What Just Happened with Trump's Tariffs, and Why Does it Matter

Key Takeaways

• The Supreme Court’s recent ruling against IEEPA tariffs has injected fresh volatility into global trade, but President Trump’s immediate pivot to Section 122 tariffs means the trade war is far from over.
• While some sectors like consumer discretionary and technology initially cheered the IEEPA rollback, the new 15% global tariff under Section 122, alongside existing Section 232 duties, creates a complex and uncertain landscape for businesses and investors.
• Investors should brace for continued inflation, supply chain disruptions, and divergent central bank policies, necessitating a focus on resilient sectors and companies with strong domestic operations or diversified supply chains.

What Just Happened with Trump's Tariffs, and Why Does it Matter?

The global trade landscape was thrown into fresh turmoil on February 20, 2026, when the U.S. Supreme Court delivered a 6-3 ruling that President Trump could not impose sweeping tariffs under the International Emergency Economic Powers Act (IEEPA). This decision effectively struck down a significant portion of the administration's "reciprocal" tariff regime, which had applied a minimum 10% tariff and higher rates up to 50% on various trading partners since April 2025. The market's initial reaction was a cautious jump, with the Dow, S&P 500, and Nasdaq posting weekly gains as investors hoped for a rollback of trade barriers.

However, any relief was short-lived. President Trump swiftly responded, calling the ruling a "disgrace" and announcing a new 10% global tariff under Section 122 of the 1974 Trade Act, effective February 24. He then quickly escalated this, declaring on social media that he would raise the rate to the "fully allowed, and legally tested, 15% level." This rapid succession of events underscores a critical point for investors: the administration remains committed to its protectionist agenda, simply shifting legal avenues when one is blocked. The Supreme Court's decision, while significant in limiting presidential authority, has not ended the trade war; it has merely reshaped its legal battleground and introduced a new layer of uncertainty.

The immediate implications are profound. Companies that had factored IEEPA tariffs into their cost structures now face the prospect of a $100 billion to $130 billion refund from the Treasury Department, potentially even up to $175 billion by some estimates. This could act as a substantial stimulus, though the timeline and mechanism for these refunds remain unclear and could take years to resolve. Yet, this potential windfall is immediately offset by the new 15% global tariff, which will impact a broad range of imports and likely continue to be passed on to U.S. consumers and businesses, maintaining inflationary pressures. The shift from IEEPA to Section 122 also creates confusion for countries like the UK and Australia, who had previously negotiated lower tariff deals, as they now face the universal 15% rate while still being expected to honor their concessions.

How Will the New Global Tariffs Impact Key Sectors?

The Supreme Court's ruling and President Trump's subsequent pivot to a 15% global tariff under Section 122 create a highly differentiated impact across various sectors. While the IEEPA rollback initially spurred optimism in import-heavy industries, the new universal tariff, coupled with untouched Section 232 duties, presents a complex picture. Investors need to understand which industries are likely to face headwinds and which might find unexpected tailwinds.

Consumer Discretionary & Retail: This sector initially cheered the IEEPA ruling, with furniture and cookware stocks like Bob's Discount Furniture (BOBS), Wayfair (W), Arhaus (ARHS), and Williams-Sonoma Inc. (WSM) seeing gains. Apparel and luxury brands such as Nike (NKE), Under Armour (UAA), Levi Strauss (LEVI), and even European luxury giants like LVMH (MC.PA) and Hermès (RMS.PA) also popped. However, the new 15% global tariff will likely negate much of this relief. Historically, 31% to 63% of tariff costs have been passed to consumers, and the New York Federal Reserve found that U.S. businesses and consumers paid for nearly 90% of additional tariffs. This means higher prices for imported goods like toys, appliances, and furniture will persist, potentially dampening consumer spending and squeezing retailer margins.

