Expectations are high that the U.S. Supreme Court will rule against the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) – the 1970s legislation that allows a president to declare a national economic emergency – to justify tariffs. Betting markets had placed the odds of a ruling in favor of the president’s use of IEEPA at about 40% before the recent oral arguments on November 5, but since then, the odds have dropped to roughly 20%, according to outcome trading platform Kalshi.
Even if the Court deems the IEEPA tariffs invalid, we doubt it will matter much in the long run, other than creating near-term uncertainty around tariff details and briefly refocusing markets on deficits. Keep in mind that although the Court may find IEEPA does not allow tariffs, Congress has granted the president explicit tariff powers for reasons ranging from balance-of-payments to national security. Unlike IEEPA, these powers are more limited and require extensive, time-consuming investigations and/or congressional oversight. The point stands: Even if IEEPA is overruled, the president still has broad authority to advance a trade agenda. Indeed, as the IEEPA case has proceeded through the U.S. court system, the administration has begun laying the groundwork to rebuild current tariff policies through more legally durable means.
As such, the current 13% average effective tariff rate (according to Treasury collections data) is likely here to stay. Businesses that have been slow to adjust, given heightened policy uncertainty, will have to adapt. At the same time, the potential for the Court ruling to trigger refunds of IEEPA-related tariffs paid in 2025 could give businesses some additional near-term flexibility, although knotty details may slow those refunds.
Expediency vs. legal legitimacy
Tariffs and trade policy were central to President Trump’s campaign, and he moved quickly once in office. He implemented sweeping tariffs, preferring to enact them under IEEPA – a legally untested use of presidential emergency powers. IEEPA does not explicitly mention tariffs, and its use may be overturned, but it allowed time to build stronger legal cases through Commerce Department investigations.
U.S. trade law grants the president broad (but not unlimited) power to impose tariffs. For example, Section 232 of the 1962 Trade Expansion Act allows the president to impose tariffs or quotas on products if the Commerce Department finds that imports impair national security. These powers have been used under Trump 2.0 for sweeping tariffs on steel, aluminum, autos, and parts. Section 301 of the 1974 Trade Act allows the president to impose tariffs or other restrictions in response to unfair trade practices by another country. The first Trump administration did this in the case of China after finding unfair practices, including intellectual property theft, forced technology transfers, and discrimination. Both Sections 232 and 301 require detailed investigations by the Commerce Department.
More general economic or balance-of-payments threats fall under Section 122 of the Trade Act, allowing for a sweeping 15% tariff on imports to address large trade deficits, which the U.S. has run for decades. However, without congressional approval, the president is limited to a 150-day implementation window.
Quantifying IEEPA tariffs
President Trump used IEEPA to impose more than half of this year’s tariffs, including measures on Mexico, Canada, Chinese fentanyl-related tariffs, and reciprocal tariffs on various other countries. Lower courts have ruled that this is unlawful, though they allowed the tariffs to remain in place while litigation continues.
During oral arguments two weeks ago, Supreme Court justices appeared unsurprisingly uncomfortable with the use of IEEPA to impose tariffs specifically – not the president’s emergency declaration more generally (as argued by the lower courts) – laying the groundwork for a likely ruling against the president.
IEEPA tariffs currently add roughly 8 percentage points (ppts) to the approximately 13.5% effective U.S. tariff rate. A broad ruling against the administration’s IEEPA usage could therefore reduce the effective rate by that amount, though a narrower ruling is possible.
How tariffs could be rebuilt
Regardless of the Court’s decision, the administration can reconstruct the tariff regime using legally stronger tools and has already laid the groundwork. For example, ongoing Section 232 investigations in pharmaceuticals, technology, chemicals, and commodities could allow the president to raise tariffs across a range of products. A new 25% tariff on pharmaceutical and semiconductor imports alone could push the effective rate back above 10%.
Additional Section 301 investigations on large trading partners, including Europe, Japan, and other East Asian economies, could replicate trade agreements negotiated by the administration and restore current rates.
