Trump’s Tariffs Struck Down By Supreme Court-What Does It Mean for Trade and Markets?

Quick Answer: The US Supreme Court ruled 6-3 on 20 February 2026 that President Trump’s sweeping “Liberation Day” tariffs, imposed under the International Emergency Economic Powers Act, were illegal. The decision invalidates duties that had raised over $160 billion and were projected to generate $1.4 trillion over the next decade. Hours later, Trump signed an executive order imposing a replacement 10% global tariff under Section 122 of the Trade Act of 1974 — but that authority is capped at 15% and limited to 150 days, leaving the long-term trade landscape deeply uncertain.

The ruling that many expected but few fully prepared for arrived on Friday morning. In a 6-3 decision, the US Supreme Court struck down President Trump’s signature economic policy, declaring that the International Emergency Economic Powers Act does not authorise the president to impose tariffs. Chief Justice John Roberts, writing for the majority, noted that in IEEPA’s half-century of existence, no president had ever invoked the statute to impose tariffs of any kind — let alone duties of this magnitude and scope.

The decision invalidates the sweeping “Liberation Day” tariffs announced in April 2025, which imposed reciprocal rates of up to 50% on goods from dozens of countries and a baseline 10% tariff on virtually everything else. It also strikes down the fentanyl-related duties targeting Canada, Mexico, and China, and punitive tariffs on Brazil and India that were imposed under the same IEEPA authority. The Tax Foundation estimates these tariffs had already raised over $160 billion for the federal government and would have generated $1.4 trillion between 2026 and 2035.

The majority was itself split on reasoning. Roberts, joined by Justices Gorsuch and Barrett, invoked the major questions doctrine — the principle that sweeping assertions of executive power on issues of vast economic significance require clear congressional authorisation. The three liberal justices — Kagan, Sotomayor, and Jackson — reached the same conclusion through ordinary statutory interpretation. In dissent, Justice Kavanaugh, joined by Thomas and Alito, argued that tariffs are a traditional tool of import regulation clearly within IEEPA’s scope.

Trump’s Immediate Response: A New 10% Global Tariff

The president did not wait. Hours after the ruling, Trump signed an executive order imposing a 10% global tariff under Section 122 of the Trade Act of 1974, effective 24 February. It was the first time this authority has ever been used to impose tariffs. Treasury Secretary Scott Bessent said the combination of Section 122 alongside existing Section 232 and Section 301 duties would result in virtually unchanged tariff revenue in 2026.

But there is a critical constraint. Section 122 caps tariffs at 15% and limits them to 150 days. That clock starts ticking immediately, meaning these replacement duties expire in late July unless the administration finds yet another legal pathway. Trump signalled exactly that intent, announcing new Section 301 investigations into unfair trade practices and confirming that all existing Section 232 national security tariffs — covering steel, aluminium, semiconductors, copper, automobiles, and lumber — remain in full force.

The practical effect is a patchwork of overlapping authorities replacing what had been a single, sweeping programme. For businesses trying to plan inventory, pricing, and supply chains, the uncertainty has not ended — it has merely changed form.

What It Means for the Bond Market

The bond market’s reaction was measured but telling. The yield on the 10-year US Treasury rose to 4.097%, while the 30-year climbed to 4.74%. The dollar strengthened against the euro, pound, and yen. Equities rallied modestly — the US Market Index gained 0.83% in mid-morning trading — though analysts at both LPL Financial and Oxford Economics warned the bounce would be short-lived.

The deeper bond market story lies in the refund question. The Supreme Court’s ruling that IEEPA tariffs were collected illegally has opened the door to refund claims that could total between $100 billion and $175 billion, according to estimates from RSM and the Yale Budget Lab. The Penn Wharton Budget Model calculates that IEEPA duties represented roughly half of all US customs revenue by January 2026. If refunds are ordered, they would constitute a significant fiscal event — effectively injecting the equivalent of a major stimulus package into the economy at a time when the administration is already cutting taxes.

For bond investors, this creates a paradox. Refunds would widen the federal deficit in the near term, potentially putting upward pressure on yields. But the removal of tariffs that the Tax Foundation estimated were shrinking long-run GDP by 0.3% should, over time, support growth and reduce the inflationary pressure that tariffs had been feeding into consumer prices. The net effect on yields depends entirely on whether Trump successfully reimplements equivalent duties through alternative authorities — or whether the legal and procedural hurdles of Section 232, 301, and 338 investigations slow the process enough to create a meaningful tariff gap.

US Customs and Border Protection had already identified over 24,000 bond insufficiencies valued at $3.6 billion, as importers struggled to cover the collateral requirements of the original tariff regime. Unwinding that will take months if not years.

What It Means for EU Trade

The implications for Europe are immediate and potentially transformative. The European Union had negotiated a trade deal with the US last summer that accepted a 15% tariff rate — itself a significant concession. Those tariffs were largely implemented under IEEPA, meaning they were invalidated by Friday’s ruling.

The European Parliament’s trade committee, which had been scheduled to vote Tuesday on ratifying the US-EU agreement, has called an emergency meeting for Monday to reassess the deal. EU lawmakers had already frozen the ratification process once before, after Trump threatened to annex Greenland. Now the legal basis for the tariff rate the EU agreed to has been pulled from underneath the agreement entirely.

The European Commission said it is carefully analysing the ruling and remains in close contact with Washington. Trade spokesman Olof Gill stressed that businesses on both sides of the Atlantic depend on stability and predictability — a diplomatic way of saying that neither currently exists.

For European exporters, the short-term effect is a reduction in duties. The EU was facing 15% under the negotiated deal; the replacement Section 122 tariff imposes just 10%. But the 150-day expiry means this relief is temporary, and the administration has made clear it intends to rebuild tariff levels through other legal channels. European companies exporting steel, aluminium, and automobiles to the US still face unchanged Section 232 duties of 25% or more.

The broader concern for Europe is strategic. If the US can no longer impose sweeping tariffs by executive fiat, the EU’s negotiating position strengthens considerably. Any future US tariffs will require either congressional legislation — politically difficult in a divided Washington — or lengthy Section 232 and 301 investigations that give trading partners months of warning and legal avenues to challenge. The era of overnight tariff announcements via Truth Social may be over, at least temporarily.

The Global Picture

Trump’s stated ambition was a permanent 10% baseline tariff on all US imports — a fundamental restructuring of the global trading order. The Supreme Court has now ruled that the legal vehicle he chose to deliver it was unlawful. The replacement Section 122 tariff achieves the same 10% rate, but only for 150 days and only up to a 15% ceiling. It cannot deliver the escalating, country-specific rates that characterised the Liberation Day programme.

The administration insists it will maintain revenue levels through alternative authorities. But Section 232 requires Commerce Department investigations. Section 301 requires US Trade Representative findings. Section 338 has never been used. Each pathway involves procedural steps, timelines, and legal vulnerability that IEEPA — as an emergency statute — had allowed the White House to bypass entirely.

For global markets already navigating uncertainty, the ruling represents both relief and fresh ambiguity. The tariffs that distorted supply chains, inflated consumer prices, and shrank GDP by an estimated 0.3% have been declared illegal. But the president who imposed them has made clear — in language that included calling the ruling a disgrace and attacking two of his own Supreme Court appointees — that he considers tariffs non-negotiable. The legal battlefield has shifted, but the trade war is far from over.

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