Technology & Semiconductors: The tech sector, particularly the AI trade, was seen as a "net positive" beneficiary of the IEEPA ruling, with financial relief for many companies and improved supply chain visibility. However, the Supreme Court's decision specifically did not affect Section 232 tariffs, which include 25% levies on certain imported semiconductors, notably Nvidia's (NVDA) H200 chips. While the broader 15% global tariff might impact other tech components, the existing, high-impact Section 232 duties on critical semiconductors remain a significant cost burden for the industry. This creates a bifurcated outlook: some relief from general import tariffs, but continued pressure on specialized, high-demand components.

Manufacturing & Industrials: Industries reliant on imported intermediate goods for domestic production will continue to face elevated costs. The auto sector, for instance, sees parts crossing borders multiple times during assembly, and Section 232 tariffs on autos and auto parts (estimated to reduce long-run U.S. GDP by 0.1% and 98,000 jobs) remain in effect. Heavy trucks and buses also face 25% tariffs on trucks and 10% on buses. Logistics and trucking firms like Old Dominion Freight Line and Paccar initially outperformed on hopes of reduced trade friction, but the new global tariff could introduce new complexities and costs for transporting imported goods, potentially offsetting some of the initial optimism.

Metals & Mining: The metals market saw a muted reaction, with copper futures (HG=F) rising by roughly 1.1% and aluminum (ALI=F) ticking up by 0.6% after the IEEPA ruling. However, Section 232 tariffs of 50% on steel and aluminum imports (with exceptions for the UK) and 50% on copper imports remain untouched. This means domestic producers of these metals will continue to benefit from protection against cheaper imports, while industries relying on these materials will face higher input costs. Lumber futures (LBR=F) fell by roughly 0.4%, pricing in cheaper import prices due to the IEEPA rollback, but the new 15% global tariff could partially reverse this.

Pharmaceuticals: This sector faces a particularly severe threat. Although generics would be exempt, the president had previously threatened 200% tariffs on pharmaceuticals, escalating to 250%, and announced a 100% tariff on October 1, 2025, under Section 232. While no proclamation has been issued yet, these high tariffs, capped at 15% for the EU and Japan, remain a significant overhang. The new 15% global tariff adds another layer of cost for pharmaceutical imports not covered by these specific Section 232 threats, potentially leading to higher drug prices for consumers.

How Are International Trade Partners Reacting to the Tariff Uncertainty?

The Supreme Court's ruling and President Trump's subsequent actions have sent ripples of uncertainty across major international trade partners, forcing them to re-evaluate their strategies and existing agreements. The shift from IEEPA to Section 122, coupled with the continuation of Section 232 tariffs, creates a complex and often contradictory environment for global commerce.

China: China has been a primary target of U.S. tariffs, facing a 20% tariff on $263.80 billion of imports as of 2024. The IEEPA ruling might offer some theoretical relief, but the new 15% global tariff ensures that a significant portion of Chinese goods will continue to face import duties. Moreover, the U.S. administration has previously used tariffs to pressure China on issues like fentanyl, with IEEPA Fentanyl China tariffs estimated to reduce U.S. GDP by 0.1%. China's response has historically involved retaliatory tariffs and a redirection of exports to other markets, which J.P. Morgan notes "continues to generate downward pressure on import prices" in other countries. This dynamic is likely to intensify, with China seeking to diversify its trade relationships further, potentially strengthening its position as Germany's top trading partner, as recent news suggests.

European Union (EU): The EU, which had negotiated a 15% tariff cap on many goods and a 10% levy on pharmaceuticals, now faces the prospect of the universal 15% global tariff under Section 122 for goods not covered by Section 232. This directly contradicts previously negotiated deals and creates significant frustration among European businesses. The British Chambers of Commerce (BCC) highlighted the "weariness about the constant changes, the lack of any clarity and certainty." The EU's economic outlook is already diverging from the U.S., with J.P. Morgan forecasting core CPI in the euro area to moderate to 1.9% in 2026, compared to 3.2% in the U.S. This inflation gap could be exacerbated by continued U.S. tariffs, potentially leading to further currency moves, with the euro already up 6-7% in trade-weighted terms in 2025.

