Markets were pulled into a fresh cycle of legal fragility and geopolitical escalation this week, as the Geneva tariff truce between the U.S. and China teetered on collapse. A federal trade court ruled that Trump’s sweeping “reciprocal” tariffs violated constitutional and statutory limits—specifically, the misuse of the 1977 International Emergency Economic Powers Act (IEEPA), a law intended to address national security threats, not conduct long-term trade policy. Though an appeals court issued a temporary stay, the next decisive hearing is scheduled for June 9, leaving trade enforcement in limbo and exposing a key vulnerability in the administration’s tariff architecture.
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Beijing, meanwhile, has yet to comply with key Geneva concessions, notably the expedited export of rare earths and critical minerals used in semiconductors, EVs, and defense tech. U.S. Trade Rep. Jamieson Greer accused China of deliberately slow-walking licenses. In retaliation, the White House tightened chip design restrictions, revoked student visas, and began restricting aerospace tech sales. China responded by stonewalling U.S. importers and refusing to clarify its export stance, creating fresh uncertainty for global supply chains.
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The diplomatic freeze also spread to Europe. Trump shocked allies with a surprise move to double steel and aluminum tariffs to 50%, effective June 4, triggering a sharp rebuke from Brussels, Ottawa, and Canberra. The EU warned of retaliatory tariffs by July 14 if no deal is reached, reigniting transatlantic trade tensions. Canada’s Chamber of Commerce called the move a direct threat to North American supply chains, and Australia’s trade minister labeled it “unjustified and unfriendly.”

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For markets, the risks now stack on multiple fronts:

• Legal instability: IEEPA’s misuse could unravel a core pillar of Trump’s economic strategy.
• Diplomatic standoff: A Xi-Trump call, floated by the White House, hasn’t materialized. Strategic ambiguity is deepening.
• Retaliation risk: With new EU countermeasures queued and U.S. allies fuming, the threat of a multi-front trade war is growing.
• Supply chain stress: Sectors tied to green tech and AI face rising costs and tightening access to critical inputs.

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