Economic Briefing
Reciprocal Tariff Supreme Court Review by Benesch Law Firm
The US Supreme Court announced that it will review the President’s authority to implement tariffs under the International Economic Emergency Powers Act (IEEPA) on an expedited basis. The Court of International Trade (CIT) determined the President exceeded his authority under IEEPA when implementing the President’s reciprocal and fentanyl-based tariff programs earlier this year. This decision was upheld last month by the US Court of Appeals for the Federal Circuit (the Appellate Court). This client bulletin summarizes the status and impact of the ongoing litigation and explores the high-impact alternate mechanisms for the President to implement tariffs in the event that IEEPA falls as a basis for current tariff programs.
Status of Litigation – The CIT determined and the appellate court upheld that the White House exceeded authority under IEEPA when implementing the reciprocal and fentanyl-based tariffs this year. Essentially the Courts determined that IEEPA does not specially delegate Presidential authority to implement sweeping and dynamic tariffs on the facts of this purported emergency due to trade imbalance. While IEEPA and its predecessor have been used by other Administrations for emergency imposition of trade restrictions no President has previously used IEEPA to impose sweeping global tariffs in this manner responsive to trade deficits. Stay of injunctive relief was granted and remains effective through the Supreme Court appeal.
Tariff Status Quo, For Now – Tariff burden on domestic importers under the reciprocal programs and the China, Canada, and Mexico fentanyl-based programs will remain status quo until resolution by the Supreme Court. If the Court overturns the findings of the CIT and Appellate Court, and finds the tariffs lawful, then the tariffs will likely continue to apply as they do now. If the Court upholds the findings of the lower Courts then the manner and means of any refunds, including procedural and documentary requirements, will be the key question. This possibility has been informally acknowledged by Administration officials. The Administration has also expressed that it will not be deterred in utilizing tariffs to achieve its revenue collection, trading relationship, and domestic industry goals. If the IEEPA programs are overturned then alternate methods remain available to implement tariffs. Some of these methods are familiar and some are new potential avenues the Trump Administration may explore.
Read the full article at: Reciprocal Tariff Supreme Court Review – Looking Ahead to Trump Administration Alternatives to Impose Tariffs | Benesch, Friedlander, Coplan & Aronoff LLP
Q3 GDP Strongly Outperforming
US GDP estimates from the Atlanta Fed show that current GDP is growing at a 3% rate, well above consensus Blue Chip estimates for 1%. More importantly, economic growth was being driven by consumer spending (55% of the GDP growth rate) and nonresidential private investment (corporate spending and investment in structures and equipment) accounted for nearly 30%. From a freight perspective, these estimates are bullish for freight volumes as the country consumes current inventory levels and potentially create a new reorder cycle.
Residential housing was still a weak point in economic data. The monthly supply of new homes has hit more than 9 months of inventory on hand, which is the highest non-recession level since the 1980’s. New home starts improved slightly in July (latest available), but permits remain lower (suggesting that the coming months could be weaker). Through current Q3 data, residential housing has been a drag on GDP and is creating a headwind for many sectors. In a healthy economy, the residential construction sector can account for as much as 16% of GDP contribution and each new home can generate up to 7 full truckloads of fixtures for the interior.
Labor markets are also showing some sluggishness, but this is not yet translating into reduced spending. With consumer spending accounting for more than 70% of GDP, a healthy consumer with a solid job is critical. The quits rate has stalled (it is very low), which suggests that consumers are a little more worried about their jobs than they were a year ago. The introduction of AI is big part of that equation, but general uncertainty about the economy is also playing a role.
Are Inventory to Sales Ratios Now Clearly Signaling a Late Season Peak Scramble?
Air cargo rates were moving upward through June (latest available). The US Inbound Price Index for air cargo showed them 8.8% higher year-over-year. Since then, several different indexes show that they held those higher levels through the end of July despite those growth rates moderating.
Inventory to sales ratios (how efficiently and tightly a company is managing their inventories relative to their sales volumes) have come in lower than expected. The most recent data at a federal level was through June, and it showed that current national inventory levels for 93% of the country are below 2019 levels. Only 7% of the companies in the country were sitting heavier at this time than in 2019. In the retail sector, the industry is sitting 8% lighter than it was in 2019.
The July surge in inbound orders would not be included in the current federal data, and that could change inventory ratios. But recent survey data in both the ISM and S&P Global PMI’s for August showed that most manufacturers were sitting average or just above average for inventories but they customers were still sitting underweight through August. Therefore, most firms are going to be going into the fall a bit lighter than they should be in most accounts.
If sell-through at both a consumer and corporate level continues at this rate, it would theoretically create a scrambling environment late in Q4 for those retailers that run out of stock and it would certainly create a strong reorder environment for early 2026. Many purchasing managers may decide to go for sell-through at the end of the year and sit comfortably knowing that they are not overloaded headed into potentially an uncertain year. But if the Federal Reserve trims interest rates as expected, the chances of consumption accelerating is much greater – and could surprise some supply chain managers.
Inside This Edition
Reciprocal Tariff Supreme Court Review
The US Supreme Court announced that it will review the President’s authority to implement tariffs under the International Economic Emergency Powers Act (IEEPA) on an expedited basis.
Q3 GDP Strongly Outperforming
US GDP estimates from the Atlanta Fed show that current GDP is growing at a 3% rate, well above consensus Blue Chip estimates for 1%.
Are Inventory to Sales Ratios Now Clearly Signaling a Late Season Peak Scramble?
Inventory to sales ratios (how efficiently and tightly a company is managing their inventories relative to their sales volumes) have come in lower than expected.