Canada and Mexico: These immediate neighbors are particularly vulnerable due to their integrated supply chains with the U.S. While USMCA-compliant imports are exempt from tariffs, the administration has applied tariffs to $42 billion of Canadian imports and $38 billion of Mexican imports annually. Canada previously faced a 35% tariff on many goods, and Mexico a 25% tariff. The Supreme Court ruling on IEEPA tariffs, which included specific IEEPA Canada and IEEPA Mexico tariffs (estimated to reduce U.S. GDP by less than 0.05% each), might offer some relief. However, the new 15% global tariff will still apply to non-USMCA compliant goods. The ongoing uncertainty could affect negotiations on renewing the USMCA, due for review in 2026, and has already led to concerns about rising consumer prices and a decline in economic confidence in both countries.

United Kingdom (UK): The UK had secured a 10% tariff deal with the U.S. on most goods in June 2025, covering £58 billion of exports in 2024, primarily cars, machinery, and pharmaceuticals. However, a White House official indicated that countries with previous deals would now face the 15% global tariff under Section 122, while still being expected to honor their concessions. This creates a significant dilemma for UK businesses, who face higher costs than anticipated while their own market remains open to U.S. goods under existing agreements. The UK's core CPI is projected to be 2.4% in 2026, and these new tariffs could complicate its efforts to manage inflation and maintain trade stability.

What Are the Broader Economic Implications and Inflationary Pressures?

The ongoing trade policy uncertainty, characterized by the Supreme Court's ruling and President Trump's immediate re-imposition of tariffs through a different legal channel, carries significant broader economic implications, particularly concerning inflation and global growth. Analysts are grappling with how these shifting policies will impact the U.S. and global economies in the coming years.

The initial IEEPA tariffs, which raised the effective U.S. tariff rate from 2.1% to an estimated 11.7% by January 2026, have already contributed to elevated inflation. The U.S. inflation rate stood at 2.28% as of February 20, 2026, with core CPI remaining stubbornly high at around 3% since 2024. J.P. Morgan projects U.S. core CPI to accelerate above 3% in 2026, reaching 3.2%, partly due to "persistent goods price pressures" from tariffs. Goldman Sachs estimates the current tariff regime will raise inflation by 1% between the second half of 2025 and the first half of 2026. The new 15% global tariff under Section 122 is expected to continue this trend, as the costs are largely passed on to U.S. businesses and consumers.

Beyond inflation, the economic impact on GDP is a major concern. The Tax Foundation estimated that the 2025 Trump tariffs, if fully imposed, would reduce long-run U.S. GDP by 0.2%, with IEEPA tariffs alone accounting for a -0.4% reduction. J.P. Morgan and the IMF project that a universal 10% rise in U.S. tariffs, coupled with retaliation from the euro area and China, could reduce U.S. GDP by 1% and global GDP by roughly 0.5% through 2026. A significant portion of this decline, roughly half, is attributed to a "negative sentiment shock related to rising trade policy uncertainty." The current situation, with the rapid shift in tariff authority and the re-imposition of duties, only amplifies this uncertainty.

The Treasury Department's potential refund of $100 billion to $130 billion in IEEPA tariffs could provide a substantial economic stimulus, equivalent to roughly one-quarter of a trillion dollars when combined with existing tax cuts. This could boost consumption and potentially improve the inflation outlook for imported intermediate goods. However, the timing and mechanism of these refunds are unclear, and the new 15% global tariff will immediately create new revenue for the government, estimated to be substantial under Section 122. The budget deficit, already projected to be around 6.6% of GDP, could be further impacted by these dynamics, potentially pushing interest rates higher as global investors price in the fiscal implications. The U.S. Treasury yield curve shows a 10-year yield at 4.08% and a 30-year yield at 4.72%, indicating a robust borrowing environment that could be tested by increased deficits.

