Tariffs, take two

On February 20th the Supreme Court handed down the most important trade ruling in a generation. By six votes to three, it held that the International Emergency Economic Powers Act (IEEPA), the law President Donald Trump had used to impose sweeping tariffs on almost every trading partner, does not authorise the president to levy tariffs at all. The “Liberation Day” duties of April 2025, which had sent the S&P 500 tumbling by almost a fifth from its peak, were unlawful.

Free-traders celebrated. They were premature.

Plan B, then plan C

Within four days the administration imposed a 10% surcharge on imports from everywhere under Section 122 of the Trade Act of 1974, an obscure provision that lets the president act against balance-of-payments problems for up to 150 days. It took effect on February 24th. A trade court ruled in May that the surcharge also exceeded presidential authority, but its relief applied only to the three companies that had sued. The tariff was collected until July 24th, when the 150-day limit expired and Congress declined to extend it.

The same minute it lapsed, a replacement arrived: tariffs of 10% and 12.5% under Section 301, a law aimed at unfair trade practices, covering imports from dozens of countries and, by one estimate, almost all American imports. Goods from the European Union remain under the 15% ceiling agreed in last year’s trade deal. Unlike Section 122, Section 301 carries no time limit, although it too was challenged in court within a week. Meanwhile, new investigations under Section 232, a national-security law, are under way into imports of robotics, wind turbines, drones and pharmaceuticals.

By the numbers

The effective tariff rate, which divides the customs duties actually collected by the value of imports, tells the story. According to the Penn Wharton Budget Model, it rose from 2.2% in January 2025 to about 10.9% in October 2025. After the court’s ruling it fell, but only to 7.1% by June 2026, still more than three times its level before the trade war began. China faces the highest rate, 23.2%, and steel and aluminium products face 40.9%.

January 20252.2

October 202510.9

June 20267.1

04812

Source: Penn Wharton Budget Model (customs duties as a share of import value)

The refund bill

The ruling created a problem nobody had planned for: what to do with the money. The government had collected an estimated $166bn in IEEPA tariffs before they were removed, and Penn Wharton reckons refunds could reach $175bn. The process has been messy. A court order requiring immediate refunds was stayed, and importers were pointed towards the slower process of filing protests. Customs and Border Protection has begun paying some refunds electronically, but the mechanics remain contested.

The money will mostly go to importers, not to the consumers and businesses further down the supply chain who paid the higher prices. It will also land on a Treasury already running a deficit of about $2trn a year, at a time when ten-year borrowing costs are above 5%.

What the court did and did not do

The ruling settled a constitutional question: Congress, not the president, holds the power to tax trade, and an emergency law does not quietly transfer it. That matters for the future. A president can no longer impose tariffs of any size on any country overnight by declaring an emergency.

It did not end protectionism. American trade law contains plenty of other tools, each with its own procedures, limits and legal risks, and the administration has shown it is willing to use them in sequence. For companies the result is less a return to free trade than a change in the kind of uncertainty they face. Tariffs that once depended on a presidential announcement now depend on investigations, hearings, deadlines and appeals. That is slower and more predictable. It is not cheaper.