Supreme Court decision unlikely to end US tariffs

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.

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.