The Ruling That Rewrote Tariff Power: Inside the 2026 Supreme Court Trade Decision

A February 2026 US Supreme Court ruling reshaped the legal foundation of American trade policy. In a 6-3 decision, the Court found that the International Emergency Economic Powers Act, a 1977 law that allows the president to regulate commerce during a declared national emergency, does not authorize the kind of sweeping, open-ended tariffs the administration had imposed using that authority. The justices reasoned that the power to tax, including the power to impose tariffs, belongs constitutionally to Congress, not the executive branch, and that the emergency powers law could not be stretched to cover a policy of this scale and duration. The ruling did not end tariffs outright. Within hours, the administration announced a new set of tariffs under a different, narrower legal authority, Section 122 of the Trade Act of 1974, starting at 10% and quickly raised to a maximum of 15%. Under that law, these tariffs must expire after 150 days unless Congress votes to extend them, a meaningfully different structure from the indefinite tariffs the Court struck down. Despite the ruling, the US average effective tariff rate has climbed to nearly 17%, the highest level since the early 1930s, and estimates suggest close to 90% of the added cost is being absorbed by American firms and consumers rather than foreign exporters.

The ruling didn't come out of nowhere. It affirmed an August 2025 decision from the US Court of Appeals for the Federal Circuit, which had already concluded that IEEPA's language authorising a president to "regulate" imports during a declared emergency was too thin to support something as significant as taxation. By the time the case, formally Learning Resources, Inc. v. Trump, consolidated with Trump v. V.O.S. Selections, Inc., reached the Supreme Court, most trade lawyers expected the government to lose. The surprise was less the outcome than how fast the administration had a replacement ready.

That replacement, Section 122 of the Trade Act of 1974, is a narrower tool by design. Congress capped it at 15% and limited it to 150 days specifically so that a president could not use a balance-of-payments emergency to run an open-ended tariff regime the way IEEPA had been used. The administration set the initial rate at 10% and floated raising it to 15% in a social media post, but never issued the legal order to do so.

The bigger financial story has been on the refund side. Because the Court found the IEEPA tariffs were collected without legal authority, importers who paid them became eligible to claim the money back. US Customs and Border Protection built a new system, called CAPE, to process these claims, and had refunded roughly $85 billion by late May. The Penn Wharton Budget Model estimates the eventual bill could reach $175 billion, a figure that matters for the federal budget given how much revenue the IEEPA tariffs had briefly been generating.

Refunds are not flowing without friction. The Department of Justice has appealed the part of the Court of International Trade's refund order covering entries that are already liquidated and past the 80-day window in which Customs can reopen them administratively. That appeal is still pending at the Federal Circuit, so some importers are waiting on money the government has not yet conceded it owes.

Section 122 itself has had a rough few months too. In May, the Court of International Trade ruled that the administration's use of Section 122 was itself unlawful, but the Federal Circuit issued a stay days later while the appeal proceeds. The result is that the 10% global tariff has stayed in place, suspended in legal limbo rather than either validated or struck down.

For companies, this has meant planning for several tariff scenarios at once rather than a single settled rate. Industries with globally distributed supply chains, civil aviation among them, have had to model both the current 10% Section 122 surcharge and what comes after it expires around July 24, since the rate that replaces it is still being worked out through a separate legal process.

That separate process is Section 301, and it is arguably the more consequential story. The US Trade Representative has opened Section 301 investigations, nominally over forced labour practices and industrial overcapacity, covering 59 countries and the European Union, and has proposed tariffs of 10% to 15% on most goods from those trading partners. Unlike Section 122, Section 301 carries no statutory rate cap and no built-in expiry date, which is precisely why the administration is racing to have it ready before the current tariffs lapse.

Domestically, the political reaction has cut in different directions. Import-competing manufacturers who had benefited from the broader IEEPA tariffs lobbied for the administration to find a replacement quickly, while retailers and consumer-goods importers, who had been absorbing most of the added cost, welcomed any reduction from the roughly 17% blended rate even as they flagged the uncertainty of not knowing what Section 301 rates would ultimately settle at.

The Supreme Court's reasoning tracked a doctrine the Court has leaned on repeatedly in recent years: when a statute is invoked to justify executive action of vast economic and political significance, Congress must have spoken clearly to authorise it. IEEPA lets a president "regulate... importation" of property during a declared national emergency, language that has been used since 1977 mostly to justify sanctions and asset freezes. The majority held that imposing tariffs -- a tax on imports that generated well over $100 billion for the federal government during the period the IEEPA tariffs were in effect -- is not what Congress meant by "regulate." The Constitution assigns the power to "lay and collect Taxes, Duties, Imposts and Excises" to Congress specifically, and the Court found nothing in IEEPA's text clearly transferring that power to the presidency, however broad the word "regulate" might sound in isolation.

