imports. Political opposition from Democrats and some Republicans, as seen in the 12-state lawsuit, adds pressure. Finally, global trade partners may challenge U.S. actions at the World Trade Organization (WTO), though Trump’s disregard for WTO rules limits its impact.

In summary, while the appeal is the immediate step, Section 122 and Section 232 offer the most direct paths to reinstate or expand tariffs without new legislation. Trump’s choices will likely balance legal feasibility, economic impact, and political capital, with Section 232 being the most flexible due to its national security framing and precedent.

Conclusions

Trump’s overall hawkish tariff & trade narrative is a negotiation tool to get a better trade deal for US exports and also to promote the ‘Made in America’ theme. Even India, China, the EU, and most of the other countries have some tariff and non-tariff barriers to encourage domestic manufacturing to boost local employment and reduce dependency on other countries, friends/allies, or foes/adversaries. Trump is trying to change the internal system of other countries in line with US philosophy like no Federal VAT/GST, which is not possible.

The US collects tax revenue around 5% of nominal GDP against India’s 20% and 10-15% by most other AEs, including China and, the EU. Trump can collect around $300=500B annually from his 10-15% basic tariffs (on around $3T imported goods). But if Trump imposes 15% Federal VAT/GST on $20T worth of US consumption of goods and services, then the VAT/GST collection would be around $3T, almost 10% of US nominal GDP; the overall revenue in line with present tariffs and income tax structure would be 15% of nominal GDP, in line with AEs.

As per US Treasury Secretary Bessent’s recent comments, the US may adopt a Federal VAT/GST policy after a few years of high tariffs), ensuring adequate US manufacturing. The US may be targeting 2028-30 to reduce tariffs from 10% to 5% along with the introduction of a Federal VAT/GST 15% on all goods & services with a 50:50 ratio sharing with states (in line with the India model). The US needs higher tax revenue like Federal GST/VAT along with moderate basic tariffs due to deficit spending like industrial and logistical/transport infra to make America Great Again (MAGA).

Bottom line

Trump is set to extend his tariff pause from July-August to at least December’25 or even permanently, depending upon the ongoing trade deal negotiations status. Trump is bound to scale back his higher reciprocal tariffs leaving only 10% universal basic tariffs along with selected sectoral tariffs like on metals, automobiles, semiconductors (chips) and pharmaceuticals for the sake of so-called national security to ensure US manufacturing.

If Trump goes on with his higher reciprocal tariffs, it would cause a supply shock and a higher cost of living for ordinary Americans, most of whom live on a pay check to paycheck-to-paycheck basis. Further, such tariffs would cause a demand shock in the future and an all-out recession. This will also cause a loss of Vote Bank (ordinary Americans) and Note Bank (political funding by corporate America) for Trump and Republicans. Thus court or no court, Trump is bound to blink and current legal issues may be a wonderful opportunity for Trump for a face-saving exit after December’2025, well before the November’26 US mid-term election to save his Trifecta (White House, House and Senate majority); but it may be a distinct possibility.

Market impact after CIT ruling

Trump’s Liberation Day tariffs had caused market volatility, with fears of inflation and recession. After the Court ruling, stock futures, and USD rose, reflecting relief from trade war uncertainty. However, the appeal and potential alternative legal routes (e.g., other trade laws) suggest lingering uncertainty. UST was under stress as the court (CIT) ordered Trump (US Treasury) to refund tariffs already collected, negative for the US trade deficit. Gold slid on the fading concern of Trumpcession.

Market wrap:

On Wednesday, May 28, 2025, Wall Street slips on less dovish FOMC minutes (maximum 2 rate cuts in late 2025), lingering Trump trade & tariff uncertainty, and Trump admin’s latest salvo against China on the restriction of tech designing. The S&P 500 and the Nasdaq lost 0.5% each, while the Dow dropped 224 points. Nvidia shares rose ahead of earnings, seen as a key test for AI-driven market optimism, which came true after the market hours; NVIDIA reported an upbeat report card.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 41400) now has to sustain over 41800 for a further rally towards 42000/42500-43000/43300* and 43500*, and even 44600-45200 in the coming days; otherwise sustaining below 41700, DJ-30 may again fall to 41000/40600-4010039900 and 39700/38600-38000/37700-37300/37000 in the coming days.

Similarly, NQ-100 Future (20200) has to sustain over 20800 for a further rally to 21100/21400-21700*/22000* and 22400-22600 in the coming days; otherwise, sustaining below 20750/20600-20500/20400, NQ-100 may again fall to 20000/19600-19400/19200 and 19100/18800-18600/18000-17600/16400 and 16200-15800 in the coming days.

Also, technically Gold (CMP: 3240) has to sustain over 3275-3300 for any recovery to 3325/3375* and 3400/3425-3450/3505*, and even 3525/3555 in the coming days; otherwise sustaining below 3290-3275, Gold may again fall to 3255/3225-3200/3165* and further to 3130/3115*-3075/3015-2990/2975-2960*/2900* and 2800/2750 in the coming days.