Trump tariffs ruled unlawful

Podcast: CIO's Ulrike Hoffmann-Burchardi on our latest equity upgrades and downgrades (7 mins)
Podcast: Jump Start | Tariffs ruling, tech earnings, and Iran-US (8 mins)
Video: Investors Club | US equity positioning and the Australian dollar (9 mins)
Video: Deep Dive | CIO's Themis Themistocleous on European opportunities (7 mins)

On Friday, the Supreme Court of the United States struck down the centerpiece of President Donald Trump’s second-term tariff program. It ruled 6-3 that the administration’s tariffs under the International Emergency Economic Powers Act (IEEPA) are unlawful, upholding lower court decisions. Justice John Roberts, writing for the majority, emphasized that federal agencies require clear, explicit authorization from Congress on major economic and political matters.

US equities responded positively to the ruling, with the S&P 500 rising 0.7% and the tech-heavy Nasdaq gaining 0.9% in the immediate aftermath. The decision is expected to reshape the administration’s trade agenda, as many tariffs introduced under IEEPA will now be suspended .

The decision halts collection of about two thirds of the administration’s tariff revenues. Since their introduction in March 2025, US Customs and Border Protection has collected USD 133.5 billion in duties under IEEPA, with Penn-Wharton economists estimating the total has now reached USD 175 billion.

Because the court found these tariffs illegal, much of the money collected from US importers may need to be refunded. While the Supreme Court did not specify how or when refunds should happen, it acknowledged the challenges involved. The Court of International Trade is expected to establish a process so that most importers who paid IEEPA tariffs—not just the companies involved in the lawsuit—will likely receive repayments over the coming quarters.

We see the following implications from the ruling:

The macroeconomic impact will likely depend on the administration’s response. If the administration chooses to only partially rebuild the tariff wall with other statutes, the upward pressure on inflation from higher tariffs would likely subside and might even lead to modest disinflation. The budget deficit would likely widen in 2026 and future years, as the US would have collected another USD 120 billion from IEEPA tariffs in the current fiscal year. Low presidential approval ratings, concerns of losing narrow majorities in either the House or the Senate in the 2026 midterm elections, and affordability being a chief concern among voters may limit the administration’s imposition of new tariffs.

We expect the overall effective US tariff rate to decline to 10-15% this year. The administration is likely to reimpose some tariffs, as other statutes are available to do so quickly. On Saturday, Trump said he would immediately impose a 15% global tariff under Section 122 of the Trade Act of 1974 and work to reissue other "legally permissible" tariffs. Section 122 is an untested option to address balance of payments problems, which allows up to 15% tariffs for up to 150 days, and requires no upfront Department of Commerce trade investigation. But our view is that however the administration reacts, it will find its tariff authority severely constrained compared to the first year of Trump’s second term, and we expect the effective tariff rate to decline.

The IEEPA ruling also has potential implications for “deals” struck with other trade partners. The UK, for example, agreed to a deal for a 10% tariff on some of its exports to th e US; the EU and Switzerland agreed in principle to a deal for 15% tariffs, although the latter were never formally ratified. Reuters reports India has held back its trade negotiation team, which had been due to travel to Washington this week to finalize an interim trade deal. For now, it is likely that the status quo holds, but we believe that the tariff wall will be partly rebuilt using other legislation. The result could be higher or lower tariffs on various sectors than those currently agreed upon, although, in aggregate, these are unlikely to differ materially from agreements already struck. Thus, while uncertainty is likely to return to the traded sectors of the economy in the near term, we do not expect the situation to change dramatically once the dust has settled. 

Overall, the tariff ruling does not alter our positive view of financial markets. If the tariff revenues are not fully restored, a worsened deficit picture could lead to a modest steepening of the yield curve as fiscal sustainability concerns weigh on long-term US Treasury yields while Federal Reserve rate cut expectations anchor short-term yields.

We believe the decision is marginally supportive for stocks to the extent that a lower tariff rate improves household spending power, limits inflation concerns, and supports further Fed rate cuts. That said, there is still the risk that the administration resorts to using more targeted tariffs in the wake of the IEEPA tariff ruling, which could weigh more heavily on specific industries or countries.