Trump Administration Tariffs Prompt Reevaluation of Gridlock Trade Theory

The Trump administration implemented a series of trade duties using four different statutes without congressional approval, including a Section 122 surcharge and Section 301 duties covering 60 economies. These actions followed a February 20 Supreme Court ruling in Learning Resources, Inc. v. Trump, which determined that tariff authority belongs exclusively to Congress.

In response to these executive actions, Senator Ron Wyden introduced the Congressional Trade Powers Reform Act of 2026 to repeal the authorities used to levy the duties, which included 50% tariffs on Canadian goods under Section 338 of the Tariff Act of 1930.

These developments have led financial analysts at Morgan Stanley and the Royal Bank of Canada to re-evaluate the gridlock trade theory. This theory previously suggested that divided government supported stock valuations by preventing legislative change. Analysts now argue that because policy risk originates in the executive branch rather than Congress, a split government may no longer provide historical market stability. Research from the Royal Bank of Canada specifically noted that the weakest stock returns occurred under a Republican president facing a Democratic or split Congress.