The "Void Branding" Caught Between Fiscal Policy and Inflation

Caitong Securities pointed out that after Trump's defeat in the tariff legal battle, he quickly activated the lower tax rate under Section 122 as a substitute for the unconstitutional IEEPA, which is essentially "creating empty cards"—maintaining high pressure by manufacturing negotiation chips to garner votes for the midterm elections. Caitong Securities analysts Zhang Wei and Ren Siyu analyzed Trump's government's rapid shift after the defeat in the tariff legal battle in their latest research report released on the 24th. For global investors, this report not only reveals the underlying game logic of U.S. trade policy but also points out that against the backdrop of the midterm election year, the White House is trying to find a balance between a shaky fiscal deficit and angry voters' inflation perceptions through legal maneuvers. According to Xinhua News Agency, after the U.S. Supreme Court ruled the tariff arrangements implemented by the Trump administration under the International Emergency Economic Powers Act (IEEPA) unconstitutional, the Trump administration quickly invoked Section 122 of the Trade Act of 1974 to impose a uniform 10% tariff on global imports; Trump subsequently stated that he would raise the tax rate to 15%. The Political Art of "Creating Empty Cards" The U.S. Supreme Court ruled the IEEPA tariffs unconstitutional, but this did not lead Trump to surrender. On the contrary, he quickly brought out the backup plan under Section 122 of the Trade Act. The report pointed out that this is merely Trump's usual negotiation tactic—quickly creating new chips to maintain deterrence at the negotiation table when old chips become ineffective. "The rapid switch to Section 122 to impose tariffs instead of IEEPA is yet another instance of Trump's 'creating empty cards'; the 15% maximum tax rate is an expected 'card creation' tactic, essentially aimed at maintaining a high-pressure trade situation to create leverage for trade negotiations before the midterm elections and to garner more votes." An Unexpected "Export Rush" Window Ironically, Trump's seemingly tough counterattack has, in the short term, lowered tariff barriers. The nominal tariff under the previous IEEPA framework was as high as 20%, while the cap under Section 122 is only 15%. This technical rollback of the tax rate has opened a brief arbitrage window for global traders. "For countries with previously high effective tax rates, the Section 122 framework is a new time window for an export rush; for U.S. traders, it is also a new time window for an import rush." Extreme Pressure in the Next 150 Days Investors should not be blindly optimistic about the short-term tax rate decline. The report warns that Section 122 is just a prelude, and the real storm lies in the potential initiation of Section 301 and 232 investigations thereafter. The next five months will be a period of intensive trade negotiations in the U.S. and a time of increased market volatility "The real strategy of the Trump team may be to maintain high pressure with a 122 tariff while intensively launching investigations under Section 301 and Section 232 during the 150-day window... Through this 'investigation-threat-negotiation-compromise' cycle, extreme pressure is applied to achieve more trade negotiation results." Stuck in Inflation and Deficits During an Election Year Ultimately, all of Trump's actions are constrained by votes. He needs tariff revenue to fill a fiscal gap that accounts for 0.55% of GDP, while also needing to avoid inflation triggered by high tariffs that could anger grassroots voters. This dilemma determines that the tariff policy in 2026 will maneuver within a very narrow corridor. "In the short term, every time Trump calls for a 'tax increase,' it is to secure votes when he ultimately 'cuts taxes'... The 'virtual card creation' in 2026 is likely to be caught between fiscal issues and inflation, maneuvering within limited space."