The Supreme Court Just Struck Down Trump's Tariffs. Here's What Actually Happens Next.

On February 20, 2026, the Supreme Court ruled 6-3 that President Trump's use of the International Emergency Economic Powers Act (IEEPA) to impose sweeping tariffs on imports is unconstitutional. Hours later, Trump signed a replacement tariff under a different statute. The net effect: tariff rates dropped by nearly half, but remain at their highest level since 1946.

This is a breakdown of what happened, what it means, and what comes next.

Two family-owned educational toy companies -- Learning Resources and Hand2mind -- filed suit on April 22, 2025, in the U.S. District Court for the District of Columbia. They challenged Trump's use of IEEPA to impose tariffs by declaring national emergencies over drug trafficking (targeting Canada, Mexico, and China) and persistent trade deficits (targeting all imports globally).

The case was expedited to the Supreme Court, with oral arguments heard on November 5, 2025.

The Ruling

The Court held that IEEPA does not authorize the President to impose tariffs. The statute contains no reference to tariffs or duties. The government argued that IEEPA's grant of authority to "regulate... importation" encompasses tariff power. The Court rejected this, noting that the government could not identify any statute in which Congress used the word "regulate" to authorize taxation.

Chief Justice Roberts, writing for the majority, drew on Gibbons v. Ogden (1824) to distinguish tariffs as a "branch of the taxing power" -- a power Article I, Section 8 of the Constitution reserves exclusively to Congress.

The Vote

Two Trump first-term appointees -- Gorsuch and Barrett -- sided with the Chief Justice and the three liberal justices. Barrett wrote that Congress is expected "to make the big-time policy calls itself, rather than pawning them off to another branch."

Kavanaugh authored the most extensive dissent at 63 pages, arguing that "regulate importation" is substantially equivalent to tariff authority and citing the Nixon-era Trading with the Enemy Act as precedent.

This is the critical distinction most coverage glosses over.

Tariffs invalidated (IEEPA-based)

• 25% on most Canadian and Mexican imports
• 10% on most Chinese imports (drug trafficking justification)
• 10%+ baseline on all imports globally ("Liberation Day" tariffs)
• Higher "reciprocal" rates for dozens of nations

Tariffs still in force (different statutory authority)

These statutes were not challenged and remain valid law. Section 301 tariffs alone keep China's effective tariff rate at approximately 55%.

Hours after the ruling, Trump signed an executive order imposing a new 10% global tariff under Section 122 of the Trade Act of 1974. This is the first time Section 122 has ever been invoked.

Key constraints of Section 122:

• Caps at 15% (Trump set it at 10%)
• Temporary: 150 days unless Congress extends it
• Requires a "large and serious" balance-of-payments deficit and "imminent" dollar depreciation
• Takes effect February 24 at 12:01 a.m. EST

Exemptions include some agricultural products (beef, tomatoes, oranges), critical minerals, pharmaceuticals, some electronics, and passenger vehicles.

The Cato Institute warns that the 150-day limit could theoretically be circumvented by allowing tariffs to lapse, declaring a new emergency, and restarting the clock -- raising separation-of-powers concerns similar to the ones the Court just addressed.

Sources: Yale Budget Lab, Penn Wharton Budget Model, Tax Foundation.

The government collected approximately $164.7 billion in IEEPA tariffs through January 2026, at a rate of roughly $500 million per day. Penn Wharton projects total refunds could reach $175 billion.

The Supreme Court issued no guidance on refunds. The remedial question is left entirely to lower courts and the administrative process.

Who can claim refunds: Importers who paid IEEPA tariffs have 180 days after their goods are "liquidated" (finalized by Customs) to file refund claims with U.S. Customs and Border Protection.

Who has already filed:

• Costco filed suit in the U.S. Court of International Trade in December 2025, explicitly to preserve refund eligibility. Approximately one-third of their U.S. merchandise comes from imports.
• Revlon and Bumble Bee Foods have also filed.
• TD Securities estimates the refund process could take 12 to 18 months.

Kavanaugh criticized the majority for dodging the refund issue, noting the Court "says nothing today about whether, and if so how, the Government should go about returning the billions of dollars."

Will refunds reach consumers? Not directly. Refunds go to importers (the companies that paid the tariffs), not to end consumers. Whether companies pass savings through as lower prices depends on competitive dynamics -- though Costco's business model (low margins, high volume) makes pass-through more likely than for most retailers.

