Wall Street bets on Trump's tariff law being overturned by the Supreme Court: Investment banks Jefferies and Oppenheimer facilitate hundreds of millions of dollars in "long term" bets.

Investment banks on Wall Street are arranging long term bets for hedge funds, wagering that the U.S. Supreme Court will overturn the landmark tariff policy of President Donald Trump’s administration. Companies such as Jefferies Financial Group Inc. and Oppenheimer & Co. are brokering these sensitive trades, helping importers sell future potential claims for tariff refunds to investors at a discounted price. If the Supreme Court rules that the tariffs are illegal, this deal will yield returns for the betting hedge funds that are several times their principal.

Wall Street's “Legal Arbitrage”: Trading of Tariff Rebate Claims

According to Bloomberg, the core of these hedging transactions is a complex financial engineering that allows importing companies to “de-risk” their potential tariff refund outcomes and receive guaranteed payments immediately without waiting for the final court ruling.

Analysis of Trading Mechanism:

1. Transfer of Claim Rights by Importers: Companies that have paid tariffs on imported goods sell the rights to future potential tariff refund claims to investors (mainly hedge funds).
2. Discount Sale: The importing company sells the claim rights at a discount price lower than the expected refund amount. For example, a hedge fund may pay 20 to 40 cents for each dollar of claim.
3. Potential Gains: If the Supreme Court rules the tariffs illegal, investors will receive a full refund, resulting in multiple potential gains.
4. Banks act as intermediaries: Investment banks like Jefferies and Oppenheimer charge intermediary fees by facilitating these transactions.

According to informed sources, the scale of these transactions mostly ranges from 2 million to 20 million dollars, with few exceeding 100 million dollars. Oppenheimer mentioned in a presentation that its special assets team has arranged over 1.6 billion dollars in similar transactions since 2021, involving tariffs between China and the U.S. prior to a previous wave of tariffs from Trump.

Key Rulings of the Supreme Court and Potential Financial Impact

The legal basis for this Wall Street bet is: the Supreme Court is scheduled to hear arguments on November 5 regarding the tariffs imposed by Trump under the International Emergency Economic Powers Act (IEEPA).

Key Impact:

• Lower courts have ruled illegal: Two lower courts had previously ruled that Trump does not have the authority to impose tariffs under the IEEPA.
• The potential amount of tax refunds is enormous: If the Supreme Court also rules that tariffs imposed on a national basis are illegal, the U.S. government may need to refund a large portion of the nearly $195 billion in customs revenue generated from the tariff increases for the fiscal year 2025.
• Decision time frame: The Supreme Court may issue a ruling by the end of this year or in the first quarter of 2026.

Trump has always valued tariff revenue, stating that it makes America “very wealthy again,” and believes that if the Treasury is forced to refund this money, it would be a disaster for the country. This makes the Supreme Court's ruling not only a legal decision but also a political event that could have a huge impact on U.S. finances.

Winning is Not Easy: The Complexity and Risks of the Tax Refund Process

Although hedge funds are willing to take legal risks in pursuit of excess returns, the tax refund process itself is no easy task.

Even if the Supreme Court overturns the tariffs, it is unlikely to be simple for importers to recover the tariffs, especially for those companies that purchased the right to claim refunds.

Complexity Challenge:

• Courier companies as importers: The situation is particularly complicated for importers that use commercial couriers such as FedEx Corp. and United Parcel Service Inc. to handle documentation and pay duties.
• Refund Recipient: The U.S. Customs and Border Protection will only issue refunds to the registered importer (in this case, the package handler, not the final recipient).
• Document requirements: All documents for each shipment may be required for tax refund purposes, which will be a significant administrative challenge.

This complex process and uncertainty also explain why claims rights are sold at such a high discount, as realizing profits requires a final legal victory and smooth administrative execution.

Conclusion

The tariff rebate claim transaction facilitated by Wall Street investment banks is a bold and high-risk legal arbitrage in the financial market against the policies of the Trump administration. This potential bet worth billions of dollars not only highlights the speculative ecosystem under the policy uncertainties in areas such as cryptocurrency, energy, and trade, but also places the Supreme Court's ruling on the legality of tariffs in the spotlight. While investors pursue high returns, they must be acutely aware of the immense complexity of legal procedures and administrative rebate processes.