Supreme Court cuts U.S. tariffs, Trump strikes back

February 24, 2026 (MLN): The recent U.S. Supreme Court decision overturned the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose broad-based tariffs, significantly reducing the country’s effective tariff rate (ETR) from 13% to approximately 5–6%.

Fitch Ratings has warned that this ruling could have major implications for U.S. trade policy and the overall economic landscape.

The ruling, issued on February 20, clarifies that the president cannot unilaterally levy tariffs under IEEPA, removing the legal foundation for tariffs generating an estimated $240bn annually equivalent to 0.8% of U.S. GDP.

The court did not specify whether previously collected IEEPA duties must be refunded, creating legal and operational uncertainty for importers.

IEEPA tariffs had represented the bulk of U.S. tariff revenue, accounting for roughly two-thirds of the October November run rate.

Other tariffs, including sector-specific and China-focused levies under the Trade Acts of 1962 and 1974, remain unaffected by the ruling.

Within hours of the ruling, the administration introduced a 10% global tariff under Section 122 of the Trade Act of 1974, later increased to 15%. Section 122 allows the executive to impose tariffs for up to 150 days without congressional approval.

President Trump confirmed over the weekend that the replacement levy would apply broadly, although exemptions for passenger vehicles, pharmaceuticals, USMCA-compliant goods, and certain electronics are expected.

Fitch notes that if exemptions mirror those previously applied to IEEPA tariffs, the U.S. ETR would stabilize at around 11.5%, slightly below the pre-ruling 12.7%.

The Supreme Court decision creates uncertainty over U.S. trade policy and future tariff revenue. Fitch had projected full-year tariff collections of $350bn in 2026, with IEEPA tariffs accounting for the majority.

The temporary 15% global tariff may mitigate near-term fiscal impacts, but the long-term ETR and total revenue remain uncertain. Potential refunds of IEEPA duties, estimated at $175bn (0.6% of GDP), could further strain federal finances.

Fitch also highlights implications for the general government deficit, projected at 7.3% of GDP in 2026.

While OBBBA tax cuts are expected to reduce revenues, tariff collections have been a key offset. Any sustained reduction in the effective tariff rate or total tariff revenues could increase the deficit and debt unless compensated by other fiscal measures.

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