U.S. Trade Regime in Flux After Supreme Court Ruling
The U.S. Supreme Court ruling on February 20, invalidating the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to levy broad-based tariffs on imports from most countries, slashes the U.S. effective tariff rate (ETR) by more than half, from 13% to around 5% to 6%, says Fitch Ratings.
However, the administration quickly responded by announcing a 10% global tariff, subsequently raised to 15%, as a replacement under Section 122 of the Trade Act of 1974.
The Court’s decision highlights the checks and balances in the U.S. institutional framework, but trade regime uncertainty remains high as the administration continues to uphold high tariff barriers and seeks durable alternative means to implement them.
The ruling held that the president lacks the power to unilaterally impose tariffs under IEEPA. This ruling removes the basis for more than an estimated USD240 billion (4.5%) in annual federal government revenues based on the October-November IEEPA run rate, equivalent to 0.8% of GDP.
It did not state whether previously collected IEEPA tariffs must be refunded, raising operational and legal uncertainties for importers who previously paid the tariffs and may now be entitled to refunds of IEEPA duties.
IEEPA-related tariffs accounted for the majority of U.S. tariff revenue, roughly two-thirds of the October-November run rate, far higher than other sectoral or China-specific tariffs levied under sections of the Trade Acts of 1962 and 1974, which are unaffected by the Supreme Court ruling.
The administration responded to the decision within hours, announcing a 10% replacement levy via Section 122 of the Trade Act of 1974, which enables the executive to impose tariffs for up to 150 days without congressional approval. Over the weekend, President Trump stated that the replacement levy would be 15%.
The decision to disallow the use of IEEPA raises significant uncertainties about U.S. trade policy, notably which regime will follow the initial 150 days of the Section 122 tariffs. According to the White House, all countries with trade agreements will see their goods exports to the U.S. subject to the new 15% tariff.
However, the tariff will include significant carveouts, including for passenger vehicles, pharmaceuticals, likely United States-Mexico-Canada Agreement (USMCA)-compliant goods and certain electronics, although the administration has not specified details.
Fitch said If the exemptions that applied to reciprocal IEEPA tariffs also apply to the new 15% blanket tariff, the U.S. ETR would settle at around 11.5% from the prior rate of 12.7%.
The Supreme Court ruling also raises uncertainty about the fiscal impact, whether the administration will replace lost IEEPA-related tariff revenue in part or in full, and the timeline for doing so.
Fitch estimated USD350 billion in full-year tariff revenues, and the loss of IEEPA tariffs would amount to around USD240 billion (0.8% of GDP).
However, the temporary 15% global tariff rate suggests the fiscal impact in the near term may be limited, though uncertainty remains about where the ETR (and tariff revenues) settle after 150 days.
Fitch projected a general government deficit of 7.3% of GDP in 2026, with the OBBBA tax cuts lowering revenues, but this was largely offset by tariff revenues.
Any material reduction in the effective tariff rate and total tariff revenues will have a negative effect on the deficit and debt, barring offsetting revenue or expenditure measures.
In addition, potential IEEPA refunds, estimated at around USD175 billion or 0.6% of GDP, would pose a further risk to fiscal accounts. Bitcoin Falls to $64k on Sharp Leverage Liquidations
