Overview
BCA Research says U.S. trade tensions are likely to stay relatively muted through 2026 before the risk of renewed escalation rises in 2027. The firm points to recent legal limits on executive emergency tariff powers and political pressures around the midterm cycle as factors that constrain the administration's ability to impose broad, aggressive tariffs in the near term.
Legal and political constraints
In an analysis published by BCA, the firm highlights a U.S. Supreme Court ruling on Friday that curtailed the use of emergency powers to levy wide-ranging tariffs. According to BCA, that decision reinforces Congress' primacy over trade policy and narrows the administration's latitude to unilaterally raise tariffs on a sweeping basis.
Combined with the electoral dynamics of the midterm season, the court's decision contributes to an environment in which a major trade escalation is unlikely this year, even as the president pursues measures aimed at maintaining a tougher trade posture.
Policy tools and likely trajectory for tariffs
Given the constraints, BCA expects policymakers to fall back on narrower instruments. The firm says temporary tariffs implemented under existing statutory trade authorities are the more probable route. Those steps could lift the effective U.S. tariff rate modestly, but any sustained or larger increases would encounter congressional approval hurdles and political friction that may lead to subsequent easing.
Geopolitical energy risk takes precedence
While trade policy remains an area of uncertainty, BCA argues that near-term market attention is more likely to center on geopolitical risks tied to Iran and the potential for disruptions to oil supply. The research shop quantifies the risk by assigning roughly a 38% probability to a major oil shock.
BCA notes that tensions between the U.S. and Iran have risen recently amid stalled nuclear talks and a U.S. military buildup in the Gulf, and that the president has warned of the possibility of limited strikes. Markets have already reacted to those developments, driving oil prices higher amid fears of a broader regional conflict and attendant supply interruptions.
Implications for markets and policy
Given the combined legal, political, and institutional checks from the courts, Congress and the Federal Reserve, BCA suggests policy uncertainty tied to trade could be lower than in earlier phases of the U.S.-China trade confrontation. That institutional framework, the firm says, may reinforce the safe-haven appeal of U.S. Treasuries and the dollar during episodes of global stress.
Nevertheless, BCA warns that tariffs could intensify again once the political cycle shifts. For the immediate horizon, the firm advises investors to prioritize geopolitical energy risks and wider macro conditions. U.S. equities and oil markets are identified as the main domains to watch for signs of shifting risk.
Near-term political considerations
BCA also observes that the president may pursue limited trade truces or small-scale agreements ahead of elections to temper inflationary pressure and steady corporate sentiment. That tack would make tariffs a secondary driver of market moves in the near term, even if the administration retains a posture of trade toughness.
Overall, BCA's view compresses the near-term trade-threat scenario: legal and electoral constraints are likely to moderate tariff escalation through 2026, while energy-related geopolitical shocks, notably those linked to Iran, present a more immediate and material market risk.