Supreme Court Rules Tariffs Illegal
The U.S. Supreme Court recently ruled in a 6-3 decision in Learning Resources Inc. v. Trump and V.O.S. Selections v. United States that “IEEPA does not authorize the President to impose tariffs.” This ruling has significant implications for the Trump administration’s tariff policy.
In response, President Trump signed an executive order imposing a 10 percent tariff on all countries under Section 122 with exemptions, effective February 24, 2026. On February 21, 2026, he threatened to increase the Section 122 rate to 15 percent, but it took effect at the announced 10 percent rate.
Impact on American Households
According to the Tax Foundation’s estimates, in 2025 the Trump tariffs amounted to an average tax increase per US household of $1,000. After the IEEPA tariffs were struck down, we estimate the President’s remaining new tariffs under Section 232 will increase taxes per US household by $400 in 2026.
The Section 122 tariffs will increase this household burden by about $200, reaching a total of $600 in 2026. These figures reflect the direct impact of tariff policy on ordinary consumers.
Tariff Rate Analysis
With the IEEPA tariffs being ruled illegal, the remaining Section 232 tariffs imposed in 2025 increase the weighted average applied tariff rate on all imports to 6.7 percent in 2026, down from 13.8 percent under the IEEPA tariffs.
While the 10 percent Section 122 tariffs are in effect, we estimate this rises to 10.3 percent, and then falls to 6.7 percent after the Section 122 tariffs end. The average effective tariff rate in 2025 was 7.7 percent, the highest rate since 1947.
Tariff Revenue Projections
We estimate that with the IEEPA being ruled illegal, the remaining Section 232 tariffs imposed in 2025 and the 10 percent Section 122 tariffs will raise $660 billion in revenue from 2026-2035 on a conventional basis. The permanent Section 232 tariffs will reduce US GDP by 0.2 percent, before foreign retaliation.
Accounting for negative economic effects, the revenue raised by the tariffs falls to $515 billion over the next decade. We estimate that the Section 232 tariffs raised $36 billion in net tax revenue in 2025.
Trade Balance Unchanged
The tariffs have not meaningfully altered the trade balance. The total trade deficit fell by only $2.1 billion in 2025, driven by an increase in the trade surplus of services. A country’s balance of trade is not solely driven by trade policy, but instead reflects broader macroeconomic balances between saving and investment.
In the United States, domestic investment outpaces domestic saving, requiring a capital inflow from the rest of the world to close the gap. Because tariffs do not directly change the balance between domestic saving and investment, tariffs cannot permanently change the trade balance.
Historical Evidence and Economic Impact
Historical evidence and recent studies show that tariffs are taxes that raise prices and reduce available quantities of goods and services for US businesses and consumers, resulting in lower income, reduced employment, and lower economic output.
The last time the United States ran a trade surplus was in 1975; every year since, the United States has run a trade deficit. That the United States has consistently run trade deficits for decades is not an imminent economic problem. Net imports reflect the net lending relationship between the US and the rest of the world.
Implications for Chinese Supply Chain Professionals
For Chinese supply chain practitioners, the volatility of US tariff policy means more flexible supply chain strategies are needed. Enterprises should consider diversified market layouts to reduce dependence on single markets and respond to cost pressures from tariffs by increasing product value-added.
Source: Tax Foundation
