The U.S. Supreme Court will hear oral arguments on November 5 in a case challenging former President Trump’s “reciprocal” tariffs. The case was expedited for urgent review and may result in some tariffs being overturned.
These tariffs include a 10% duty on nearly all U.S. imports, with some tariffs reaching 50% on countries such as Brazil. Tariffs on Canada, China, and Mexico for alleged failures in preventing fentanyl trafficking are also under scrutiny. Two challenges to the tariffs will be considered by the justices in the first week of November.
Volatility and Market Impact
The uncertainty around tariffs introduces volatility for USD, CAD, MXN, and CNY early in the month. Trade-exposed sectors, like autos, steel, and agriculture, could experience fluctuations, while a possible tariff rollback might benefit commodity-exporting nations like Brazil.
With the Supreme Court hearing set for November 5th, we anticipate a significant rise in implied volatility across several asset classes. We remember the VIX spiking over 40% during tariff escalations back in 2018, and this court case creates a similar binary event. Traders should consider buying volatility through instruments like options straddles on trade-sensitive ETFs in the coming weeks.
We are particularly focused on the Mexican Peso and Canadian Dollar, given the integrated North American supply chains. Mexico’s August 2025 manufacturing output report already showed a 1.2% decline, which many attributed to tariff-related uncertainty. Purchasing call options on the USD against these currencies could provide a cost-effective hedge against a ruling that upholds the tariffs.
The situation presents a clear risk for U.S. industrial sectors like autos and steel, which have seen stock valuations compress this quarter. U.S. Steel’s stock, for example, has underperformed the S&P 500 by over 8% since the court agreed to fast-track the case in August 2025. Buying protective put options on these sector-specific names is a prudent strategy to mitigate downside risk ahead of the arguments.
Potential Impact of Tariff Removal
For China, the potential removal of tariffs could trigger a sharp rally in the offshore yuan (CNH) and related equities. We’ve seen the CNH strengthen past 7.15 against the dollar this month on speculation of a tariff rollback. Long-dated call options on China-focused equity ETFs could capture the upside if the court signals a move toward dismantling these trade barriers.
Conversely, a favorable ruling for free trade would likely benefit commodity exporters like Brazil, which currently faces a 50% tariff on some goods. The Brazilian Real has been one of the worst-performing emerging market currencies in 2025, falling over 15% against the dollar year-to-date. We see an opportunity in buying call options on the BRL or Brazil-linked ETFs as a speculative play on a tariff reversal.
