Political and legal constraints limit the scope for aggressive tariff increases in the near term, according to a new report from BCA Research.

The company stated that recent court decisions limiting the use of certain emergency tariff powers, combined with midterm election pressure, make a major escalation in the trade war unlikely this year, even as President Donald Trump pursues new measures to maintain a tougher trade stance.

A US Supreme Court decision on Friday limited the use of Donald Trump's emergency tariff powers to impose broad tariffs, strengthening the role of Congress in trade policy and limiting the administration's ability to aggressively increase tariffs. BCA expects policymakers to rely on narrower tools, including temporary tariffs within existing trade laws, which could moderately increase the effective rate of US tariffs before tapering off as congressional approval hurdles arise.

Tensions with Iran seen as a greater market risk

Despite ongoing trade policy uncertainty, the report states that geopolitical risks related to Iran and potential oil supply disruptions are likely to play a more dominant role in financial markets in the near term. BCA estimates the probability of a major oil price shock at approximately 38%, which could overshadow tariff-induced volatility and keep investors focused on energy markets and inflation dynamics.

Tensions between the US and Iran have escalated in recent weeks as nuclear talks stalled and Washington increased military forces in the Persian Gulf, with President Donald Trump warning of possible limited strikes. Markets reacted to the risk of supply disruptions by pushing up oil prices amid fears of a wider regional conflict.

The company added that the president may seek trade truces or phased deals before the election to limit inflationary pressures and stabilize corporate sentiment, suggesting that tariffs may remain a minor factor in market movements for now.

Political Restrictions May Support U.S. Assets

BCA stated that institutional restraints from the courts, Congress, and the Federal Reserve could reduce political uncertainty compared to earlier phases of the trade war, potentially enhancing the appeal of U.S. safe-haven assets such as Treasuries and the dollar during periods of global stress.

While tariffs could escalate again following a shift in the political cycle, the company believes investors should focus on geopolitical energy risks and broader macroeconomic conditions in the near term, with U.S. equities and oil markets remaining key areas to watch.