Immediate relief: Importers no longer owe IEEPA tariff rates as of the ruling. This is an immediate reduction in cost of goods for every company importing from affected countries.

Partial offset: The new Section 122 tariff reimposed 10% on all imports starting February 24. Companies get roughly half the tariff burden removed, not all of it.

Remaining China exposure: Companies importing from China still face Section 301 tariffs (approximately 55% on many goods). The IEEPA ruling removed the additional 10% layer, but the core trade-war tariffs on Chinese goods are untouched.

Supply chain shifts already happened: U.S. imports from China dropped from 12% of total imports in 2024 to approximately 8% by September 2025. Companies that diversified supply chains to Vietnam, India, or Mexico did so based on the full tariff regime. The partial rollback doesn't reverse those capital investments.

The Tax Foundation estimates that removing IEEPA tariffs prevents $1.4 trillion in collections over 2026-2035.

The Yale Budget Lab estimates the average household tariff burden drops by roughly half -- from approximately $1,200-$1,600/year to $600-$800/year.

Categories that should see some relief: furniture, clothing, food, electronics, and auto parts. The mechanism is indirect -- lower import costs flow to wholesalers, then retailers, then shelf prices -- and takes months, not days.

The caveats are significant:

• The 9.1% effective tariff rate is still the highest since 1946.
• The Section 122 replacement tariff partially offsets the relief.
• Stephanie Roth, Wolfe Research chief economist, said "nothing" would change for consumer prices because Trump has other tariff levers.
• Elizabeth Renter, NerdWallet Senior Economist: "Less risk of higher and higher prices, but no end in sight to the economic uncertainty."

China's tariff picture after the ruling:

Total effective rate on Chinese goods dropped from roughly 75%+ to approximately 65%. China remains the most heavily tariffed U.S. trading partner by a wide margin.

The ruling does not reverse the structural realignment of supply chains away from China. That shift -- from 12% of U.S. imports to 8% -- was driven by the full tariff regime plus geopolitical risk. The partial rollback removes one legal basis for China tariffs but leaves the trade war infrastructure intact through Section 301.

China accounted for 24.16% of all IEEPA tariff revenue -- the largest single-country source.

Settled:

• IEEPA does not authorize tariffs. This is now binding Supreme Court precedent.
• The taxing power belongs to Congress under Article I, Section 8. The President cannot unilaterally impose duties through emergency declarations.

Unsettled:

• Whether the "major questions doctrine" applies to foreign affairs and emergency powers. Roberts, Gorsuch, and Barrett advanced this argument, but it was a 3-justice plurality -- not a majority holding, and not binding precedent.
• How refunds will work. The Court punted entirely on remedies.
• Whether Section 122's 150-day limit can be circumvented through serial emergency declarations.
• Whether Congress will act to extend the Section 122 tariff, pass new tariff legislation, or let it expire.

The rally erased morning losses from weaker-than-expected Q4 GDP data (1.4% annualized vs. 2.5% forecast).

The ruling cuts tariff rates nearly in half but doesn't end them. Prices should ease but won't return to pre-tariff levels. The $175 billion refund process will take over a year and goes to importers, not consumers directly. Trump's Section 122 replacement tariff fills part of the gap at 10%, but expires in 150 days unless Congress acts.

The constitutional question is resolved: emergency powers don't include the power to tax imports. The economic question is not: with a 9.1% effective tariff rate -- still the highest in 80 years -- the trade policy landscape remains fundamentally altered.

• SCOTUSblog: Supreme Court strikes down tariffs
• SCOTUSblog: Breakdown of the tariff decision
• Justia: Learning Resources, Inc. v. Trump, 607 U.S. ___ (2026)
• Yale Budget Lab: State of U.S. Tariffs
• Penn Wharton: IEEPA Revenue and Potential Refunds
• Tax Foundation: Trump Tariffs Economic Impact
• Cato Institute: Don't Pop the Champagne Yet
• NPR: Supreme Court strikes down Trump's tariffs
• CNBC: Supreme Court ruling analysis
• Fortune: How Costco's lawsuit helps business
• Peterson Institute: Welcome ruling on tariffs
• RSM: Economic implications
• NPR: 7 key things to know
• White House: Temporary Import Duty Fact Sheet

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