Supreme Court tariff ruling reshapes global trade landscape

The ruling and its scope

In a 6-3 decision issued on 20 February 2026, the Supreme Court of the US (SCOTUS) ruled that the International Emergency Economic Powers Act (IEEPA) does not authorise the president to impose tariffs.

The ruling invalidates the administration's sweeping country-level reciprocal tariffs and fentanyl-related levies, which had collectively accounted for roughly half of all US customs duties since their introduction in early 2025. The Penn Wharton Budget Model estimates cumulative IEEPA tariff collections reached approximately $165 billion through January 2026, with potential refund exposure of up to $175 billion. The Supreme Court did not address the mechanics of refunds, leaving the matter to renewed proceedings before the Court of International Trade (CIT). Whilst nearly 2,000 companies had already filed protective actions prior to the ruling, this represents a fraction of the 300,000+ importers that had paid IEEPA duties by December 2025.

Washington's response: Section 122 as the new vehicle

The Trump administration responded within hours. On 20 February, President Trump issued a proclamation imposing a 10% 'temporary import surcharge' on all countries under Section 122 of the Trade Act of 1974, effective 24 February 2026, for 150 days. The following day, he announced via social media his intention to raise the rate to the statutory maximum of 15%.

The Section 122 framework carries important carve-outs. Exempted categories include USMCA-qualifying goods from Canada and Mexico, critical minerals, pharmaceuticals, and certain electronics. Section 232 tariffs on metals and vehicles remain fully intact and are unaffected by the SCOTUS ruling.

A critical constraint distinguishes Section 122 from its IEEPA predecessor: the tariffs expire automatically after 150 days — by 24 July 2026 — unless Congress votes to extend them, a politically uncertain proposition with midterm elections approaching and polls showing voter opposition to elevated import costs.

Marginal relief on effective burden

Despite the ruling's landmark status, US importers and consumers face a tariff landscape that remains substantially elevated.

According to the Yale Budget Lab, the elimination of IEEPA tariffs reduces the average effective tariff rate from 16.0% to 9.1% should Section 122 tariffs expire after 150 days — still the highest level since 1947, excluding 2025. Should Section 122 tariffs instead be extended indefinitely, the effective rate would rebound to 13.7%.

On consumer welfare, the temporary tariff regime implies a short-run consumer price increase of 0.6%, equivalent to an average household income loss of approximately $800 in 2025 dollars, falling to $600 once substitution effects are accounted for.

From a fiscal perspective, the Yale Budget Lab projects the current tariff regime will raise approximately $1.3 to $2.2 trillion over 2026–35 depending on whether Section 122 tariffs expire, down from the $2.6 trillion projection prior to the SCOTUS ruling.

The real GDP faces a persistent long-run reduction of 0.1%; if extended, the drag roughly doubles. On the labour market, the unemployment rate is projected to be approximately 0.3 percentage points higher by end-2026, an improvement from the 0.5 percentage point impact projected under the prior IEEPA regime.

Who are the winners and losers?

The ruling produces a marked reordering of relative competitive positions across trading partners. Jurisdictions previously facing above-15% IEEPA tariffs — principally China and India — emerge as relative beneficiaries of the ruling. Conversely, the UK and Australia had previously negotiated favourable rates of 10% and are now subject to a higher tariff rate. For other trade partners such as the European Union (EU), Japan, South Korea, and Taiwan, the headline rate is ostensibly unchanged, yet the narrowing of their differential advantage against previously higher-tariffed nations constitutes a material setback.

Sectoral implications and things to watch

At a company level, the partial unwinding of tariffs offers the most direct relief to importers of consumer goods — including apparel, footwear, toys, and Chinese-origin electronics — which faced meaningful IEEPA tariff exposure throughout 2025. The extent of any duty refunds remains contingent on CIT proceedings, where high claim volumes could create multi-year delays.

Several factors will shape the trajectory in the coming weeks. Trump has warned that trading partners perceived to be 'playing games' on previously agreed terms may face punitive responses, introducing continued uncertainty. The EU's decision to pause ratification of its trade deal with Washington pending legal clarity bears watching as a bellwether for broader multilateral confidence. India retains additional flexibility as it finalises the terms of its framework agreement. Finally, Trump's planned visit to Beijing on 31 March carries significant implications for US–China trade dynamics — even after the ruling, China retains one of the highest aggregate tariff burdens among major US trading partners, with a trade-weighted effective rate of approximately 30%.

Market reaction

The latest uncertainty surrounding trade policy has added to the volatility of global equity markets, but the magnitude of the swings was much smaller than what was seen in April 2025.

The US 500 index has rebounded swiftly in yesterday's session following Monday's minor correction. The medium-term uptrend is still intact given the index is trading above its 200-day moving average (MA). However, technical momentum has deteriorated after a death cross has been formed between the 20-day and 50-day MA. We expect the index to trade within a tight range between 6,800 and 6,900 in the next few sessions before establishing its next decisive move.

US 500 Index daily price chart