Trump's tariff defeat turns into a hidden tailwind for U.S. stocks: $166 billion refund initiated, corporate profits may see unexpected upgrades.

Support for US President Donald Trump's large-scale tariff policy, which aims to return to the White House in 2024, may have shifted from headwinds to tailwinds for US stocks and even global stock markets. The decision by the US Supreme Court to revoke these tariffs has laid an important foundation for potential profit gains for most global companies. After Trump announced so-called "Liberation Day" reciprocal tariff measures in April 2025, Wall Street analysts were forced to overturn their bullish models on a large scale and downgrade their investment ratings and recommendations. These tariffs were overturned in February, when the Supreme Court ruled that the US president did not have the authority to levy these tariffs under the International Emergency Economic Powers Act. From the impact of the "Liberation Day" tariffs to cash rebates The Trump administration faces an estimated $166 billion refund obligation, and began processing refunds in April. According to data from the US Treasury Department, the first batch of refunds took place in May, with a refund amount of approximately $22 billion. This amount roughly equaled the amount of tariffs collected that month. Ohsung Kwon, a US stock analyst from Fuhwa Bank, stated that as the global stock market enters the second half of the year, these refunds and other upcoming refunds will become a somewhat unspoken but relatively important tailwind for certain stocks. When talking about the positive impact of the refunds, Kwon said, "I don't think anyone has really noticed this yet, including ourselves, people were skeptical before." In an interview with the media, he added, "We were skeptical whether these checks would really go out, but it is indeed happening." In a report released last week, analyst Kwon stated that about 40 companiesincluding Apple Inc., Caterpillar Inc., Dollar Tree Inc., and Tesla Inc.discussed issues related to tariff refunds at their first-quarter earnings calls. However, only 8 companies confirmed it as a positive, including Ford Motor Company, General Motors, and Under Armour Inc. Kwon acknowledged that the number is not high, but he expects the list to expand as the second quarter progresses. The analyst added that some companies may even include these refunds in their earnings. As shown in the chart above, the predicament of the US stock markets growthprofit growth for the S&P 500 index is expected to slow in the coming quarters, but if more and more companies incorporate tariff refunds as an unspoken tailwind factor, corporate profits may be significantly raised. Ken Mahoney, CEO of Mahoney Asset Management, believes that these refunds are a real tailwind for corporate profits. In his view, these repayments are reversing significant tariff costs that companies had previously included in their operating expenses. Mahoney said, "For companies that have already accounted for tariffs as expenses but have not included refunds in their earnings outlook, cash refunds may provide a significant boost to earnings, profit margins, and, in some cases, free cash flow." He added that the larger impact may appear on tech companies whose market-consistent profit expectations have not yet reflected tariff refund expectations. This creates the potential for important positive revisions in the next few quarters and unexpected earnings exceeding expectations. One-time projects However, Mahoney stressed that these refunds should mostly be seen as one-time normalization projects for growth, rather than recurring sustainable profit-positive driving factors. It is this one-time nature that has led some market participants to be skeptical, as they do not believe these refunds will provide a significant boost. Bob Lang, Chief Strategist at Explosive Options, admitted that the refund amounts for US listed companies are "relatively large," but he does not believe they will be "decisive factors driving earnings growth." Giuseppe Sette, President of Reflexivity, also holds the same view. Sette said, "Refunds will be like ointments, soothing the stocks injured in recent fluctuations." He said, "But the theme of tariffs is now largely forgotten in the market, and one-time interventions are unlikely to significantly drive market consensus expectations." The specific process of how tariff refunds are handled is also an important issue. Senior analysts Stuart Gordon and Deborah Aitken from Bloomberg Intelligence believe that this issue will become a "profit quality test" in the second quarter. They added that refunds may manifest in "drastically different ways," including boosting gross margins or not entering the balance sheet at all. For example, Capri Holdings Ltd. confirmed a $40 million tariff refund, which increased its gross profit by a similar amount, while Steven Madden Ltd. excluded this positive from its adjusted earnings and outlook range. Gordon and Aitken pointed out that this highlights the related ambiguity surrounding the transparency of refunds. In a report released on Thursday, Gordon and Aitken wrote, "Despite the court ruling, uncertainties surrounding the timing, process, and likelihood of final repayment of tariff-related recoveries are still limiting the broader confirmation of tariff-related recourse funds." Regardless, analyst Kwon from Fuhwa Bank believes that the refunds will play a tailwind role. While he continues to prefer AI semiconductors and infrastructure trades, tariff refunds will be a slightly expanding factor in the market, especially when combined with oil price factors. And, although the refunds are essentially one-time in nature, they will still act as a "decent tailwind" for corporate earnings. As Kwon said: it's not just accounting profits, it's cash profits. Additionally, Kwon pointed out that tax refunds may also become a significant tailwind for the US economy. Some companies are discussing using the refunds to alleviate inflation and significant consumer concerns. Kwon added, "In addition, with this extra cash, I think many companies will use it to provide funding for additional capital expenditures, or even for some stock buybacks or significant dividend increases, or maybe even special dividends." He emphasized, "So I think this will be a significant tailwind factor for the market in the second half of this year."