US trade regime entered a new phase of uncertainty after the Supreme Court invalidated the use of emergency powers to impose broad tariffs. The ruling sharply reduces effective tariff rates but leaves fiscal and policy questions unresolved.
US trade regime faces uncertainty as tariffs shift after Supreme Court decision
The US trade regime has been significantly disrupted following a February 20 ruling by the Supreme Court of the United States that invalidated the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose broad-based tariffs on imports.
According to Fitch Ratings, the decision effectively cuts the United States’ effective tariff rate (ETR) by more than half, from approximately 13% to between 5% and 6%. The ruling removes the legal basis for tariffs imposed under IEEPA, which had accounted for the majority of recent federal tariff revenue.
However, the administration moved quickly to mitigate the policy shock. Within hours of the judgment, it announced a 10% global tariff under Section 122 of the Trade Act of 1974, later raising the rate to 15%. Section 122 permits the executive branch to impose tariffs for up to 150 days without congressional approval, offering a temporary workaround while longer-term legal and legislative options are considered.
The Court ruled that the president does not possess unilateral authority to levy tariffs under IEEPA. This determination underscores institutional checks and balances within the US constitutional framework but introduces renewed volatility into trade policymaking. The decision also creates legal ambiguity regarding whether previously collected IEEPA-related tariffs must be refunded.
Fitch estimates that IEEPA-based tariffs generated roughly USD240 billion annually at the October–November run rate, equivalent to about 0.8% of US GDP. These tariffs represented roughly two-thirds of total tariff revenue during that period. If refunds are mandated, the fiscal exposure could reach approximately USD175 billion, or 0.6% of GDP, further complicating federal budget dynamics.
The temporary 15% global tariff introduced under Section 122 is expected to partially offset lost revenue in the short term. Nevertheless, the durability of this replacement mechanism remains uncertain. Section 122 authority expires after 150 days, raising critical questions about what statutory framework will govern tariff policy thereafter.
The White House indicated that countries with existing trade agreements will see exports to the US subject to the new 15% rate, albeit with carveouts. Exemptions are expected for passenger vehicles, pharmaceuticals, certain electronics, and goods compliant with the United States-Mexico-Canada Agreement (USMCA). However, operational details remain limited.
If similar exemptions that applied under reciprocal IEEPA tariffs are retained under the new framework, Fitch projects that the effective tariff rate could stabilize around 11.5%, compared to the prior 12.7%. This suggests that while the headline ETR initially drops sharply, subsequent policy adjustments may restore much of the previous tariff burden.
The fiscal implications are significant. Fitch previously projected full-year tariff revenues of USD350 billion. Removal of IEEPA-related duties would imply a loss of approximately USD240 billion unless fully replaced. In its 2026 outlook, Fitch estimated a general government deficit of 7.3% of GDP, incorporating the impact of tax reductions under the OBBBA framework. Tariff revenue was assumed to offset a substantial portion of these tax cuts. Any sustained decline in tariff inflows would widen the deficit and accelerate debt accumulation unless counterbalanced by spending reductions or alternative revenue measures.
From a policy standpoint, the episode highlights structural tension between executive authority and statutory constraints in trade governance. While Section 122 provides temporary flexibility, long-term reliance on emergency or short-duration authorities may invite further judicial scrutiny.
The US trade regime now faces three layers of uncertainty. First is legal uncertainty regarding refunds and ongoing litigation risks. Second is fiscal uncertainty tied to revenue replacement and deficit projections. Third is strategic uncertainty concerning the administration’s broader commitment to elevated tariff barriers and how those objectives will be institutionalized beyond temporary mechanisms.
For global markets, the ruling signals both institutional resilience and policy unpredictability. The Supreme Court’s intervention reinforces constitutional oversight, yet the rapid imposition of alternative tariffs demonstrates continued executive commitment to protectionist trade measures.
In the near term, the effective tariff rate may fluctuate as exemptions are clarified and implementation details finalized. Over the medium term, Congressional involvement may become necessary if the administration seeks a durable statutory basis for sustained high tariff levels.
Ultimately, the US trade regime is in transition. While immediate revenue losses may be partially offset by the temporary 15% levy, the legal and fiscal architecture underpinning US tariff policy remains unsettled. Markets, trading partners, and fiscal authorities will be closely watching how the administration navigates the expiration of Section 122 authority and whether a more stable framework emerges.