Key Takeaways
- Last Friday saw the US Supreme Court rule that the current tariff regime under the International Emergency Economic Powers Act (IEEPA) is unlawful.
- With lower courts set to decide the approach around refunds of tariffs already paid, there will likely be an extended period of uncertainty.
- In response to the ruling the US government announced the imposition of 15% tariffs for 150 days through Section 122 of the 1974 Trade Act. Other routes for implementing tariffs exist but require lengthy investigations.
- The ruling will likely see the overall effective tariff level drop slightly to 14% from 15%-16%. Companies and markets have become accustomed to these levels.
- Any refunds could be slightly beneficial for US earnings and the economy, but the government will receive marginally lower tax revenues. Despite uncertainty, tariffs look set to remain a feature from here.
This week we focus on tariffs following last Friday’s US Supreme Court ruling that the current tariff regime under the International Emergency Economic Powers Act (IEEPA) is unlawful. The decision upholds the judgements of two lower courts last year and was not surprising given the language used in the deliberations by the Supreme Court back in November.
Some uncertainty remains as the Supreme Court decided to let lower courts decide what to do about refunds of tariffs already paid. This will cause febrile confusion over the coming months, and President Trump commented that it will “result in five years of litigation”. Given there are plenty of other routes by which the White House can pursue tariffs, its response was not a huge surprise. President Trump duly announced the use of Section 122 of the 1974 Trade Act, which allows a blanket tariff of up to 15% for 150 days. On Friday, Trump announced a 10% levy, but a day later this was increased to 15%. The ‘new’ tariff regime will begin on Tuesday 24 February for 150 days, through to July. In theory that could be extended further with a Congress vote, but with a razor thin majority and the midterms on the horizon it is not clear the Republicans would support further tariffs. It may be legally questionable, but Trump could allow the 150-day period to end and then declare another emergency and put the tariffs back in place for another 150 days. The result would be the imposition of constantly rolling tariffs.
However, there are more effective and arguably more legal mechanisms for the US administration to pursue. These include Section 232 of the 1962 Trade Expansion Act, which allows investigations into specific sectors – such tariffs are already in place. In addition, there is Section 301 of the same act that covers countries and ‘unfair practices’. Such tariffs require investigations to take place, which on average have taken around nine months. This timescale could be speeded up in future and allow the US to have more focused tariffs rather than the blanket 15% level. There is also Section 338 of the 1930 tariff act, which allows for much larger tariffs of up to 50% for ‘unfair practises’ – again with investigations needed. However, I don’t think Trump is looking for 50% – an average of around 15% seems like a level that markets and companies are comfortable with.
The removal of the unlawful IEEPA tariffs means the overall effective rate will drop slightly to around 14% from 15%-16%. The key point is that the removal of the IEEPA umbrella removes a significant amount of policy leverage for Trump. Thus far he has used tariffs as both an economic and foreign policy tool to enforce his views on other countries. Trump certainly has plenty to talk about in his State of the Union address, which is on Tuesday.
It seems likely that we are now going to be in a persistent tariff regime. This has always been our base case, although the Supreme Court ruling does add more confusion in the short term. Tariffs of around 14%-16% are significantly higher than at the start of 2025, but markets and companies have got themselves comfortable with such levels.
At the margin the refunds – if they are processed – will be slightly beneficial for US earnings and the economy. The flip side is that the US government will receive marginally lower tax revenues. Overall, we expect tariffs to remain a feature as, despite the Supreme Court’s ruling, the US government has other routes through which to pursue the implementation of levies.
