The "void creation" caught between fiscal policy and inflation

Caitong Securities pointed out that after losing the legal battle over tariffs, Trump quickly activated Section 122 of the Trade Act to replace the unconstitutional IEEPA, which is essentially a “虚空造牌”—creating bargaining chips through legal maneuvers to maintain pressure and win votes in the midterm elections.

In a recent research report released on the 24th by analysts Zhang Wei and Ren Siyu, they analyzed the Trump administration’s swift shift after the tariff legal battle failure. For global investors, this report not only reveals the underlying strategic logic of U.S. trade policy but also indicates that amid the midterm election year, the White House is trying to balance between a fragile fiscal deficit and angry voters’ inflation perceptions through legal games.

According to Xinhua News Agency, after the U.S. Supreme Court rejected the Trump administration’s previous tariff arrangements under the International Emergency Economic Powers Act (IEEPA), the Trump administration quickly invoked Section 122 of the Trade Act of 1974 to impose a 10% uniform tariff on imported goods worldwide; Trump then announced plans to raise the rate to 15%.

The Political Art of “虚空造牌”

The U.S. Supreme Court ruled that tariffs under IEEPA are unconstitutional, but this did not cause Trump to surrender. Instead, he quickly resorted to the fallback of Section 122 of the Trade Act. The report pointed out that this is just Trump’s usual negotiation tactic—when old chips fail, quickly create new ones to maintain deterrence at the bargaining table.

“This rapid switch to Section 122 to replace IEEPA for tariffs is another ‘虚空造牌’ by Trump. The 15% maximum rate is an expected ‘牌’—a means of creating leverage through maintaining high-pressure trade posture, aiming to generate bargaining chips and win more votes before the midterm elections.”

An Unexpected “Export Grab” Window

Ironically, Trump’s seemingly tough counterattack actually lowered tariff barriers in the short term. Under the IEEPA framework, nominal tariffs reached as high as 20%, while the cap under Section 122 is only 15%. This technical rollback in tariffs has opened a brief arbitrage window for global traders.

“For countries with previously high effective tariffs, the Section 122 framework is a new window for a ‘抢出口’ (export grab); for U.S. traders, it’s also a new window for ‘抢进口’ (import grab).”

Extreme Pressure in the Next 150 Days

Investors should not be overly optimistic about the short-term tariff reduction. The report warns that Section 122 is just the prelude; the real storm may come from subsequent investigations under Sections 301 and 232. The next five months will be a period of intense U.S. trade negotiations and increased market volatility.

“The real strategy of the Trump team may be to maintain high pressure with Section 122 tariffs while intensively launching investigations under Sections 301 and 232 within the 150-day window… through this ‘investigation-threat-negotiation-compromise’ cycle, they aim to maximize leverage and achieve more trade negotiation results.”

Election Year Trapped in Inflation and Deficit

Ultimately, all of Trump’s actions are driven by votes. He needs tariff revenue to fill a fiscal gap of 0.55% of GDP, but must also avoid high tariffs that could trigger inflation and anger the grassroots voters. This dilemma will likely force the 2026 tariff policy to maneuver within a very narrow space.

“In the short term, every ‘tax increase’ call by Trump is aimed at securing votes for the eventual ‘tax cut’… The 2026 ‘虚空造牌’ will probably be squeezed between fiscal needs and inflation, maneuvering within limited space.”

Risk Warning and Disclaimer

Market risks are present; investment should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Invest accordingly at their own risk.