In a 6-3 decision issued on 20 February 2026, the Supreme Court of the US (SCOTUS) ruled that the International Emergency Economic Powers Act (IEEPA) does not authorise the president to impose tariffs.
The ruling invalidates the administration’s sweeping country-level reciprocal tariffs and fentanyl-related levies, which had collectively accounted for roughly half of all US customs duties since their introduction in early 2025. The Penn Wharton Budget Model estimates cumulative IEEPA tariff collections reached approximately $165 billion through January 2026, with potential refund exposure of up to $175 billion. The Supreme Court did not address the mechanics of refunds, leaving the matter to renewed proceedings before the Court of International Trade (CIT). Whilst nearly 2,000 companies had already filed protective actions prior to the ruling, this represents a fraction of the 300,000+ importers that had paid IEEPA duties by December 2025.
Washington’s response: Section 122 as the new vehicle
The Trump administration responded within hours. On 20 February, President Trump issued a proclamation imposing a 10% ‘temporary import surcharge’ on all countries under Section 122 of the Trade Act of 1974, effective 24 February 2026, for 150 days. The following day, he announced via social media his intention to raise the rate to the statutory maximum of 15%.
The Section 122 framework carries important carve-outs. Exempted categories include USMCA-qualifying goods from Canada and Mexico, critical minerals, pharmaceuticals, and certain electronics. Section 232 tariffs on metals and vehicles remain fully intact and are unaffected by the SCOTUS ruling.
A critical constraint distinguishes Section 122 from its IEEPA predecessor: the tariffs expire automatically after 150 days — by 24 July 2026 — unless Congress votes to extend them, a politically uncertain proposition with midterm elections approaching and polls showing voter opposition to elevated import costs.
Marginal relief on effective burden
Despite the ruling’s landmark status, US importers and consumers face a tariff landscape that remains substantially elevated.
According to the Yale Budget Lab, the elimination of IEEPA tariffs reduces the average effective tariff rate from 16.0% to 9.1% should Section 122 tariffs expire after 150 days — still the highest level since 1947, excluding 2025. Should Section 122 tariffs instead be extended indefinitely, the effective rate would rebound to 13.7%.
On consumer welfare, the temporary tariff regime implies a short-run consumer price increase of 0.6%, equivalent to an average household income loss of approximately $800 in 2025 dollars, falling to $600 once substitution effects are accounted for.
From a fiscal perspective, the Yale Budget Lab projects the current tariff regime will raise approximately $1.3 to $2.2 trillion over 2026–35 depending on whether Section 122 tariffs expire, down from the $2.6 trillion projection prior to the SCOTUS ruling.
The real GDP faces a persistent long-run reduction of 0.1%; if extended, the drag roughly doubles. On the labour market, the unemployment rate is projected to be approximately 0.3 percentage points higher by end-2026, an improvement from the 0.5 percentage point impact projected under the prior IEEPA regime.