The Supreme Court strikes down Trump's tariffs

The Supreme Court struck down the administration's across-the-board tariffs by 6–3 on 20 February. The justices ruled that the International Emergency Economic Powers Act (IEEPA) does not give the president authority to impose general trade taxes on his own, without the consent of Congress.

Who holds the taxing power

The decision goes back to first principles. Article I of the Constitution gives Congress, not the president, the power to lay and collect duties, and for most of the twentieth century Congress lent parts of that power to the executive through specific trade statutes with defined limits. IEEPA, passed in 1977 to let presidents freeze assets and block transactions in a national emergency, never mentions tariffs, and no president had used it to impose them before 2025. The lower courts had already reached the same conclusion, in May and August of last year, so the result was not a shock to lawyers even if it jolted markets.

Eighteen months of policy undone

The ruling is the biggest legal and economic break in commercial policy in modern times. By knocking away the legal basis for eighteen months of trade policy, the court took away the administration's main lever over both foreign relations and the budget. Economists' models of tariff rates and import duties had to be reset to zero overnight.

For anyone who models trade data, the decision is a textbook structural break. Import volumes, customs receipts and goods prices over the past eighteen months were generated under one legal regime, and the relationships estimated from them will not hold under the next. Imports surged early in 2025 as companies raced to beat the duties, then slumped, and a similar swing in the opposite direction is now likely as firms bring forward orders while no emergency tariff applies. Series that mix the two periods without allowing for the break will give misleading answers for some time.

What survives the ruling

Zero applies only to the emergency component. The tariffs on steel, aluminium, cars and car parts rest on Section 232 of the Trade Expansion Act of 1962, which allows duties on national-security grounds and was not before the court. The duties on Chinese goods imposed after the Section 301 investigation in 2018 and 2019 also stand. The average effective tariff rate therefore falls sharply but stays well above where it was at the start of 2025, and producers of metals and vehicles see little change at all.

The administration also retains other statutes. Section 122 of the Trade Act of 1974 allows a surcharge of up to 15 per cent for 150 days to deal with balance-of-payments problems, and Section 301 permits tariffs against unfair trade practices after an investigation. Neither offers the speed and breadth that emergency powers provided, and both come with procedural limits that give importers and courts more to work with.

Shares rally, refunds beckon

Retail, carmaker and technology shares jumped at once, as investors counted on lighter costs and the return of billions of dollars in duties already paid.

The refunds follow a path set by customs law. Duties are paid by the importer of record, so any repayment goes to that company rather than to the wholesalers and shoppers further down the chain who bore part of the cost. Entries that Customs has not yet finalised can in principle be adjusted without much fuss, while finalised ones may require formal protests, and the Court of International Trade will have to decide how relief is administered. The last comparable episode, after the court struck down the harbour maintenance tax on exports in 1998, saw exporters wait years for their money.

Trading partners face a quieter question. During 2025 Britain, Japan, the European Union and others agreed frameworks with Washington that accepted American tariffs on their exports in return for lower rates than those first threatened, and several promised investment or purchases in exchange. Those deals were struck under the threat of emergency duties that the court has now voided. Partners are unlikely to tear them up while other tariff powers remain available, but they have less reason to hurry with the concessions they promised and more room to argue over the terms.

The political calculation shifts as well. Congress now holds the power the administration had claimed, and members who were content to let the executive carry the blame for tariffs must decide whether to vote for them. With midterm elections in November, few are likely to volunteer for a vote on taxing imports.

A hole in the budget

Customs receipts had become a meaningful source of federal revenue for the first time in decades, and budget projections had come to rely on them. Losing the emergency duties removes a large part of that stream at the same time as the Treasury faces a refund bill, and the gap has to be borrowed. In the short run that means more Treasury bills, since debt managers have told the market they intend to keep the size of longer-dated auctions steady, and more pressure on money markets that have little spare cash to absorb them.

The winners from the ruling are importers with large refund claims, retailers and carmakers whose costs fall, and trading partners whose exporters regain price competitiveness in the American market. The losers are the Treasury, domestic producers that had gained from protection against imports, and investors who had positioned for tariffs to last.

The limits of the victory

The strongest caution is that the ruling changes the legal route more than the direction of policy. An administration determined to keep tariffs can rebuild some of them under other statutes, and companies may hesitate to cut prices or sign long supply contracts until they see which duties return and at what rate. The signals to watch are any proclamation under Section 122, orders from the Court of International Trade on how refunds will be paid, guidance from Customs to importers, and the Treasury's revised borrowing estimates. The 6–3 ruling puts tariff-setting back with Congress. Companies stand to collect a windfall on a scale not seen before, and the Treasury's revenue forecasts will have to be cut accordingly.