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U.S. Tariff Dynamics: Impacts After Court Decision

By ariachiang

2026-02-23

The U.S. tariff policy has recently undergone significant changes. On February 20, the Supreme Court ruled that the broad reciprocal tariffs implemented by former President Trump under the International Emergency Economic Powers Act (IEEPA) were invalid. This reduced the average effective tariff rate from the previously estimated 16.9% to 9.1%, still the highest level since 1946 (excluding 2025), but about one-third lower than the 2025 peak. As a result, short-term price levels increased by 0.6%, equivalent to an average household loss of around $800 (in 2025 dollars), with low-income households losing about $400. By the end of 2026, the unemployment rate is expected to rise by 0.3 percentage points, translating to a loss of approximately 550,000 jobs. In 2025, the trade deficit fell by only 0.2% compared with 2024, while the goods trade deficit grew by 2% year-on-year, indicating that tariffs had limited effect in reducing the deficit.

These changes were primarily driven by the repeal of IEEPA tariffs, which significantly lowered rates for countries such as China, Canada, and Mexico—for example, China’s import tariff fell by nearly two-thirds. This prompted companies to apply for $142 billion in tariff refunds paid in 2025, providing short-term fiscal support. The Trump administration subsequently announced a 10% basic import tariff on global imports, later raised to 15%, while maintaining 25% national security tariffs under Section 232 on steel, aluminum, automobiles, and electronics to fill the policy gap and strengthen industrial protection. European firms expect the tariff impact to be even more pronounced in 2026, reflecting pressures from global supply chain restructuring. Overall, the combination of legal rulings and policy adjustments has reshaped the tariff structure, affecting import substitution and export competitiveness.

Looking ahead, the tariff rate is expected to remain around 9.1% in the short term, with refund procedures supporting GDP growth in 2026. However, in the long term, the economy could shrink by 0.1% annually (about $300 billion per year), with manufacturing output slightly increasing by 1.2%, while agriculture and construction face pressure of about 2.4%. In the medium term, the government may invoke Section 122 or Section 232 to expand investigations, potentially raising tariffs to 15–24.1%. Fiscal revenues from 2026 to 2035 are estimated at $1.2 trillion (dynamic estimate $1 trillion), though the risk of retaliatory tariffs is rising in parallel.

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