The Big Picture

Briefing.com Summary:

*The Supreme Court ruled President Donald Trump lacked authority under IEEPA to impose global tariffs; decision split 6–3.

*Markets were unfazed, expecting alternative tariffs under Sections 122, 232, and 301 to preserve revenue and stability.

*Tariff revenue surged, yet the trade deficit barely improved in 2025, fueling debate over economic impact and consumer costs.

The Supreme Court ruled that President Trump does not have the authority to impose global tariffs under the International Emergency Economic Powers Act (IEEPA). They are, in a word, illegal.

This was not a unanimous decision. It was a majority decision, with six justices concurring and three justices—Alito, Kavanaugh, and Thomas—dissenting.

The biggest surprise from our vantage point is that the Court had nothing to say about the matter of issuing refunds for importers. Justice Kavanaugh, in his dissenting opinion, highlighted this omission and averred that such a process is likely to be a "mess," as was suggested in oral arguments.

What wasn't a mess was the market's reaction to the ruling.

Section Headers

The main reason the market handled this ruling is that it wasn't a surprise. There might have been some hope that the IEEPA authority would be upheld given the delay in issuing the ruling. Generally speaking, though, the prediction markets and the capital markets had been resigning themselves to this outcome since oral arguments were made in November, as questioning from the justices left the impression that they were unlikely to rule in the president's favor.

Another reason the market didn't overreact to the ruling is that it was aware the administration would implement offsetting tariff authorities that would keep the tariff revenue flowing and a deficit-minded Treasury market in good stead.

Sure enough, President Trump was quick to declare that he will now be imposing a 10% global tariff under Section 122. Treasury Secretary Bessent added that there would be virtually no lost tariff revenue in 2026 after using the Section 122 authority and combining it with Section 232 and Section 301 tariffs.

Sidenote:

• Section 122 tariffs allow the president to impose tariffs of up to 15% on all imports for a maximum of 150 days to address large trade deficits or pressure on the dollar. Tariffs that extend beyond 150 days need approval from Congress.
• Section 232 tariffs allow the president to use tariffs on imports of specific goods that are deemed a threat to national security.
• Section 301 tariffs can be implemented by the U.S. Trade Representative to address unfair foreign trade practices.

The issue for the market might be what comes after 2026, at least in terms of the Section 122 tariffs. If the Democrats happen to take control of the House after the midterm elections, the extension of the Section 122 tariffs would be very much in question.

The market, though, will deal with that another day. For now, it sees a tariff pathway to November that will be tolerated so long as earnings growth holds up, consumer spending holds up, and inflation doesn't heat up.

Briefing.com Analyst Insight

The economic irony at the moment is that a lot of tariff revenue is flowing in ($195 billion in FY25 and $118 billion so far in FY26), yet there was hardly any improvement in the trade deficit in 2025.

The Commerce Department reported that the goods and services deficit for 2025 was $901.5 billion, down just $2.1 billion from $903.5 billion in 2024. Exports increased $199.8 billion, and imports increased $197.8 billion. The December trade deficit alone jumped by $17.3 billion to $70.3 billion, which was the biggest monthly deficit since July.

The argument for some will be that the tariffs didn't achieve much, other than to raise the costs for importers and consumers. Others will contend that the tariffs were/are important for addressing the budget deficit and that the strong earnings growth and solid consumer spending activity demonstrate that the tariffs did not have a deleterious effect on the economy.

To this point, they haven't had a deleterious effect on either the stock market or the Treasury market. The major indices are sitting near record highs, and the inflation-sensitive 10-yr note yield is 10 basis points lower than where it was when the president unveiled the reciprocal tariffs on April 2.

There wasn't an outsized reaction to the IEEPA ruling because it wasn't a surprise. The refund issue will be a mess, and it has been suggested that such legal matters will be handled in the lower courts. That is likely going to take years to resolve, so we suspect that there are a lot of happy corporate attorneys today who have just been given more job security with the lack of a ruling on the refund issue.

President Trump, on the other hand, isn't happy with the majority opinion but will fall back on other tariff alternatives, just like the market knew he would.

--Patrick J. O'Hare, Briefing.com