State of U.S. Tariffs: SCOTUS Ruling Update

TBL projects that, all else equal, the remaining tariffs will increase the unemployment rate by 0.3 percentage points and reduce payroll employment by 550,000, by the end of 2026. We estimate that the temporary positive fiscal impulse from IEEPA refunds will approximately offset the negative growth impacts of the remaining tariffs for 2026, though there is substantial uncertainty over how and when refunds will be administered and thus the short-term effects of these refunds is uncertain. The level of real GDP remains persistently 0.1 percent smaller in the long run (the equivalent of about $30 billion in 2025$ annually). With IEEPA tariffs, these economic costs would have been somewhat larger. 

Without IEEPA tariffs, the existing set of trade policies are set to shrink the overall size of the US economy in the long run, but beneath aggregate GDP they also drive reallocation across US sectors. Long-run output in the manufacturing sector expands slightly due to the remaining tariffs. But this expansion of the overall manufacturing sector more than crowds out the rest of the economy: agriculture, construction, and mining sectors all see reductions in output. These relative patterns would have been similar (though larger in magnitude) had the President’s use of IEEPA power been upheld. 

Long-run global GDP is slightly lower due to the tariff policy after the decision regarding IEEPA, but this aggregate figure masks heterogeneity across countries. China’s and Mexico’s economies are each somewhat smaller due to the remaining tariffs, whereas the UK, EU, and Japan all see small gains in the long run. Canada sees the largest decline without IEEPA. With IEEPA, these relative effects would have been somewhat different: Canada would have seen a smaller hit to output, and Mexico’s economy would have been slightly larger, not smaller. 

The tariffs as of February 20th, 2026, following the SCOTUS decision, would raise more than $1.2 trillion over ten years, conventionally scored.⁵ Given the negative output effects of the tariffs, these new revenues will be partially offset by reductions in tax revenue because of lower growth. Based on Congressional Budget Office rules-of-thumb, TBL estimates that these effects would total almost $200 billion over the decade. This is about half of what would have been raised if IEEPA tariffs were upheld by court.  

Since the oral arguments for this case back in September, firms have increasingly positioned themselves to be able to receive a refund for any tariff paid under IEEPA authority. The exact mechanism for repayment is uncertain, but there are substantial economic consequences of that effort. The first of these is straightforward; any refund process would reduce the total amount of revenue raised by the new system of tariffs. The size and timing of that reduction will be partially a function of the complexity and ease of the refund process. The wider economic impact of the refund process depends in part on the behavior of firms, and mirrors in many ways the conversation regarding the pass-through of tariffs to consumers via higher prices. Firms that receive refunds could choose to pass along those savings to consumers by lowering prices, or they could instead either re-invest those funds or transfer them to owners via dividends or stock buybacks. Net economic and distributional consequences of refunds depend in large part on these responses. Consider the case where firms passed 75 percent of the new tariffs along to consumers, but firms do not adjust prices in response to refunds. This would represent a transfer from consumers to firm owners. The net economic impact of this would then depend on how those additional resources were spent.

One of the major sources of uncertainty regarding the future economic impacts of tariffs is the degree to which the current Presidential administration will respond to this decision by raising tariff rates via other tariff authorities. As has been discussed in both the press and by economists, the president has other sources of legal authority to enact tariffs without further congressional action. These authorities generally fall into two groups: those that require investigations by federal agencies but have few if any restrictions on the eventual tariffs imposed (Sections 201, 232, and 301) and Section 122, which provides a temporary authority to impose tariffs without an investigation, but is limited to a 15 percent rate for only 150 days. There is another authority, under Section 338 of the Tariff Act of 1930 (otherwise known as Smoot-Hawley) that would allow the President to impose a 50 percent tariff with no investigation or time limitations, but no President has used this authority before, raising again concerns about future legal challenges.

Scholars have shown that it is likely that a tariff regime as large as that created in part with IEEPA authority could be constructed via some combination of these laws. First, in the short run, many of the IEEPA tariffs could be replaced by a 15 percent rate under Section 122. While the exact way this authority would interact with other tariffs is unclear, if the President were to employ this authority to fully replace IEEPA tariffs without any product- or country-specific exemptions and set the rate to its maximum level of 15 percent, we estimate the pre-substitution effective tariff rate would rise to 24.1 percent, higher than TBL’s estimate of 16.9 percent with IEEPA intact. If instead Section 122 were applied at a rate of 15 percent but the current product- and country-specific exemptions under IEEPA were maintained, the effective rate would instead be 20 percent. Over the medium term, other scholars have highlighted that the growth of Section 232 and Section 301 investigations could be built upon to implement a tariff regime approximately as large as that SCOTUS has just dismantled.