The US Supreme Court ruled 6–3 that the International Emergency Economic Powers Act (IEEPA) does not allow a President to impose tariffs. The Court left to lower courts the question of whether more than $160 billion in paid tariffs must be refunded.
The ruling modestly lowers overall US tariff levels, but they remain historically high. The Trump administration moved quickly to reimpose tariffs through other legal channels.
Tariff Refunds And Fiscal Effects
If refunds are ordered, they would add to this year’s deficit, but the wider debt path is not expected to change. Existing expectations already included a fall in tariffs this year, which has now occurred.
Inflation effects are expected to be limited. Even if firms receive refunds, the money is unlikely to be passed on to consumers.
Section 122 could be used again, but it has a 150-day limit and may face legal action that would not be resolved before it expires. It was originally designed to address international payment problems under fixed exchange rates.
The administration is also expected to use Section 232 and Section 301 to rebuild tariffs after investigations. These tools cannot recreate sweeping universal tariffs, but could approximate the previous package over time.
Trading Implications And Sector Volatility
The Supreme Court’s decision last year to curb presidential tariff powers has shifted the trading landscape from one of broad, predictable tariffs to one of targeted uncertainty. The administration is now rebuilding its tariff wall piece by piece, creating unpredictable risks for specific sectors. We believe this environment calls for a focus on volatility rather than simple directional bets on the entire market.
Traders should monitor sectors historically targeted by Section 232 and 301 actions, such as steel, aluminum, and Chinese technology imports. As the administration initiates new investigations, implied volatility in ETFs tracking these industries, like the industrial sector SPDR (XLI), is likely to increase. This makes strategies like buying straddles or strangles on key industrial and tech names potentially attractive to play the coming uncertainty.
We do not see this as a major disinflationary event that will alter Federal Reserve policy. The latest Consumer Price Index data showed a 0.4% monthly increase in January 2026, keeping annual inflation stubbornly above 3%, and any refunds to businesses are unlikely to be passed on to consumers. Therefore, options strategies that bet on aggressive Fed rate cuts based on this tariff news seem poorly positioned.
The possibility of over $160 billion in tariff refunds being paid out this year introduces a specific fiscal risk. This could increase this year’s projected deficit, which the CBO already estimated at over $1.7 trillion for fiscal year 2026, creating potential headwinds for US Treasuries. This fiscal pressure could also inject volatility into currency markets, especially the US dollar against the Chinese yuan.
The use of Section 122 offers a temporary, 150-day window for broad tariffs while more permanent ones are investigated. Given that legal challenges to this are unlikely to succeed before the term expires, traders should anticipate short-term market disruptions when this tool is used. This creates a defined period where hedging currency exposure or specific commodity futures becomes critical.