How Can Investors Navigate This Trade Uncertainty?

Navigating the current trade environment, marked by the Supreme Court's tariff ruling and President Trump's swift counter-moves, demands a strategic and adaptable approach from investors. The persistent uncertainty and the likelihood of continued inflationary pressures mean that traditional investment strategies may need to be re-evaluated. Here are key considerations for investors looking to protect and grow their portfolios.

Focus on Domestic Resilience: Companies with strong domestic supply chains and a lower reliance on imports from tariff-affected regions are likely to be more resilient. This includes businesses that source raw materials and components primarily within the U.S. or from countries with stable, favorable trade agreements. Look for firms with robust manufacturing capabilities at home or those that have successfully near-shored or re-shored production to mitigate tariff risks. This strategy helps insulate portfolios from the direct costs of tariffs and the volatility of international trade disputes.

Diversify Geographically and by Sector: While the U.S. economy is projected to grow by 2.1% in 2026, the fastest among advanced economies, regional divergences in inflation and economic policy are becoming more pronounced. Consider diversifying investments across geographies, particularly in markets less exposed to U.S. tariff actions or those benefiting from redirected trade flows. Within the U.S., favor sectors that are less import-dependent or those that can easily pass on increased costs to consumers without significant demand destruction. Essential goods and services, for example, tend to be more insulated than discretionary items.

Prioritize Strong Balance Sheets and Pricing Power: In an environment of rising costs and potential supply chain disruptions, companies with strong balance sheets, ample cash reserves, and low debt will be better positioned to absorb shocks. Furthermore, businesses with significant pricing power – the ability to raise prices without losing market share – can effectively offset tariff-induced cost increases. This is particularly crucial in sectors facing direct tariff hits, as it allows them to maintain profitability even as input costs rise. Look for companies with strong brands, unique products, or dominant market positions.

Monitor Inflation and Central Bank Policies: The current inflation rate of 2.28% and projected U.S. core CPI of 3.2% for 2026 suggest that inflation will remain a key factor. Investors should monitor inflation indicators closely, as persistent inflation could lead to continued hawkish stances from the Federal Reserve. J.P. Morgan expects the Fed to maintain a restrictive monetary policy in 2026 due to inflationary pressures. This implies higher interest rates for longer, which can impact valuations, particularly for growth stocks. Consider inflation-hedging assets like Treasury Inflation-Protected Securities (TIPS) or commodities, though the latter can be volatile.

Consider Companies with USMCA Compliance: For investors with exposure to North American trade, companies that are highly compliant with the United States-Mexico-Canada Agreement (USMCA) may offer a degree of protection. USMCA-compliant imports are exempt from many of the tariffs, providing a competitive advantage. This is particularly relevant for sectors like automotive, where integrated supply chains are common. Identifying businesses that have optimized their operations to meet USMCA requirements can offer a buffer against broader tariff impacts on Canadian and Mexican goods.

What's Next for the Trade War and Your Portfolio?

The Supreme Court's ruling against IEEPA tariffs and President Trump's immediate pivot to Section 122 has not ended the trade war; it has merely shifted its legal battleground. Investors should anticipate continued volatility and policy uncertainty as the administration explores all available avenues to implement its protectionist agenda. The new 15% global tariff, alongside existing Section 232 duties, will likely keep inflationary pressures elevated and continue to reshape global supply chains.

For your portfolio, this means prioritizing resilience and adaptability. Focus on companies with strong domestic operations, diversified supply chains, and robust balance sheets that can withstand ongoing trade friction. Monitor the evolving geopolitical landscape and central bank responses, as these will be critical in determining market direction. The trade war narrative is far from over, and a proactive, informed approach will be essential for navigating the choppy waters ahead.

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