Supreme Court decision unlikely to end US tariffs
Key takeaways
Tariffs likely persist
Even without IEEPA, other statutes let the administration reapply similar tariffs, keeping overall tariff levels elevated.
Markets calm for now
Initial moves in stocks and yields reflect headline reactions, but the ruling shouldn’t materially shift market fundamentals.
Investment view steady
Macro tailwinds and resilient markets should support stocks, with non‑US, small-caps, and cyclicals still looking attractive.
The US Supreme Court ruled that the President doesn’t have the authority to unilaterally impose tariffs under the International Emergency Economic Powers Act (IEEPA). The decision upholds earlier rulings by the US Court of International Trade and the US Court of Appeals for the Federal Circuit, which found IEEPA-based tariffs unlawful. The ruling is important because tariffs enacted under the IEEPA accounted for approximately 60% of the recent 17% average effective US tariff rate.1
The core legal challenge centered around the President’s power to impose tariffs under the IEEPA. While the IEEPA permits a sitting President to “regulate” imports during a national emergency, it doesn’t explicitly authorize tariffs as a means to do so. Also, since tariffs are a tax — and the Constitution assigns taxing authority to Congress — the executive branch’s use of tariffs under the IEEPA raised serious legal questions.
How markets have reacted
The ruling was largely anticipated. Prediction markets had consistently projected a low probability that IEEPA tariffs would be upheld, especially after the Supreme Court expressed skepticism over their legality during oral arguments last November.
Although the ruling was mostly priced into financial markets, initial reactions were as expected but may only prove temporary:
- US small caps jumped as reduced supply-chain uncertainty may potentially support profit margins.2
- Non-US stocks rallied, particularly in export-heavy economies sensitive to US trade policy, such as Canada, Mexico, and countries across Asia.3
- US Treasury yield curve steepened as long-term rates rose, likely reflecting improved growth expectations and fiscal pressure from potential loss of tariff revenue.4
- US dollar weakened due to the steepening of the yield curve and the possibility that lower tariff rates could put less upward pressure on inflation, allowing the Federal Reserve to continue lowering interest rates.5
Since the market had largely anticipated the ruling, these initial moves appear to be knee-jerk reactions to headlines rather than true signals of fundamental change in the global economic landscape.
Our outlook on the situation
Despite the Court striking down IEEPA tariffs, overall US tariff levels are unlikely to decline substantially. Other statutes grant the President broad authority to impose tariffs, meaning those previously enacted under the IEEPA could simply be reimposed under different legal frameworks (see chart below). This is why the markets’ initial reaction to the ruling may ultimately be short-lived.
Statutory authorities that could be used to replace IEEPA tariffs
| Statute | Purpose | Implementation speed | Length restrictions | Tariff limit | Prior use case |
|---|---|---|---|---|---|
Section 122 Trade Act of 1974 |
Address balance of payments deficit | Immediate | 150 days; requires Congressional approval to extend | 15% max. | Never been used |
Section 232 Trade Expansion Act of 1962 |
Regulate imports for national security | Slow | Requires investigation by Commerce Department; no time limit once completed | None | Existing US tariffs on steel and aluminum |
Section 301 Trade Act of 1974 |
Address unfair trade practices | Slow | Requires investigation by US Trade Representative; no time limit once completed | None | Existing US tariffs on certain Chinese imports |
Section 338 Tariff Act of 1930 |
Respond to discrimination against US commerce | Uncertain | None | 50% max. | Never been used |
Sources: Invesco Strategy & Insights, Bloomberg L.P., and Evercore ISI, as of Feb. 20, 2026.
Though it’s impossible to predict the approach the administration might take, a combination of Section 122, Section 232, and Section 301 seems most likely in our view:
- Section 122 allows the President to impose up to 15% tariffs for 150 days without congressional approval. This could serve as a temporary measure to replicate most IEEPA tariffs while longer-term options are pursued.
- More permanent solutions include Section 232 and Section 301 tariffs, which require potentially lengthy processes to put in place, but have no time limits once imposed. Several existing tariffs have already been enacted under these statutes, potentially shortening the implementation time for new tariffs. Section 232 tariffs, however, require sector-by-sector assessments, and Section 301 requires country-by-country evaluations, which could slow enactment in cases where tariff processes haven’t already begun. Section 122 tariffs, however, could potentially serve as a stopgap during those instances.
Our investment view
With the multiple avenues that can be pursued to keep tariffs in place, US tariffs appear here to stay, even though their legal basis may change. Fortunately, global economies and financial markets have already proven they can withstand multi-decade high US tariff rates. Our outlook for 2026 remains optimistic. Major tailwinds are converging simultaneously, including worldwide fiscal and monetary stimulus, and substantial AI-driven investment that has the potential to boost productivity and economic growth. Those tailwinds also come against a backdrop where households and corporates, in aggregate, aren’t excessively leveraged. The environment, therefore, continues to be positive for risk assets, especially areas of the market that appear attractively priced, such as non-US and smaller-capitalization stocks, and US cyclical sectors. This ruling changes little, if anything, in our investment views.
Risks to that view
Although several legal paths exist to replicate IEEPA tariffs, the process may not be entirely straightforward. Companies that have already paid IEEPA tariffs could potentially sue for refunds. In fact, nearly 1,000 companies have already announced plans to do just that,6 potentially complicating the US government’s fiscal position. In 2025, the US Treasury collected approximately $20 billion per month in IEEPA-based tariff revenue.7 The process of distributing refunds, however, would likely be slow and complicated, as questions arise over who should ultimately receive refunds and at what amount.
Outside the US, tariff-impacted countries may seek to renegotiate trade agreements, potentially resulting in renewed policy uncertainty just as the global economy seemed to be adapting to a stabilization of tariff rates. Adding to the complexity is that a few of the statutes granting presidential tariff authority have never been used, possibly opening the door to future litigation.
Takeaway
From an investment perspective, while the macro and market outlook is still encouraging, greater volatility is possible as investors navigate the unfolding sequence of events. The backdrop post-Supreme Court decision, however, doesn’t appear fundamentally different than prior to the ruling.
Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Past performance is not a guide to future returns.
Important information
Image: Richard Sharrocks / Getty
All investing involves risk, including the risk of loss.
Past performance does not guarantee future results.
Investments cannot be made directly in an index.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
Monetary easing refers to the lowering of interest rates and deposit ratios by central banks.
Leverage measures a company’s total debt relative to the company’s book value.
Profit margin measures the profitability of a company by dividing net income by revenues.
A risk asset is generally described as any financial security or instrument that carries risk and is likely to fluctuate in price.
Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic, and political conditions.
The yield curve plots interest rates at a set point of time for bonds of equal credit quality but differing maturity dates in order to project future interest rate changes and economic activity.
The opinions referenced above are those of the author as of Feb. 20, 2026. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.
