Last Friday, the Supreme Court issued its 6-3 ruling that the International Economic Emergency Powers Act (IEEPA) does not authorize the President to impose tariffs, effectively striking down the legal foundation for more than two-thirds of President Trump’s second-term tariff actions. The administration responded immediately, replacing the IEEPA tariffs with a 10% baseline tariff under Section 122 of the Trade Act of 1974, which allows for temporary import surcharges to address U.S. balance-of-payment deficits. This was later raised to 15%, while signaling an intention to restore country-specific tariffs under Section 301 of the Act, which empowers the U.S. Trade Representative to investigate and counteract unfair trade practices.
Markets reacted swiftly. Equities tied to global supply chains initially rallied, the dollar softened modestly, but market gains broadly retreated in the next trading session as investors grappled with increased uncertainty in global trade. Questions about the long-term implications of artificial intelligence (AI) and increased tensions with Iran had already been weighing on markets, and the news on tariffs only added to the list of potential causes of market volatility. Although the headlines were dramatic, the underlying economic shift appears more incremental than structural.
A Meaningful Legal Shift, but a Modest Economic One
Strategas Research Partners estimates that replacing the IEEPA tariffs with a 15% Section 122 tariff would reduce tariff revenues by roughly $70 billion over 12 months—a 19% reduction relative to the pre-ruling structure. At a 10% rate, the reduction would have been larger ($145 billion), which likely explains the quick move higher to 15%.1
While Trump lost his most flexible trade authority, the economic impact is unlikely to change dramatically because other statutory tools remain available to the Administration. A 15% Section 122 tariff largely fills the gap left by IEEPA, resulting in only a modest reduction in the effective tariff rate.
In short, the legal authority has narrowed, but the Administration’s emphasis on tariffs has not disappeared.
1 Strategas Policy Outlook, February 23, 2026.
Tariffs Will Persist—Just Through Different Channels
The Administration has already made clear that Section 301 investigations will be launched on an accelerated timetable. Section 301 allows tariffs following investigations into unfair trade practices and, while procedurally more cumbersome than IEEPA, provides a durable and historically tested mechanism for imposing country-specific measures.
Our base case is that tariff levels will remain significantly elevated relative to pre-2024 norms, though modestly lower in the near term. Longer term, the Section 301 tariffs can reintroduce country-level variation and potentially restore higher rates once investigations conclude.
The 15% baseline functions as a bridge policy—maintaining leverage while the legal groundwork for more targeted tariffs is rebuilt.
Market Volatility Is Understandable—But It's Early
The market’s initial reaction reflects two competing forces:
- Near-term relief: Lower effective tariff rates and the potential for partial refunds of previously collected IEEPA tariffs offer incremental fiscal support.
- Policy uncertainty: The shift from a single executive lever to a patchwork of statutory authorities increases procedural friction and potential legal challenges.
Effective tariff rates had already been trending lower as supply chains adjusted, with the Supreme Court decision removing an additional $70 billion in tariff exposure. That helps explain the sharp rebound in stocks levered to Asian supply chains following the ruling.
Still, tariffs under Section 122 authority are limited to 150 days unless extended by Congress, and Section 301 investigations introduce months of uncertainty. Trade policy volatility is unlikely to disappear; instead, it will simply evolve.
What This Means for the Economy
From a macro perspective, the ruling modestly reduces the effective tariff rate in the near term. That likely eases inflationary pressure at the margin and slightly reduces downside growth risks. However:
- Tariffs remain politically central to the administration’s economic agenda.
- Tariff revenues have become a meaningful fiscal offset.
- Section 301 investigations provide a clear path to reinstating targeted measures.
In other words, the ruling constrains process more than policy direction.
Bottom Line
For investors, the key takeaway is that while tariff levels may run somewhat lower in the interim, trade policy uncertainty remains embedded in the outlook. Markets may continue to swing on headlines surrounding Section 301 developments, trade negotiations, and potential legal challenges to the Section 122 authority.
The Supreme Court’s decision represents a significant institutional check on executive authority. But it does not mark the end of tariff-driven trade policy.
Near-term tariff levels are likely to be slightly lower as Section 301 investigations get underway. Over time, however, we expect the administration to use the tools still available to maintain a structurally higher tariff regime than prevailed pre-2024.
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