Imposing a 15% universal tariff for up to six months by invoking Section 122 would give the administration more time to complete new investigations. Whether coincidental or not, negotiations with various trading partners have levied U.S. tariff rates on their imports at 15% – a level permissible under Section 122.
The U.S. cut IEEPA tariffs on China from 20% to 10%, but ongoing Section 301 and 232 investigations could push China’s effective tariff rate back to ~35% if the Court strikes down the remaining 10%.
Macro implications
Tariff policy changes could shift the longer-term U.S. deficit from roughly 6% of GDP to 6.5%–7%, depending on how the Court rules. However, if the administration quickly uses other legal means to re-establish current duties, the fiscal implications are limited to roughly $100 billion in refunds – a relatively modest amount in the broader context of $1.8 trillion annualized U.S. fiscal deficits. (The IEEPA tariffs under question represent about 50% of the roughly $200 billion in tariff revenue collected to date.)
Such refunds could be paid back in 2026 – amounting to 0.4 ppts of GDP – and could provide some additional cyclical boost, especially when coupled with one-time payments to households and corporates for the retroactively applied tax cuts included in the One Big Beautiful Bill Act. This could give corporates more time to implement business adjustments while catalyzing another round of trade front-running ahead of the Supreme Court decision.
Refunds may face delays because, although Customs and Border Protection has a process in place, most payments are still issued by paper check and require extensive administrative work. Law firms specializing in trade law are advising clients to get paperwork ready now, ahead of the Court decision. The White House likely has significant discretion to slow-walk refund payments regardless.
Delayed adjustments could make the Fed more cautious on rate cuts, keeping business interest rates higher for longer. Fed policymakers would have to continue weighing labor risks against what could be a more drawn-out pass-through of tariffs into prices. This could lead to a lower peak but more persistent inflationary path and a lower unemployment rate during 2026.
Expectations are high that the U.S. Supreme Court will rule against the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) – the 1970s legislation that allows a president to declare a national economic emergency – to justify tariffs. Betting markets had placed the odds of a ruling in favor of the president’s use of IEEPA at about 40% before the recent oral arguments on November 5, but since then, the odds have dropped to roughly 20%, according to outcome trading platform Kalshi.
Even if the Court deems the IEEPA tariffs invalid, we doubt it will matter much in the long run, other than creating near-term uncertainty around tariff details and briefly refocusing markets on deficits. Keep in mind that although the Court may find IEEPA does not allow tariffs, Congress has granted the president explicit tariff powers for reasons ranging from balance-of-payments to national security. Unlike IEEPA, these powers are more limited and require extensive, time-consuming investigations and/or congressional oversight. The point stands: Even if IEEPA is overruled, the president still has broad authority to advance a trade agenda. Indeed, as the IEEPA case has proceeded through the U.S. court system, the administration has begun laying the groundwork to rebuild current tariff policies through more legally durable means.
As such, the current 13% average effective tariff rate (according to Treasury collections data) is likely here to stay. Businesses that have been slow to adjust, given heightened policy uncertainty, will have to adapt. At the same time, the potential for the Court ruling to trigger refunds of IEEPA-related tariffs paid in 2025 could give businesses some additional near-term flexibility, although knotty details may slow those refunds.
Expediency vs. legal legitimacy
Tariffs and trade policy were central to President Trump’s campaign, and he moved quickly once in office. He implemented sweeping tariffs, preferring to enact them under IEEPA – a legally untested use of presidential emergency powers. IEEPA does not explicitly mention tariffs, and its use may be overturned, but it allowed time to build stronger legal cases through Commerce Department investigations.
U.S. trade law grants the president broad (but not unlimited) power to impose tariffs. For example, Section 232 of the 1962 Trade Expansion Act allows the president to impose tariffs or quotas on products if the Commerce Department finds that imports impair national security. These powers have been used under Trump 2.0 for sweeping tariffs on steel, aluminum, autos, and parts. Section 301 of the 1974 Trade Act allows the president to impose tariffs or other restrictions in response to unfair trade practices by another country. The first Trump administration did this in the case of China after finding unfair practices, including intellectual property theft, forced technology transfers, and discrimination. Both Sections 232 and 301 require detailed investigations by the Commerce Department.
