China's leverage rises before high-stakes summit as Supreme Court curbs Trump tariffs

• Trump's tariff authority has been 'clipped' as the Supreme Court invalidated his use of the International Emergency Economic Powers Act (IEEPA), resulting in an estimated 5-7% net reduction in U.S. tariffs on China according to Goldman Sachs
• China gains leverage to demand removal of remaining 10% fentanyl-linked tariffs, rollback of technology export controls, and reduced U.S. arms sales to Taiwan during the March 31-April 2 summit
• Trump retains non-tariff tools including technology controls and sanctions, and has responded by imposing a 15% global tariff under Section 122 of the Trade Act, though a Section 301 investigation into China's Phase One trade deal compliance remains ongoing

Summary

Key Developments

The U.S. Supreme Court ruled Friday that President Trump wrongfully invoked the International Emergency Economic Powers Act (IEEPA) to implement sweeping tariffs, significantly weakening his negotiating position before an April summit with Chinese President Xi Jinping in Beijing (March 31-April 2). This marks the first visit by a U.S. president to China since 2017.

Market Implications

The ruling implies a net 5% reduction in U.S. tariffs on China, according to Goldman Sachs, which noted "upside risk to our positive outlook on Chinese exports this year." One analysis showed China benefits from a 7.1 percentage point tariff reduction under the revised Section 122 regime.

Trump responded by imposing new 15% global tariffs under Section 122 of the Trade Act of 1974, effective Tuesday, February 24, with warnings that additional "legally permissible" tariffs may follow.

Strategic Positioning

Former U.S. trade representative Wendy Cutler stated Trump has "effectively had his wings clipped on his signature economic policy." China gains leverage to:

• Push for removal of remaining 10% fentanyl-related tariffs
• Demand reduced U.S. support for Taiwan
• Seek easing of technology export controls
• Request removal of Chinese entities from sanctions lists

However, Trump retains non-tariff tools including technology controls and sanctions against Chinese entities.

Outstanding Issues

China faces an ongoing Section 301 investigation over Phase One trade deal compliance, with the U.S. claiming China failed to meet agricultural purchase commitments and market access obligations. Analysts expect limited summit outcomes beyond extending the trade ceasefire and modest U.S. product sales, with Taiwan remaining the primary friction point in bilateral relations.