Tariffs on Trial: How a Court Battle Could Shake the Dollar (and Gold)

A new front is opening in the U.S. trade war narrative, and this time, it’s legal.

Thirteen U.S. states have filed lawsuits to challenge the legality of Trump’s tariffs, aiming to curb the president’s ability to impose them without congressional approval.

For forex traders, this court case could be a major volatility trigger. The outcome could reshape trade policy, shift global risk sentiment, and drive sharp moves in the U.S. dollar, Treasury yields, and safe-haven flows like gold.

Trade policy refers to the set of rules, regulations, and laws that a government uses to manage its international trade and commerce. It determines how a country interacts with other nations in buying and selling goods, services, and investments across borders.

⚖️ What’s Happening?

Trump’s trade war has entered the courtroom.

Thirteen states (12 states jointly + California separately) have sued the Trump administration in the U.S. Court of International Trade, claiming his tariffs are unconstitutional.

The legal argument: Trump lacks authority under the International Emergency Economic Powers Act (IEEPA) to use tariffs as a trade weapon.

🧾 What Is IEEPA?

On April 2, Trump declared a national economic emergency, using IEEPA to justify broad tariffs on imports.

IEEPA is a Cold War-era law (based on the 1917 Trading with the Enemy Act) that was created to allow the president to freeze assets and impose sanctions when facing threats from foreign adversaries.

The suing states argue this stretches IEEPA beyond its intended use, which is normally applied to sanctions, not tariffs.

🏛️ Where the Case Stands

The lawsuits are being heard by the U.S. Court of International Trade (CIT), which typically handles trade-related cases.

The CIT is led by a chief judge and consists of nine judges in total, three of whom were appointed by President Trump.

Cases are usually heard by a single judge, but because of the constitutional nature of this challenge, a three-judge panel will hear the case.

The court’s decision is usually final, but the loser can still appeal to a higher court called the U.S. Court of Appeals.

And after that, the case could eventually be escalated to the U.S. Supreme Court, but that process would likely take several months.

On April 23, 2025, in a separate case unrelated to the 12 states’ lawsuit, a CIT three-judge panel denied an emergency request to block the tariffs, finding no “immediate irreparable harm.”

⏳ Legal Timeline and Market Relevance

As mentioned, the case will be heard by a three-judge panel at the CIT. Because constitutional questions are involved, the case may proceed more quickly than typical trade disputes.

Here’s what you should watch:

Event	Expected Timing	Market Sensitivity
Initial hearing and briefing schedule	May 2025	Moderate
Preliminary injunction request	June to July 2025	High
Final oral arguments	Q3 2025	Very High
Appeals (if any)	Late 2025 or 2026	Ongoing risk

Until a ruling is issued, prepare for periodic volatility driven by headlines and court developments.

🧠 Why It Matters for Traders

• Tariffs have been a major source of uncertainty in the global economy, contributing to inflation, supply chain disruptions, and central bank policy shifts.
• If the courts invalidate the tariffs, it would be viewed as a relief rally catalyst. 
• If the courts uphold them, it would reinforce the current policy uncertainty, though markets may not react strongly unless sentiment was overly optimistic beforehand.

🤔 Market Scenarios

While the market has mostly shrugged off the legal challenge so far, this could be a major mispricing.

• A ruling against the administration would effectively end the tariffs and unwind a key driver of inflation, dollar weakness, and global trade uncertainty.
• On the other hand, a court ruling that upholds Trump’s unilateral tariff powers could reinforce the “America First” trade posture and keep global investors cautious.

This legal wildcard could swing the U.S. dollar, Treasury yields, and risk sentiment:

Legal Outcome	FX Market Response	Rationale
Tariffs struck down	USD strengthens (DXY +1%+), USD/JPY bounces, risk-on flows into AUD, NZD, and MXN	Trade war premium unwinds, Fed gets more room to ease, optimism lifts global growth outlook
Tariffs upheld	USD weakens vs JPY and CHF, gold rallies, EM FX dips	Continued trade uncertainty, inflation risks persist, safe-haven demand rises

Cross-Asset Effects

Here’s how other assets are expected to perform if tariffs are either struck down or upheld:

Treasuries:

• If the court strikes down tariffs, 10-year U.S. Treasury yields would likely fall as inflation risks diminish.
• A ruling that upholds tariffs could cause yields to rise slightly due to persistent trade-related inflation pressure.