Trucking: Is the Peak Over?
Trucking activity through July and August was better, but questions remain whether this was a “flash in the pan” as waves of inbound freight hit US coasts in late July or the start of a better freight trend.
Maritime Rates Remain Sluggish Headed Deep Into the Peak
Through September 4th, Drewry was showing maritime rates between Asia and the US West Coast generally 58% lower than they were at this time last year.
EIA Shocker on Petroleum Forecast
The Energy Information Administration is now forecasting that crude oil prices could fall below $48 a barrel by early next year.
Transportation Briefing
Trucking: Is the Peak Over?
Trucking activity through July and August was better, but questions remain whether this was a “flash in the pan” as waves of inbound freight hit US coasts in late July or the start of a better freight trend. Many shipping managers were trying to get ahead of tariff pressure, and they released shipments destined for the US earlier this year than in a traditional peak season. But with little outbound shipping activity from Asia showing up in maritime data through late August, some evidence could be pointing toward a sluggish remaining quarter.
Through August, DAT showed nearly a 60% increase in the load-to-truck ratio Y/Y, which was actually down 10% between July and August. And that continued to show some deceleration late in August week-over-week, falling by 1.5% in the final weeks. Despite a tighter capacity environment, prices on the spot market were up marginally by just 1% Y/Y.
The Producer Price Index, which also includes fuel surcharge rates, showed mixed results. Truckload rates were up slightly month-over-month, but they remained lower by 1.8% Y/Y. Less-than-truckload rates were up 7.3% year-over-year and were up sharply between June and July by 1.7% (nearly a 24% annual rate).
Source: https://www.dat.com/trendlines/van/demand-and-capacity; https://fred.stlouisfed.org/series/PCU4841224841221 ; https://fred.stlouisfed.org/series/PCU4841214841212
Maritime Rates Remain Sluggish Headed Deep Into the Peak
US to Mexico freight movement anecdotes through the end of July show that volumes are still weak relative to last year. Automotive volumes were hit hard by steel and aluminum tariffs and volumes were weaker through the end of the month. Long waits at some border crossings were also still a factor slowing down transits and slowing overall order volumes. However, in the July manufacturing report from Mexico there were hints that conditions could be improving in the country. Better new order activity and a potential trade deal between the US and Mexico were helping improve manufacturing sentiment. Mexican rail
Through September 4th, Drewry was showing maritime rates between Asia and the US West Coast generally 58% lower than they were at this time last year. But for the first time in the past month, there was an increase in spot container rates of 8% in that same trade lane week-over-week. That was a surprise and could hint at some new inbound volumes being generated (albeit at a slower pace). That would be a good economic sign if it turns out to be the case.
Lanes connecting Asia to the US East Coast were also down 56% year-over-year. But just like their West Coast brethren, spot rates were 12% higher W/W between the last week of August and first week of September. Again, could this signal some late-season inbound activity? Offsetting these observations is weak new order activity at the manufacturing level. August data showed essentially flat manufacturing activity in some of these source nations and new order activity (although improving) was still much lower than last year and showed little sign of any real surges in activity.
This could be a sign that some shippers are either 1) considering the October deadline approaching for duties on Chinese-built ships and are trying to get ahead of that uncertainty, or that 2) consumption of products at retail and wholesale levels may be moving faster than expected.
EIA Shocker on Petroleum Forecast
US to Mexico freight movement anecdotes through the end of July show that volumes are still weak relative to last year. Automotive volumes were hit hard by steel and aluminum tariffs and volumes were weaker through the end of the month. Long waits at some border crossings were also still a factor slowing down transits and slowing overall order volumes. However, in the July manufacturing report from Mexico there were hints that conditions could be improving in the country. Better new order activity and a potential trade deal between the US and Mexico were helping improve manufacturing sentiment. Mexican rail
Through September 4th, Drewry was showing maritime rates between Asia and the US West Coast generally 58% lower than they were at this time last year. But for the first time in the past month, there was an increase in spot container rates of 8% in that same trade lane week-over-week. That was a surprise and could hint at some new inbound volumes being generated (albeit at a slower pace). That would be a good economic sign if it turns out to be the case.
Lanes connecting Asia to the US East Coast were also down 56% year-over-year. But just like their West Coast brethren, spot rates were 12% higher W/W between the last week of August and first week of September. Again, could this signal some late-season inbound
The Energy Information Administration is now forecasting that crude oil prices could fall below $48 a barrel by early next year. A glut of oil production on the global stage coupled with less consumption is evidently heading toward what could be considered to be a collapse in oil prices. Most production zones need more than $50 a barrel to break even on prices (some higher cost production areas need $60 or more). With prices potentially falling this far, it could knock some production off-line. The question is how this will play into diesel prices and estimating fuel costs for 2026.
The problem for diesel is that it is rangebound on price. Due to tight refinery capacity across much of the country, even lower input prices will only trim diesel prices by a certain amount. The EIA has current diesel prices forecasted to average $3.66 per gallon. But even if crude oil prices do come in nearly $20 a barrel lower than where they were earlier this year, diesel prices are still only expected to soften to $3.47 in 2026. Again, the refining capacity limitations will keep them rangebound.
Also keep in mind that many geopolitical situations can change oil prices rapidly. The war in Ukraine is volatile and could work for/against oil prices (a cease fire is likely to be contingent on the release of Russian oil onto the open market instead of running back-channels in the black market). Adding that 3 million barrels a day back into global production could push oil prices even lower, placing the US administration in a tough position.
Source: https://www.eia.gov/outlooks/steo/ ; https://www.eia.gov/petroleum/gasdiesel/
