The United States Supreme Court ruled that the White House had exceeded its authority to impose reciprocal tariffs. What does this mean for the trade war? Our North America Economist Marcos Carias answers your questions.
Q: What was the SCOTUS ruling?
A: On Feb. 20, 2026, the Supreme Court of the United States, in a 6–3 decision, ruled that the White House had exceeded its authority by invoking the 1977 International Emergency Economic Powers Act (IEEPA) to impose the so-called “reciprocal tariffs.” In the hours following the ruling, the U.S. administration announced that it would instead rely on Section 122 of the Trade Act of 1974 to impose new tariffs. This provision allows the President to levy temporary import surcharges of up to 15% for a maximum of 150 days when facing “fundamental balance‑of‑payments problems.” After initially announcing a broad-based 10% tariff, President Trump subsequently raised the rate to the statutory maximum of 15%. On Feb. 24, the 10% tariffs entered into force, as the directive to raise the rate to 15% has not (yet?) been signed.
Q: What tariffs are concerned?
A: Most "country-based" tariffs applied under the second term. Critically, the ruling applies only to tariffs imposed under IEEPA — the fentanyl and immigration tariffs on China, Mexico, and Canada, as well as the reciprocal tariffs — and does not affect the larger tariff regimes built on other statutes. Section 232 tariffs remain fully in force, including those on steel, aluminum, copper, automobiles and auto parts, medium‑ and heavy‑duty vehicles, wood products and furniture, and certain semiconductor categories. Likewise, Section 301 tariffs responding to discriminatory trade practices—most of which target China—are also unchanged. The Section 122 tariff preserves existing exemptions for certain goods, most notably critical minerals, natural resources and fertilizers not produced in the United States, specific agricultural products, electronics, as well as pharmaceuticals and pharmaceutical ingredients. In addition, all products already subject to higher Section 232 tariffs are shielded from the surcharge. Goods compliant with the USMCA trade agreement between the United States, Mexico, and Canada also remain exempt.
Q: How does the ruling change the big picture for the trade war?
A: Not all that much, but it does add chaos an uncertainty. Following the shift to Section 122, we estimate that the statutory average tariff rate on 2024 imports fell from roughly 17% to just under 14% (Chart 1). Even so, this remains a dramatic increase compared with the 2.3% average tariff rate in place in January 2025.
Over the last few months, the reciprocal tariff framework had created a sense of relative stability in U.S. tariff policy, with country‑specific rates that were more settled than the rapidly shifting measures of spring and summer 2025. The Supreme Court’s ruling reintroduces three key uncertainties:
- The fate of bilateral “deals”. The reciprocal tariff arrangements negotiated with major partners now rest on an invalidated legal basis. The administration has signaled that the deals-based rates – including those signed with the EU, Japan, South Korea, the UK, Switzerland, or, more recently, India - would continue unaffected by the court-ruling.
- What happens after the 150-day window? Unless Congress approves an extension, the 15% tariffs will expire on July 24. A congressional extension nonetheless appears challenging because it would require lawmakers to take an explicit vote to maintain what is effectively a tax just months before the midterm elections (Nov. 3rd). While the President cannot extend the same tariffs alone, he could technically be able to start a new 150-day cycle by invoking Section 122 tariffs again. However, such a move would likely trigger more legal challenges, as this would likely look like an attempt to bypass Congress’s powers. Even before the decision, the administration was exploring ways to keep tariffs elevated, using alternative legal bases (see the last question).
- Will importers receive refunds for IEEPA tariffs already paid? The Supreme Court offered no guidance on whether unlawfully collected IEEPA tariffs must be refunded, delegating this issue to the lower courts. Over 2025, these tariffs generated an estimated USD 175 billion in additional customs revenue (around 0.7% of GDP), according to the Penn Wharton Budget Model. Refunding such amounts would significantly affect an already large FY 2025 federal deficit of 5.9% of GDP, complicating the math for policy projects like the $2,000 tariff rebate checks. Numerous importers have already filed lawsuits seeking reimbursement, but the legal process is expected to drag on for years, meaning that only large firms are likely to sustain the lengthy and costly litigation, while smaller businesses may be effectively excluded.
Q: What is the legal basis behind Section 122 tariffs?
A: A somewhat stronger (but not invulnerable) law from 1974. The Section 122 of the Trade Act allows the president to impose temporary tariffs and quotas in response to balance of payments problems. Unlike IEEPA, the section 122 text explicitly cites tariffs as a permissible tool. Furthermore, the US has large and persistent current account deficits (3-4% of GDP); the IMF describes its external position as “moderately weaker than the level implied by medium-term fundamentals and desirable policies”. Importantly, we emphasize that tariffs are not an effective tool to address trade imbalances (the trade deficit in 2025 was roughly the same as 2024), but both the authors of Section 122 and the White House believe that they are. The legal argument will be tied to a macroeconomic argument, one nuanced enough to motivate a reasonable and good faith disagreement. Hence, though legal challenges will be brought forth, our initial reading is the legal basis here is stronger than for IEEPA.
Q: What legal authorities can the White House use to replicate the tariff regime after 122 expires?
A: These ones, probably:
- Section 301: designed to respond to unfair trade practices. It has mostly been used to impose tariffs on China in recent years. Following the Supreme Court’s decision, the president also directed the Office of the United States Trade Representative to use this tool, paving the way for the use of that tool in the future. Nonetheless, if the White House were to invoke this section for across-the-board tariffs, it would require strong evidence of unfair practices before tariffs are implemented. Court challenges may also block this attempt as it would look like overriding congress.
- Section 232: designed to address national security concerns. It has mostly been used to protect some specific sectors. Some investigations (pharmaceuticals, industrial machinery…) are still ongoing and could result in new tariffs being implemented. Similarly to Section 301, the systematic use of this tool to replace IEEPA tariffs is likely to be met with skepticism by courts if challenged.
- Section 338: it authorizes the president to impose tariffs of up to 50% on imports from countries that unreasonably discriminate against US trade. This statute has nonetheless never been used since it was created in 1930, and its authority remains therefore untested.
Marcos Carias is a Coface economist for the North America region. He has a PhD in Economics from the University of Bordeaux in France, and provides frequent country risk monitoring and macroeconomic forecasts for the U.S., Canada and Mexico. For more economic insights, follow Marcos on LinkedIn.
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