Gold:

• Gold prices would likely fall sharply if tariffs are struck down, as safe-haven demand would drop.
• The extent of the decline can vary based on broader economic conditions and recent “de-dollarization” vibes, but the direction of the effect is well-supported by historical evidence.
• If tariffs remain, gold would likely surge further, driven by fears of prolonged economic uncertainty and trade policy instability.

Silver:

• Silver, which often follows gold but is more tied to industrial demand, could rally if tariffs are removed (on hopes for stronger global manufacturing) but would also benefit modestly if safe-haven buying accelerates under continued tariff pressure.

Oil:

• Oil prices would likely jump if tariffs are overturned, reflecting improved expectations for global trade and energy demand.
• If tariffs stay in place, oil could be weighed down by concerns about slower global growth.

Bitcoin

• Bitcoin could weaken if tariffs are removed and risk appetite rotates to traditional assets like stocks.
• If tariffs remain and economic uncertainty deepens, Bitcoin may rally as some investors seek non-traditional hedges outside of fiat currencies (and gold).

Equities:

• If tariffs are removed, stocks that depend heavily on global economic growth would likely rally. This includes technology companies (like Apple and Microsoft), consumer brands (like Amazon and Nike), industrial companies (like Caterpillar and Boeing), and major banks (like JPMorgan Chase).
• If tariffs stay, more defensive sectors would outperform, including utilities (like Duke Energy), healthcare (like Johnson & Johnson), and consumer staples (like Procter & Gamble).

Market Reactions Cheat Sheet

Asset	If Tariffs Are Struck Down	If Tariffs Are Upheld
USD (DXY)	Strengthens (DXY up 1% or more)	Weakens vs JPY and CHF (moderate drop)
Gold	Falls sharply (safe-haven demand unwinds)	Rises sharply (policy uncertainty boosts demand)
Silver	Rallies moderately (industrial demand optimism)	Rises modestly (safe-haven plus weaker growth fears)
Oil	Rallies strongly (better global trade outlook)	Falls (global demand concerns)
Bitcoin	Possibly softens (if risk appetite shifts back to stocks)	Rallies (alternative hedge during uncertainty)
Equities	Growth sectors rally (Tech, Consumer Discretionary, Industrials, Banks)	Defensive sectors outperform (Utilities, Healthcare, Consumer Staples)

👁️FX Radar: What to Watch

There won’t be an immediate impact since there are no changes to Trump’s tariff authority in the near term.

But as the legal process moves forward, expect headlines and preliminary rulings (likely this summer) to start influencing market sentiment.

These could trigger short-term volatility, particularly during U.S. trading sessions.

• USD/JPY: A key barometer. A favorable court ruling for the states would likely weaken the yen and boost the dollar.
• DXY: A move above 104.50 would indicate markets are pricing in a win for the plaintiffs. A Trump win could cap the dollar near 102.
• EUR/USD and AUD/USD: Directional pairs that reflect global risk sentiment and dollar strength.
• Gold and Yen correlation: Use this as a proxy for global investor sentiment. Rising gold and a stable yen may signal rising anxiety over policy risks.

⚠️Trader Notes

This legal battle is a medium-term catalyst that has the potential to spark large moves in forex and broader markets. The ruling will influence not just U.S. trade policy but global confidence in U.S. governance and economic stability.

• This legal challenge is a slow-burning wildcard macro catalyst, NOT a daily driver yet, but capable of creating large directional moves when rulings hit.
• The forex market will react strongly to perceived changes in trade policy risk, particularly through the Dollar Index, USD/JPY, USD/CHF, gold, and risk-on FX pairs.
• Risk management is key as markets may overreact to speculative headlines without confirmation.

This legal challenge could turn into a major policy shift driver if the courts rule that tariffs imposed under IEEPA are unlawful.

For now, it’s not a primary trading catalyst day-to-day, but it is a potential volatility accelerant. Be prepared to react, not predict.

💵 Final Take: The Stakes for Presidential Power and the Dollar

This legal case is more than just courtroom drama. It is a pivotal test of the limits of U.S. presidential power over trade and could reshape the dollar’s trajectory for the rest of the year.

• If the courts strike down the tariffs, expect a wave of relief in USD, equities, and commodities.
• If the courts uphold the administration’s actions, the dollar may continue to struggle under the weight of trade tensions and policy instability.

Until then, stay flexible, monitor headlines, and be ready to adjust quickly. The next major move in the FX market might not come from a central bank but from a federal courtroom. 🧑‍⚖️