If Supreme Court Strikes Tariffs, Wall Street Doubts Refunds
Hearing Last Week Casts Doubt on Future of Levies
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Even if the U.S. Supreme Court strikes down Donald Trump’s sweeping tariffs, there still appear to be significant doubts that trades betting on government refunds will ever pay out.
Several Wall Street heavyweights have struck deals with companies that could be eligible for reimbursement if the levies are found to be unlawful — an outcome thatbetting marketssee as more likely after ahearinglast week.
Yet investors are still finding the trade can be had for relatively cheap. Depending on the kind of tariff, the claims were quoted around 10 to 25 cents on the dollar this week, according to people familiar with the matter, who asked not to be identified discussing trades. That’s only a modest increase from before the Nov. 5 hearing, suggesting there are still plenty of questions over whether the gambit will ever deliver.
Funds including King Street Capital Management, Anchorage Capital Advisors and Fulcrum Capital Holdings have bet on tariff-refund claims, the people said. Seaport Global Holdings is among the brokers matching importers with investors, they said, along with Jefferies Financial Group and Oppenheimer & Co., as Bloomberg previouslyreported.
The court is weighing whether Trump had the authority to use the International Emergency Economic Powers Act to impose duties on imports from nearly every country. If it decides he didn’t, there’s the chance of full refunds — though any reimbursement process could be lengthy and cumbersome, with importers potentially filing individual claims for each shipment affected by the so-called IEEPA tariffs.
During last week’s hearing, Justice Amy Coney Barrett asked about the logistical headaches of a refund process, prompting a lawyer for the importers to suggest the court could strike down the tariffs without requiring any retroactive relief.
That’s another layer of uncertainty, said Matthew Hamilton, co-founder of Fulcrum: Even if Trump overreached, businesses might not get refunds for the duties they’ve paid.
Front row: Sonia Sotomayor, Clarence Thomas, John Roberts, Samuel Alito and Elena Kagan. Back row: Amy Coney Barrett, Neil Gorsuch, Brett Kavanaugh and Ketanji Brown Jackson. (Fred Schilling/Collection of the Supreme Court of the United States)
“It can take a very long time to recover your money because of the amount of claimants, staffing and other roadblocks,” Hamilton said. “There’s also the possibility that the Supreme Court splits the baby and decides that President Trump exceeded his executive power but doesn’t issue a refund for tariffs already paid.”
Spokespeople for Anchorage and King Street declined to comment. Representatives for Seaport didn’t respond to requests for comment.
Investors have occasionally been drawn to trades that involve government policy, in part because their outcome is independent of broader market movements. Larry Robbinsloaded up on hospitalsafter the Supreme Court upheld the Affordable Care Act, making Glenview Capital Management one of the best-performing large hedge funds in 2013.
Bill Ackman’s Pershing Square and others have wagered for years that Fannie Mae and Freddie Mac would exit U.S. control and generate massive returns for private investors.
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By hedge fund standards, the tariff refund bets aren’t massive. Companies have paid more than $100 billion in tariffs so far, but each trade is idiosyncratic and they’re hard to do in size. The importer remains the legal owner of the claim, but in exchange for the agreed-upon price, agrees to pursue a refund and facilitate its payment to the investor, according to people familiar with the contracts.
The legal complexities are substantial enough to discourage some investors, along with the likelihood that it would take a long time to get repaid, even in the best-case scenario.
Outpost Capital Partners, a Connecticut firm that has in recent years traded tariff-linked claims representing billions in possible repayments, has been approaching companies directly to measure their interest in selling all or part of their potential refunds, according to people familiar with those efforts. Some have grown more eager, especially after a September ruling that ended a five-year battle over tariffs imposed during Trump’s first term, all but wiping out any prospect of a refund.
A representative for Outpost declined to comment.
Other companies may be looking for a way to offset financial strain. For investors, that raises potential questions about counterparty risk. If, for instance, a seller’s business goes bankrupt before the claim pays out, investors could see their recovery evaporate.
Oppenheimer said it had traded $550 million worth of tariff claims as of the end of October, according to a document seen by Bloomberg. That included potential claims tied to reciprocal tariffs and to those the administration has associated with fentanyl trafficking. It’s the latter that have seen the most price appreciation after the recent hearing.
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The Supreme Court agreed to fast-track the tariffs case and could have a decision by the end of the year.
Meanwhile, the current tariff policies continue to evolve. The White House plans to reveal details of a tradeagreementto lower tariffs on Swiss goods from 39% to 15%, U.S. Trade Representative Jamieson Greer said Nov. 14, as well as freshexemptionsthat the administration says will lead to lower food prices.
Written byEliza Ronalds-Hannon, Irene García Pérez, Laura Curtis and Reshmi Basu
