They Bet Against Trump’s Tariffs. Now They Stand to Make Millions
Investment companies are on course for a huge payout to the Supreme Court of the United States (SCOTUS) knocked down President Donald Trump signature tariff policy on friday
When Trump last April introduced sweeping tariffs on foreign goods, hedge funds and specialist investment firms began to bet about the possibility that the courts will judge that he had broken the law. They did that by buying the right to theoretical rate refunds at cents on the dollar from struggling importers who wanted to exchange the possibility of a future refund for an immediate cash payment.
“We were like, [Trump] is capriciously applying the law,” says Thomas Braziel, founder of investment company 117 Partners, who says he bought $925,000 worth of tariff refund claims with his own money. “That was the play.”
This trade was made by a variety of Wall Street firms. Although only a select few hedge funds engaged in the trade, those that did generally bought tens of millions of dollars in claims, says Neil Seiden, president at Asset Enhancement Solutions, one of the brokers. “They didn't want to be involved in something small,” says Seiden.
After SCOTUS ruled that it was illegal for Trump to impose tariffs under the International Emergency Economic Powers Act (IEEPA) – the law used to comprehensive liberation day rates-traders who bet against him are on their way to multiplying their stake. Braziel says he stands to make a return more than eight times.
Although SCOTUS ruled that the IEEPA tariffs were illegal, it did not explicitly state whether the government will be required to issue refunds. “That's the billion dollar question,” says Seiden. “Everyone is in a state of flux.”
The question of restitution will be kicked back to the lower courts, says Lawrence Friedman, partner at law firm Barnes Richardson. Even then, he says, the administration could choose to challenge any lower court ruling requiring the government to return rate payments. “The president doesn't like district courts making nationwide injunctions,” Friedman says.
Asked about the possibility of tariff hikes on Friday, Trump said“I think it should be litigated.” The White House did not respond to a further request for comment.
The prevailing uncertainty leaves the investment companies holding repayment claims with a dilemma: Should they bank some profits by switching the claims to another buyer, or wait for the legal tussle? “Trump is Trump is Trump, man,” Braziel says. “I'm not sure you want to be on the other side of him, no matter how good the legal arguments are.”
Ultimately, though, “it's a much better day than it was yesterday,” Friedman says, for all the hedge funds that took the trade and importers that chose not to sell their refund claims. “I think it is highly unlikely that refunds will not be granted.”