More general economic or balance-of-payments threats fall under Section 122 of the Trade Act, allowing for a sweeping 15% tariff on imports to address large trade deficits, which the U.S. has run for decades. However, without congressional approval, the president is limited to a 150-day implementation window.
Quantifying IEEPA tariffs
President Trump used IEEPA to impose more than half of this year’s tariffs, including measures on Mexico, Canada, Chinese fentanyl-related tariffs, and reciprocal tariffs on various other countries. Lower courts have ruled that this is unlawful, though they allowed the tariffs to remain in place while litigation continues.
During oral arguments two weeks ago, Supreme Court justices appeared unsurprisingly uncomfortable with the use of IEEPA to impose tariffs specifically – not the president’s emergency declaration more generally (as argued by the lower courts) – laying the groundwork for a likely ruling against the president.
IEEPA tariffs currently add roughly 8 percentage points (ppts) to the approximately 13.5% effective U.S. tariff rate. A broad ruling against the administration’s IEEPA usage could therefore reduce the effective rate by that amount, though a narrower ruling is possible.
How tariffs could be rebuilt
Regardless of the Court’s decision, the administration can reconstruct the tariff regime using legally stronger tools and has already laid the groundwork. For example, ongoing Section 232 investigations in pharmaceuticals, technology, chemicals, and commodities could allow the president to raise tariffs across a range of products. A new 25% tariff on pharmaceutical and semiconductor imports alone could push the effective rate back above 10%.
Additional Section 301 investigations on large trading partners, including Europe, Japan, and other East Asian economies, could replicate trade agreements negotiated by the administration and restore current rates.
Imposing a 15% universal tariff for up to six months by invoking Section 122 would give the administration more time to complete new investigations. Whether coincidental or not, negotiations with various trading partners have levied U.S. tariff rates on their imports at 15% – a level permissible under Section 122.
The U.S. cut IEEPA tariffs on China from 20% to 10%, but ongoing Section 301 and 232 investigations could push China’s effective tariff rate back to ~35% if the Court strikes down the remaining 10%.
Macro implications
Tariff policy changes could shift the longer-term U.S. deficit from roughly 6% of GDP to 6.5%–7%, depending on how the Court rules. However, if the administration quickly uses other legal means to re-establish current duties, the fiscal implications are limited to roughly $100 billion in refunds – a relatively modest amount in the broader context of $1.8 trillion annualized U.S. fiscal deficits. (The IEEPA tariffs under question represent about 50% of the roughly $200 billion in tariff revenue collected to date.)
Such refunds could be paid back in 2026 – amounting to 0.4 ppts of GDP – and could provide some additional cyclical boost, especially when coupled with one-time payments to households and corporates for the retroactively applied tax cuts included in the One Big Beautiful Bill Act. This could give corporates more time to implement business adjustments while catalyzing another round of trade front-running ahead of the Supreme Court decision.
Refunds may face delays because, although Customs and Border Protection has a process in place, most payments are still issued by paper check and require extensive administrative work. Law firms specializing in trade law are advising clients to get paperwork ready now, ahead of the Court decision. The White House likely has significant discretion to slow-walk refund payments regardless.
Delayed adjustments could make the Fed more cautious on rate cuts, keeping business interest rates higher for longer. Fed policymakers would have to continue weighing labor risks against what could be a more drawn-out pass-through of tariffs into prices. This could lead to a lower peak but more persistent inflationary path and a lower unemployment rate during 2026.
Bottom line
The Supreme Court decision could give companies a one-time repayment, although the White House could hold up those refunds so they may be paid out over time. Regardless, with the likely enactment of more legally durable tariffs thereafter, companies will have to face a hard reality: Tariffs are here to stay as long, if not longer, than President Trump is in the White House.
The Supreme Court decision could give companies a one-time repayment, although the White House could hold up those refunds so they may be paid out over time. Regardless, with the likely enactment of more legally durable tariffs thereafter, companies will have to face a hard reality: Tariffs are here to stay as long, if not longer, than President Trump is in the White House.
Disclosures
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Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
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