How Betting Against Trump’s Tariffs Made Millions
▼ Summary
– The U.S. Supreme Court struck down tariffs imposed by President Trump, ruling they were illegal under the International Emergency Economic Powers Act.
– Investment firms had previously purchased the rights to potential tariff refunds from importers at a steep discount, betting the courts would rule this way.
– These firms now stand to make enormous returns, with one investor expecting an eight-fold profit on his initial stake.
– However, the Supreme Court did not order refunds, leaving it to lower courts to decide if the government must repay the tariffs.
– The uncertainty means investors must decide whether to sell their claims now or wait through further legal challenges from the administration.
A recent Supreme Court decision has opened the door for significant financial gains by investors who wagered against the legality of former President Trump’s tariff policies. These specialized investment firms and hedge funds positioned themselves for a potential windfall by acquiring the rights to future tariff refunds at a steep discount. They purchased these theoretical refund claims from importers who, facing financial pressure from the tariffs, opted for immediate cash over the uncertain prospect of a government repayment down the line.
The investment thesis was straightforward. Traders believed the administration’s application of tariffs under the International Emergency Economic Powers Act was legally questionable. Thomas Braziel, founder of 117 Partners, invested nearly a million dollars of his own capital based on this conviction. “We were like, [Trump] is capriciously applying the law,” Braziel explained. “That was the play.”
This niche market was facilitated by Wall Street brokerages. According to Neil Seiden of Asset Enhancement Solutions, the handful of hedge funds that participated typically bought claims worth tens of millions of dollars. “They didn’t want to deal with anything small,” Seiden noted. The strategy has proven prescient. Following the Supreme Court’s ruling that the tariffs were illegally imposed, the value of those refund claims has skyrocketed. Braziel, for instance, anticipates a return of more than eight times his initial investment.
A major unresolved question, however, is whether the government will actually be compelled to issue refunds. The Supreme Court’s decision did not explicitly address this critical issue, leaving it to lower courts to determine. “That’s the billion-dollar question,” Seiden remarked. “Everybody is in a state of flux.”
Legal experts point out that the path to repayment could be lengthy and contested. Lawrence Friedman, a partner at Barnes Richardson law firm, explains that the refund issue now returns to lower courts. Furthermore, the administration could appeal any ruling that mandates the Treasury to return the collected funds. “The President does not like district courts making nationwide injunctions,” Friedman stated. When questioned about potential refunds, Trump himself acknowledged, “I guess it has to get litigated.”
This legal ambiguity presents a dilemma for the current holders of these valuable claims. They must decide whether to secure profits now by selling the claims to another party or to hold on through protracted court battles. Braziel voiced a common concern, noting the unpredictable nature of challenging the former administration. “Trump is Trump is Trump, man. I’m not sure if you want to be on the other side of him, no matter how good the legal arguments are.”
Despite the uncertainty, the legal landscape has undeniably shifted in favor of those who took the risk. For the hedge funds that engaged in the trade and the importers who retained their refund rights, the ruling is a positive development. “Ultimately, it’s a much better day than it was yesterday,” Friedman concluded. “I think it’s extremely unlikely that refunds won’t get granted.” The coming months will determine whether this high-stakes legal bet delivers its full promised payout.
(Source: Wired)
