The U.S. Supreme Court on Friday invalidated tariffs that President Donald Trump had imposed under the 1977 International Emergency Economic Powers Act (IEEPA). Most of the administration’s 2025 tariffs will therefore be rolled back, and importers should eventually receive refunds.
Over time, however, tariff levels are likely to climb back up to roughly where they stood prior to the ruling; the Trump administration is pursuing other more legally durable avenues to rebuild the tariff regime. We don’t expect these tariff developments to have much of a direct net impact on the U.S. economy.
The court’s 6–3 ruling does have important implications for U.S. policy volatility, even if higher tariff rates are here to stay. In the near term, trade policy uncertainty is likely to remain high, as the details of the new trade regime become finalized. Eventually, the ruling should help alleviate the policy unpredictability that delayed investment and hiring decisions in 2025. Trump’s ability to quickly and flexibly threaten tariffs ahead of foreign policy negotiations for wide-ranging reasons is now more limited. Implementing more legally durable tariffs is also more process-laden. Those process constraints should eventually benefit both the U.S. and global economies.
Tariffs in the wake of the Supreme Court ruling
The Supreme Court broadly upheld the separation of powers as delineated under the Constitution – that the White House executes the laws, but it is Congress that creates them – and reinforced that the power of the purse, specifically the power of taxation, rests with Congress.
By invalidating emergency tariff powers, the Supreme Court prompted a recalibration of U.S. trade policy and executive authority. Specifically, the ruling invalidated Trump’s reciprocal tariffs, which he had imposed on approximately 65 countries, tariffs on non-USMCA-compliant goods from Canada and Mexico (USMCA is the U.S.–Mexico–Canada Agreement), and additional tariffs on China (beyond the Section 301 tariffs imposed in 2018–2019).
Altogether, these IEEPA tariffs represent more than 60% of all tariffs on U.S. imports, and account for approximately 8 percentage points of the 13% estimated average effective tariff rate in 2025.
The remaining tariffs include those that were implemented under Section 232 of the trade law, and include a 25% tariff on steel, 10% on aluminum, 25% on autos and auto parts (with many carve-outs, including Japanese and USMCA autos and auto parts), 25% on copper, 25% on lumber, and 50% on certain semiconductors. Section 301 tariffs on China from 2018–2019 also survive (this is a 20% levy on all imports from China).
The Trump administration’s rapid response: new tariffs
Despite the ruling, tariff levels aren’t likely to change much. There were always more legally durable, yet cumbersome, means to implement tariffs both across countries and products. The administration has said it is now working quickly using those means to rebuild what the court’s ruling struck down, while implementing a temporary new global tariff in the meantime.
Specifically, as of this writing, President Trump has announced a 15% global tariff using Section 122 of the Trade Act of 1974, while indicating forthcoming country-level Section 301 tariffs and the continuation of existing product-level Section 232 tariffs. This Section 122 tariff is being implemented initially at 10%, but we believe it will likely rise to 15% eventually.
The new 15% tariff under Section 122 is a “global” tariff, although with some notable exclusions for existing free trade agreements and product-level exclusions that were also exempted from IEEPA tariffs. Since it can only be applied for five months unless Congress renews (which is unlikely), we view it as a temporary solution while the administration quickly works through the process of Section 301 and additional 232 tariffs. Also, there are questions about the legality of the Section 122 tariffs, which are part of a 1974 law and are designed to address “large and serious balance-of-payments deficits” and an “imminent and significant depreciation of the dollar.” That said, any litigation likely wouldn’t be settled before these tariffs expire in July.
Section 301 tariffs require an investigation to move forward. The administration had already laid the groundwork for these tariffs. For example, we suspect it will argue that digital services taxes employed by many countries including Europe, Japan and others unfairly hurt U.S. tech companies. Separately, the administration will likely argue that various southeast Asian countries, which intermediate trade from China to the U.S., are unfairly allowing Chinese manufacturers to access U.S. markets under lower tariff terms.
Refunding revenue already collected under IEEPA tariffs
The court’s ruling at least in theory requires the Treasury to pay back IEEPA tariffs already collected – Treasury data suggest the U.S. has collected an estimated $175 billion, representing about 0.5% of GDP. Refunding would be a substantial one-time transfer back to the business sector.
In practice, the refund process is likely to be messy and delayed. The U.S. Trade Representative said that the government would wait for the courts to rule on the issue of refunds before starting to process them, and even after they begin it will likely take quite some time.
Furthermore, trade contracts between domestic importers and foreign exporters can be complex. The entity that actually paid the tariff may not be the entity that bore the economic cost of the tariff, requiring lawsuits and additional court rulings to sort out the damages.
Status of trade deals
The U.S. Trade Representative said the trade agreements entered into under the auspices of IEEPA tariffs still stand, even if those IEEPA tariffs don’t. Most such countries have remained quiet, with the exception of a few, including the European Union, which has suggested it won’t proceed with a vote in parliament for the time being. Going forward, the lack of the flexibility of IEEPA could diminish some U.S. leverage in trade negotiations, particularly in advance of President Trump’s scheduled meeting with China’s President Xi Jinping as well as ahead of the mandatory review of the U.S.–Mexico–Canada trade agreement (USMCA).
Economic ramifications
The direct economic effects of the Supreme Court ruling and the Trump administration’s response are likely to be minimal. With the new tariffs and exemptions, we estimate that the effective average tariff rate is marginally lower than it was before the IEEPA decision – 11% vs. 13%. Our long-run view, however, is that the tariff rates land at around 13% once other permanent tariffs are imposed.
There could be company- and country-specific winners and losers depending on the details. Refunds could provide some marginal temporary relief to the corporate sector (depending on who can collect), while there are various countries that will feel some temporary relief during the months the Section 122 tariffs are imposed. For example, prior to Friday’s ruling, China, Brazil, Japan, the euro area, Korea, Vietnam, and others faced negotiated “reciprocal” tariff rates of 20% to 40% on trade outside of the scope of the product-level Section 232 tariffs. These tariffs will fall to 15% until other more permanent Section 301 tariffs can be enacted.
We doubt companies will pass on the temporary relief to consumers through downward price adjustments. Various studies suggest that price responses to VAT and tariff changes tend to be asymmetric, as prices historically have been more rigid in response to negative VAT/tariff shocks. Also, with the expectation of more permanent tariffs coming soon, businesses will likely be reluctant to adjust pricing until the administration transitions to the new tariff regime.
Bottom line for U.S. tariffs
We expect the administration to move quickly to replicate the roughly 13% tariff rate that existed prior to the Supreme Court’s ruling, and for the direct economic implications of the various actions to be limited. The near-term increase in trade policy uncertainty could give way to greater stability eventually as the tariff picture gains greater clarity.
By eliminating a key tool that the Trump administration had been using to quickly impose and threaten tariffs, the court’s decision constrains the administration to implementing tariffs through more cumbersome and limited, yet legally durable, means. Over time, this should reduce trade policy volatility and increase business and household confidence to make future financial decisions. In other words, trade policy by tweet is coming to an end.
