Supreme Court Trump Setback

Key Points

• In a 6-3 decision, the Supreme Court ruled that the International Emergency Economic Powers Act of 1977 doesn’t authorize President Donald Trump to impose tariffs.
• The Yale Budget Lab estimated that households’ average cost burden would fall by about half in 2026, to between $600 and $800, if the Supreme Court ruled against the tariffs.
• However, Trump administration officials previously said they would use different legal pathways to achieve an outcome similar to the IEEPA tariffs.
• President Trump signed a proclamation Friday night that will impose a 10% duty on most imports for up to 150 days, as permitted under Section 122 of the Trade Act of 1974.
• Businesses may be able to claim refunds for IEEPA tariffs paid, but are unlikely to pass these on to consumers.

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Last year, President Trump used the International Emergency Economic Powers Act of 1977 (IEEPA) to impose tariffs on US trading partners.

He declared a national emergency, saying an influx of illegal drugs from Canada, Mexico, and China had created a public health crisis, and that large and persistent trade deficits had undermined US manufacturing. His administration used IEEPA to levy tariffs on imports to manage the perceived crises: a 10% baseline tariff on all US trading partners and higher duties on Canada, Mexico, and China.

Chief Justice John Roberts

In a 6-3 decision, the Supreme Court ruled on Friday that the IEEPA doesn’t authorize the president to impose tariffs.

“The Government reads IEEPA to give the President power to unilaterally impose unbounded tariffs and change them at will,” according to the court.

“That view would represent a transformative expansion of the President’s authority over tariff policy,” their opinion argued. “It is also telling that in IEEPA’s half-century of existence, no President has invoked the statute to impose any tariffs, let alone tariffs of this magnitude and scope.”

The Yale Budget Lab estimated that households’ average cost burden would fall by about half in 2026, to between $600 and $800, if the IEEPA tariffs were overturned.

Before the ruling, Trump administration officials had said they would use different legal pathways, if overruled, to achieve roughly the same outcome as the tariffs. (CNBC)

President Trump signed a proclamation Friday night that will impose 10% tariffs on most imports to the United States, to replace the 10% IEEPA baseline tariff rate overturned by the earlier Supreme Court ruling.

The new tariffs take effect Monday and are levied under Section 122 of the Trade Act of 1974, which allows the president to impose duties of up to 15% for 150 days to address “large and serious” balance-of-payments issues. (CBS News)

Businesses will likely claim refunds for the estimated $175 billion in IEEPA tariffs paid to date, but consumers will not receive any direct benefit. (Reuters)

Treasury Markets

10-year Treasury yields increased on news of the Supreme Court ruling, but remain close to primary support at 4.0%.

Stocks

The S&P 500 rallied on the prospect of reduced tariffs, but will likely reverse on news of Trump’s Friday night proclamation.

Financial Markets

The Chicago Fed National Financial Conditions Index reached -0.568 on February 13, signaling loose monetary conditions.

However, Bitcoin¹ (BTC) remains below 70,000, indicating that financial markets are shedding risk assets.

Inflation

The Fed’s favored measure of underlying inflation, the core PCE index, jumped by 0.355% in December 2025, warning of an upsurge in price pressures.

Annual growth in the core PCE inflation index lifted to 3.0%, and the headline PCE index increased to 2.9%.

The University of Michigan (UOM) survey of consumers reported a median expected price increase of 3.4% over the next year, with the 3-month average declining to 3.9%.

Consumers

Consumer sentiment from the February UOM survey remains near record lows since the survey commenced in 1960.

Participants’ assessment of current economic conditions is also near the lowest ebb in more than 60 years.

Economy

Real GDP growth slowed to 0.35% in the fourth quarter, or 1.4% annualized, according to the US Bureau of Economic Analysis. Aggregate weekly hours worked grew at a slower 1.0% over the 12 months to January 2026, suggesting that GDP growth will likely slow further.

Dollar & Gold

The US Dollar Index met resistance at 98 after news of the Supreme Court ruling, and we expect the downtrend to continue.

Gold rallied to above $5,100 per ounce, signaling another test of resistance at $5,500.

Conclusion

The Supreme Court ruling against President Trump’s tariffs checks his expansive use of emergency powers in pursuit of his economic agenda. The ruling also increases the economic uncertainty that has bedeviled Trump’s economic policy, making it difficult for corporations to make long-term investment decisions.

Declining real GDP growth in the fourth quarter highlights that the US economy is heavily reliant on massive capital investment in AI data centers to keep the country out of a recession, while the broader economy shudders from one mishap to the next.

Consumer sentiment and perceptions of current economic conditions are near sixty-year lows, again reflecting the narrow economic recovery, which has failed to benefit most Americans despite low unemployment. Republicans are going to find it difficult to hold a majority in Congress after the November midterm elections, delivering a further setback to Trump’s economic agenda.

The Supreme Court decision, led by conservative Chief Justice John Roberts, is a sign that conservatives will increasingly resist Trump’s disregard for the checks and balances built into the Constitution. We have likely passed “peak Trump” on the economic front, though he will likely try to stay in the spotlight with his geopolitical agenda.

We maintain our overweight position in gold and defensive stocks with stable cash flows, while avoiding high-multiple technology stocks and long-term financial instruments.

Acknowledgments

• CoinDesk: Bitcoin
• Federal Reserve of St Louis: FRED Data
• Reuters: Supreme Court checks Trump’s expansive view of executive power
• CNBC: What Supreme Court ruling against Trump tariffs means for your money
• University of Michigan: Consumer Surveys
• Reuters: How will companies get refunds now that the US Supreme Court has rejected Trump’s tariffs?
• CBS News: Trump imposes 10% tariffs on all countries after Supreme Court struck down earlier tariffs

Notes

1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.