Tariff doubts linger on

THE new year could start much like 2025, with US tariffs at the forefront. Analysts expect global economic growth to continue in 2026, but US tariffs will remain a macro risk.

In the United States, President Donald Trump faces a legal challenge in the Supreme Court over the legality of the tariffs he imposed on other countries in April.

Businesses and several states argue that the tariffs are unconstitutional because Congress controls tariffs, not the president.

In early November, oral arguments were held regarding whether the International Emergency Economic Powers Act (IEEPA) allows the president to impose such broad tariffs.

A ruling is anticipated by early 2026. The market is betting that there is a 75% chance the tariffs will be struck down by the court. Therefore, all eyes will be on the ruling.

Trump is expected to impose sectoral tariffs even if the court rules against the tariffs. It would increase the level of uncertainty for businesses once again.

Externally, there might also be some pressure on the reciprocal tariff agreements negotiated by the White House with many countries.

Indonesia is reportedly resisting US trade demands that restrict its ability to deepen ties with China and Russia, particularly in the area of critical minerals and energy.

According to reports, the Trump administration has accused Indonesia of backtracking on its earlier commitments, and the deal struck in July may collapse.

As high level discussions continue, the rest of the world will closely monitor the proceedings.

The stakes are high. The United States could reimpose higher tariffs on Jakarta if there is no agreement.

And much like Indonesia, Malaysia has growing trade and investment relations with China.

Could Malaysia face the same problem?

Many critics of the agreement on reciprocal tariffs (ART) between the country and the United States contend that the terms violate the country’s sovereignty and were negotiated without the Cabinet or Parliament’s input.

Several conditions in the deal call into question Malaysia’s non-aligned and open trade and investment policies.

Even if disputes arise, the ART does not contain any provisions for dispute resolution, while the United States has declared that it will not be bound by any trade treaties. Putrajaya has stated it can also walk away from the deal.

The Indonesia-US dispute could have an impact on other countries. China’s trade and investment engagement is rising with the rest of the world following Washington’s punishing tariff rates on Chinese exports.

With access to the United States market limited, China has moved quickly to diversify its markets to the rest of the world with much success as reflected in its strong trade surplus of US$1 trillion.

The finalisation of tariffs in August brought some certainty, but the likelihood of a flare-up may depend on the court’s ruling and Washington’s willingness to cut deals.

The decision by Trump to allow the export of H200 Nvidia chips to China as well as the 12-month truce with the country suggests that he is willing to make deals with the country.

Several major trade agreements with countries like India and the European Union are also in the process of being finalised. We may see additional exemptions much like Trump’s decision to provide exemptions for hundreds of categories last month.

That said, most analysts expect the global economy to stabilise in 2026 as trade frictions ease and monetary and fiscal policy remain supportive, while inflationary pressures slowly moderate.

The base case is that while there may be flare-ups between the United States and individual economies over the coming quarters, broad tariff uncertainty is forecast to continue to decline over 2026.

It is not anticipated that trade friction between the United States and the rest of the world will escalate in the near future as recent losses in elections and the trade cycle suggest a softer patch going forward, especially because US mid-term elections are scheduled for November 2026.

When you hear Trump discuss America’s heydays when it did not trade with the rest of the world, the risk of escalation cannot be discounted.

As we saw during Joe Biden’s four years in office, his industrial policy objective to cut dependence on China is both strategic and economic in nature.