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The US Supreme Court ruled 6-3, on February 20, that the International Emergency Economic Powers Act (IEEPA) did not grant President Donald Trump the authority to unilaterally impose Liberal Day tariffs. The tariffs imposed under Section 232 (National Security) for steel and aluminum, and under Section 301 (Unfair Trade Practices) remained in effect.
President Trump’s immediate move to invoke Section 122 to impose the 15% global tariff ceiling indicated no liberation from his broad tariff policies. The “new” tariffs will take effect on February 24, followed later by Trump’s State of the Union (SOTU) address. Trump will likely use this platform to explain his shift to Section 122 and rally support for his trade agenda.
Section 122 subjects Trump’s trade policy to significant procedural complications. These 15% tariffs will expire after 150 days if Congress denies his administration’s request for a formal extension, which will require more permanent Section 301 investigations that span at least 9-12 months, a formal and evidence-based process that cannot be bypassed. Trump could try to restart the clock to bypass the 150-day limit, which the court may view as making law (a power reserved by Congress) rather than executing law. However, the Supreme Court’s ruling has already signaled a willingness to strike down such “transformative expansions” of executive power.
While the Supreme Court’s decision is considered a legal victory for importers, the matter of refunding the IEEPA tariffs has been deferred to the Court of International Trade. Trade experts reckon that administrative processing could take months, even in the best-case scenario, with the protest and litigation path potentially taking years.
Meanwhile, the US exceptionalism narrative has weakened significantly. Advance GDP growth decelerated to an annualized 1.4% QoQ saar in 4Q25, well below the expectations for a slowdown to 2.8% from 4.4% in 3Q25. The trade deficit increased rapidly to USD70.3 bn in December from USD53.0 bn in November and USD28.7 bn in October. The full-year deficit reached USD902 bn in 2025, barely changed from USD904 bn in 2024.
Conclusion: While the Supreme Court’s decision does not remove Trump’s tariffs, it erodes their durability. The Court’s decision to draw a line on Trump’s trade leverage will likely see trade partners leaning towards diplomatic engagement rather than retaliation over tariffs. Trump’s trade agreements signed with many countries under the now-invalidated IEEPA framework may lack a legal basis.
The Supreme Court ruling seeks to reassure markets that the US institutional guardrails remain intact. However, it does not eliminate the policy unpredictability in Trump 2.0. While foreign governments are unlikely to abandon the USD, they will continue to quietly diversify trade channels and marginally reduce USD settlement exposure. They will closely watch the November midterms to determine whether policy volatility will become episodic or structural.
Quote of the Day
"The world of reality has its limits; the world of imagination is boundless.”
Jean-Jacques Rousseau
February 23 in history
The Pulitzer Prize-winning photo of US Marines raising the US flag in Iwo Jima was taken in 1945.
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