When the Supreme Court struck down a huge portion of President Trump's tariffs last month, it set off a wave of uncertainty about how, when and if the approximately $180 billion importers have paid might be refunded.
And Wall Street seized the opportunity to make some money.
In fact, it had already cooked up a trade for this.
Its offer to importers: Instead of waiting indefinitely to recoup the money they spent on tariffs, they could sell to hedge funds their claims to tariff refunds, or a portion of them, at a discount. In return, hedge funds would get the full claim amount when — and if — refunds come through. And they'd also take on the burden of pursuing those claims.
Wes Harrell, who heads a trading group at Seaport Global, has been connecting importers and hedge funds on these trades since last November. Since the ruling, he said, everyone wants in.
"There has just been a tremendous amount of inquiry, both from buyers and sellers," Harrell said. Altogether, he said, he has seen about a couple of hundred million dollars' worth of these trades. But he ballparked the inquiries at as much as a billion dollars in potential future trades.
Of late, these trades are going for roughly 45 cents on the dollar on average, although the actual value of each trade varies. That's up from 40 cents right after the Supreme Court's ruling — and around double what they were trading at before it.
Even at a discount, there are two big reasons these trades are appealing to importers.
"At this point, we don't know the process or timing to receive a refund," Harrell said.
Neither of those two things — process or timing — is expected to become clearer anytime soon. An avalanche of lawsuits seeking refunds has already been filed against the Trump administration. Those could take years to resolve, and it's not clear whether importers will ultimately prevail.
Congressional Democrats, including Sen. Ed Markey of Massachusetts, have introduced legislation requiring the government to set up a refund-processing system.
In a letter to Trump administration officials, Markey wrote "investment banks are profiteering from the delay" in processing tariff refunds. He called for an investigation into these trades and warned that small businesses that cannot afford a costly legal battle could be disproportionately tempted to trade away their claims.
Eric Danner, a partner at CohnReznick, a firm that advises businesses, describes himself as an "emergency room doctor" for businesses in need. He has been talking all this through with hedge funds looking to buy and companies looking to sell their claims to tariff refunds.
"Companies are coming to us and saying, 'What do you think?'" he said.
What he thinks, he said, depends on whether the company needs the money now. If so, these trades can be useful. But a company that's flush with cash? Selling its refund claim makes less sense.
"If you can afford to hold it and get that 100 cents, knowing that it might be a year or two for you to see the money, then why not do that?" Danner said.
In addition, companies that have passed tariff costs on to their customers may want to maximize the amount they're able to refund them in the future — especially if their customers know exactly how much more they paid in tariffs. Danner says he has spoken with businesses facing this dilemma. He says they might want to wait and see how much they might be refunded instead of making these trades at a discount now.
Still, these considerations largely just come down to how much investors are willing to pay them for their claims.
"Even a company that doesn't need the money," Danner said, "if the percentage is high enough, they're going to say, 'Why not?'"
Harrell says importers are likely still taking stock of their refund options.
He predicts the uptick in interest could presage an explosion of new trades. If importers sold even a fraction of the $180 billion it's estimated that they paid, it would mean a fortune for Wall Street.
"It's a $40 billion opportunity," Harrell said. "And I think that's a low estimate."
NPR's Mary Childs contributed to this story.
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