What the Supreme Court struck down in recent tariff decision and why it matters for markets
Sectors & Industries
February 23, 2026
Table of Contents
This week, the Supreme Court ruled 6–3 that President Trump cannot use the International Emergency Economic Powers Act (IEEPA) to impose broad tariffs.
IEEPA is a law designed for national emergencies. It allows a president to block transactions, freeze assets, and restrict economic activity when facing foreign threats. It does not explicitly mention tariffs.
The Court’s reasoning was simple: tariffs function as taxes, and the Constitution gives Congress — not the President — the authority to impose taxes. For nearly 50 years, no president had used IEEPA to impose tariffs. The Court viewed this as too large an expansion of executive power.
So IEEPA-based tariffs were struck down. That framework failed.
But the ruling did not say the President lacks tariff authority altogether. It said he cannot use IEEPA for that purpose.
That distinction matters.
Within 24 hours, Trump announced he would reimpose tariffs using Section 122 of the Trade Act of 1974.
Section 122 allows the President to impose a temporary, across-the-board tariff of up to 15% for 150 days without congressional approval. It is designed to address balance-of-payments problems or currency instability. It does not require a long investigation.
The administration first announced a 10% global tariff, then quickly raised it to the full 15% cap.
In practical terms, that means:
This is why markets did not get a clean “tariffs are over” moment.
The impact depends on who imports, who produces domestically, and which authority is used next.
If tariffs had truly disappeared, import-dependent companies would have been the clearest beneficiaries. Retailers and global brands such as Costco (COST), Walmart (WMT), Nike (NKE), and Crocs (CROX), along with automakers like General Motors (GM) and Ford (F), rely heavily on overseas manufacturing and complex global supply chains. Lower tariffs would directly reduce their costs and support margins.
Nike highlights how significant the impact has been. The company is estimated to have paid roughly $1.5 billion in tariffs — about $1.00 per share — and recently reported Q2 FY26 EPS of $0.53, down 32% year over year, with gross margin falling to 40.6% largely due to higher tariff-related costs. If those costs were refunded or permanently removed, earnings could move closer to about $4.50 per share versus roughly $3.50 under current pressure. With the stock trading near $65, that difference is substantial and shows how heavily tariffs have weighed on performance.
That said, the new 15% global tariff under Section 122 keeps import costs elevated for now. Any recovery in margins depends on whether refunds are granted and whether future tariff policies become narrower rather than broad-based. Autos remain particularly exposed — if tariffs return under national-security authority, manufacturers could once again face higher costs on imported parts or finished vehicles, keeping the sector volatile.
Industries tied to national security and domestic production remain supported.
Examples include:
Even though IEEPA failed, tariffs can still be imposed under other laws — particularly Section 232, which allows tariffs on imports that threaten national security.
Section 232 has historically been used for steel and aluminum and could be extended to autos, critical minerals, or industrial inputs.
That means protection for domestic producers is still very much alive.
With IEEPA struck down, the administration is shifting to other tariff laws. The key question for markets is not “are tariffs gone?” but which authority is used next — and who does it affect?
This is the temporary law currently being used. It allows a broad tariff of up to 15% for 150 days without Congress.
That means:
This keeps pressure on consumer names while preserving uncertainty.
Section 301 allows tariffs against specific countries for unfair trade practices. It takes time because investigations are required, but once imposed, tariffs can be higher and last much longer.
If applied aggressively — particularly toward China — the impact would be concentrated in:
Retailers and brands sourcing heavily from China would face renewed pressure, while domestically focused small-cap companies could outperform due to lower import exposure.
Section 232 allows the government to impose tariffs on imports that are considered a national security risk. It has previously been used for steel and aluminum but could be expanded to cover:
If expanded, the impact would shift toward companies directly tied to domestic production and defense supply chains.
Potential beneficiaries could include:
At the same time, higher input costs would pressure:
The result would likely be wider dispersion within industrial and materials stocks — some names benefiting from protection and pricing power, while downstream users face margin pressure.
Under this path, the broader reindustrialization and domestic production theme remains intact, but stock selection becomes far more important.
One major unresolved issue is refunds.
Estimates suggest roughly $175 billion may have been collected under the now-invalid IEEPA tariffs. The Supreme Court did not provide a clear refund process. The issue now moves to the U.S. Court of International Trade.
Here’s how it works:
The trade court has ruled it has authority to reopen final tariff determinations and order refunds with interest, which makes repayment legally possible — but administratively complex.
If large-scale refunds are required:
If refunds are delayed or limited, the macro effect is smaller and the issue becomes more procedural than systemic.
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