BCA warns that the risk of escalating trade tensions with Trump may intensify in 2027

Investing.com - BCA Research’s latest report indicates that U.S. trade tensions are expected to remain relatively manageable until 2026, but may escalate again by 2027 due to political and legal restrictions limiting the scope for aggressive tariff hikes in the near term.

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The institution states that recent court rulings restricting the use of emergency tariff powers, combined with midterm election pressures, make a significant escalation in trade tensions this year unlikely, despite President Donald Trump taking new measures to maintain a tougher trade stance.

Last Friday, the U.S. Supreme Court’s ruling limited Donald Trump’s ability to impose broad tariffs using emergency powers, strengthening Congress’s role in trade policy and restricting the government’s capacity for aggressive tariff escalation.

BCA expects policymakers to rely on narrower tools, including temporary tariffs implemented under existing trade laws, which may slightly increase the effective U.S. tariff rate before falling again due to congressional approval hurdles.

Iran Situation Seen as Greater Market Risk

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

In recent weeks, tensions between the U.S. and Iran have escalated, nuclear negotiations have stalled, and Washington has increased military presence in the Gulf region. President Donald Trump has warned of possible limited strikes. Markets have responded to supply disruption risks, pushing oil prices higher amid concerns over broader regional conflicts.

The institution adds that the president may seek a trade truce or gradual agreement before the election to limit inflation pressures and stabilize business confidence, suggesting that tariffs may currently be a secondary driver of market volatility.

Policy Restrictions Could Support U.S. Assets

BCA states that institutional checks and balances from courts, Congress, and the Federal Reserve could reduce policy uncertainty, potentially strengthening the safe-haven appeal of U.S. assets such as U.S. Treasuries and the dollar during periods of global stress compared to early trade tensions.

While tariffs may flare up again after political cycles shift, the firm believes investors should focus on geopolitical energy risks and broader macro conditions in the near term. U.S. equities and the oil market remain key areas to watch.

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