This is not the first time a president has reached for emergency economic powers to impose a tariff, which is part of why the ruling matters as precedent. In 1971, President Nixon imposed a 10% import surcharge under the Trading with the Enemy Act, a predecessor authority to IEEPA, and the Court of Customs and Patent Appeals upheld it in United States v. Yoshida International in 1975. The key distinction the current Court drew is scope and duration: the Yoshida surcharge was flat, capped, and tied to a specific and short-lived balance-of-payments emergency, whereas the IEEPA tariffs at issue here varied by country, ran for years, and were adjusted repeatedly by executive proclamation without a fixed end date. The 2026 majority effectively read Yoshida as the outer boundary of what an emergency-powers tariff can look like, and found the 2025 tariff programme well beyond it.

The practical effect on trade flows has been significant even though the legal fight continues. The US average effective tariff rate, blended across all trading partners and product categories, climbed to close to 17% during 2026, the highest since the early 1930s. Economic research on tariff pass-through, including work cited by the Federal Reserve and outside academics during this period, put the share of the added cost absorbed by US importers, retailers and ultimately consumers at somewhere close to 90%, with foreign exporters absorbing comparatively little through lower prices. That pass-through estimate is one reason the ruling was watched as closely by domestic retailers and manufacturers as by trading partners.

For India specifically, the shift between legal regimes has been direct and measurable. Tariffs on Indian goods fell from roughly 18% under the IEEPA-era country-specific rates to 10% under the flat Section 122 surcharge, a change touching close to $87 billion in annual India-to-US trade. That is not a settled outcome, since Section 122's authority is both temporary and, per the Court of International Trade's May ruling, contested even for the period it has already been in effect.

The refund mechanics illustrate how procedurally complicated unwinding an unlawful tariff turns out to be. CBP's CAPE system, launched in phased rollout from April 2026, initially covered unliquidated entries and liquidated entries within an 80-day reprocessing window, with a number of categorical exclusions that pushed many claims into a slower manual review track. The government's appeal targets exactly the entries outside that window: older, closed transactions where CBP's own systems were not built to reopen the books, which is a large share of the total tariffs collected during the roughly nine months IEEPA tariffs were in force.

Looking at the three statutory tools side by side clarifies why the administration is moving toward Section 301 rather than simply defending Section 122. IEEPA, as interpreted before this ruling, had no rate cap and no time limit, which is exactly what made it constitutionally vulnerable. Section 122 has a hard 15% cap and expires after 150 days without a separate act of Congress, which makes it legally safer but only ever a bridge. Section 301 has neither a statutory rate cap nor a built-in expiry date, but it requires a formal investigation establishing an unfair trade practice, which is why USTR has framed the current 59-country, EU-inclusive investigation around forced labour and industrial overcapacity rather than the balance-of-payments language that underpinned IEEPA and Section 122.

The near-term calendar is unusually compressed for a trade policy matter. The public comment period on the proposed Section 301 tariffs closed July 6, 2026, with a USTR hearing scheduled for July 7. The current 10% Section 122 tariff is set to expire on or around July 24, 2026, which gives the administration roughly two and a half weeks after the hearing to finalise a replacement before the existing tariff lapses on its own terms. Separately, the Federal Circuit has two related appeals pending: one over the scope of IEEPA tariff refunds, and one over whether Section 122 was itself validly invoked in the first place. Neither is expected to resolve before the Section 301 rates take effect, meaning the tariff regime that emerges by late July will likely rest on Section 301 while older legal questions about IEEPA and Section 122 continue to work through the courts in parallel.

None of this fully resolves the constitutional question the case was framed around, which is how much unilateral tariff authority a president can exercise without new legislation. The ruling narrows the answer for IEEPA specifically, but it leaves Section 301 and Section 122 available, and both have now been tested or are being tested in litigation of their own. For businesses and trading partners, including India, the practical takeaway is less a single settled tariff rate and more a recurring pattern: emergency tariff authority gets challenged, a narrower statutory authority replaces it, and that narrower authority faces its own legal and expiry pressures in turn.

There is also an open question about how any Section 301-based regime interacts with US obligations under World Trade Organization rules, since neither IEEPA nor Section 122 tariffs were structured as WTO-consistent measures and Section 301 tariffs have historically drawn similar objections from trading partners. That dispute exists alongside, not instead of, the domestic constitutional litigation, meaning the tariff programme that stabilises by late July could still face challenges on a second, international-law track even after the domestic legal questions settle.