Update: On February 20, 2026, the Supreme Court ruled that the legal basis for most of the Trump administration’s tariff increases throughout 2025 is invalid. The International Economic Emergency Powers Act (IEEPA) had never before been used to justify unilateral executive action on tariffs.
This ruling does not end the most damaging near-term economic consequences of the Trump tariff agenda – the radical uncertainty about what are the rules governing trade between the U.S. and trading partners. In fact, it might increase this uncertainty in the short-run, as a number of ad hoc trade deals rested on the premise that the Trump administration’s ability to impose and change these tariffs as they wished.
There are other possible legal foundations for widespread unilateral tariffs. But these have their own legal uncertainties. For example, the president can impose 15% across-the-board tariffs in the face of a “large and serious” balance-of-payments deterioration, and the Trump administration could argue that the chronic U.S. trade deficit satisfies this criterion. But these tariffs would need to be re-authorized by Congress after just 150 days.
In short, today’s ruling likely has some long-run legal importance, but it is unlikely to resolve much of the uncertainty about what the rules governing trade will be in 2026 and beyond, and this uncertainty is clearly not good for U.S. economic growth and stability.
It is worth noting that in some ways the chaos in trade policy over the past year is a long-run consequence of Congress abdicating its proper role in setting tariffs and trade agreements and granting excessive power to the executive branch in these realms. In previous administrations, this ceding of power to the executive branch was done explicitly to grease the wheels for negotiating trade agreements with terms that would have had a hard time finding a Congressional majority. The fact that excess executive power in the past year has instead been used to tear up existing agreements rather than negotiate new ones is ironic, but is largely just another symptom of this larger trend.
This decades-long process of steadily ceding more ground to the executive branch has led to trade policy that has not been responsive to the needs of typical working families. In the decades before the Trump administration trade policy reliably prioritized the desires of corporate owners and managers. The Trump administration has mostly aimed to punish foreign countries and give themselves opportunities to grant exemptions to companies and industries that curry their favor. Neither of those approaches have helped working families in the U.S., so if today’s decision leads to trade policymaking power moving away from the executive branch and back towards Congress, that could be a useful long-run development.
Timeline:
August 29, 2025: The U.S. Court of Appeals for the Federal Circuit ruled that Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs on virtually all U.S. imports was unlawful. Agreeing with the lower court’s ruling on this issue in May 2025, a majority of the judges wrote in their ruling that “It seems unlikely that Congress intended, in enacting IEEPA, to depart from its past practice and grant the president unlimited authority to impose tariffs.” The enforcement of the judges’ order will not go into affect until mid-October. The Trump administration has appealed the decision to the Supreme Courton an expedited basis. If upheld, the United States will need to reimburse U.S. importers that paid tariffs under President Trump’s IEEPA declarations.
In addition, on August 29, 2025, the earlier de minimis exemption from the tariffs expired, meaning import taxes will now be applied to goods being shipped to the U.S. with a value of less than $800. This affects roughly 1 billion packages annually received through the postal service, as well as goods that fliers import during air travel.
August 7, 2025: Despite being ruled unlawful by federal courts, the reciprocal tariff rates went into effect. If the Trump administration’s appeals fail, and the tariffs are affirmed to be by the courts, the U.S. government could be required to pay billions of dollars in refunds to businesses who have already paid the illegally imposed tariffs.
July 7, 2025: President Trump extended the 90-day pause on the “reciprocal” tariffs (originally announced April 7) through August 1, 2025 from an initial expiration of July 9. Trump also announced that he sent letters to select countries communicating the tariff levels their exports to the United States could face after August 1. The announcement specifically names Japan, Korea, South Africa, Kazakhstan, Laos, Malaysia, Myanmar, Tunisia, Bosnia and Herzegovnia, Indonesia, Bangladesh, Serbia, Cambodia, and Thailand as recipients of presidential letters, and pledges more letters to be sent “in the coming days and weeks.” The reciprocal tariffs threatened in these letters and first announced in the April 2 executive order under the International Economic Emergency Powers Act (IEEPA) have been ruled unlawful in two separate court cases and blocked from implementation pending appeal; several other lawsuits over these tariffs are still being tried.
May 29, 2025: A second federal court issued a preliminary injunction blocking the Trump administration from collecting tariffs on the two plaintiffs who brought the case. The U.S. District Court judge issuing the ruling cited that the IEEPA does not give Trump the authority to impose tariffs outlined in the April 2 executive order.
May 28, 2025: The U.S. Court of International Trade ruled that the Trump administration’s April 2 executive order on tariffs are illegal, stating that the tariffs exceeded his power under the International Economic Emergency Powers Act (IEEPA). The court ruling also struck down separate tariffs Trump imposed on China, Canada, and Mexico, where the administration argued fentanyl trafficking as a justification to invoke the IEEPA. The ruling does not impact tariffs Trump has issued on steel, aluminum, and cars.
In arguments for this case, an attorney for the Trump administration said that this decision would “would kneecap the president on the world stage, cripple his ability to negotiate trade deals, imperil the government’s ability to respond to these and future national emergencies.” However, senior White House officials indicated that they attend to appeal the ruling, and would proceed with ongoing trade negotiations with the assumption that they will be successful on appeal and be able to continue imposing the tariffs.
May 9, 2025: President Trump and the government of the United Kingdom announced their intent to continue talks with the goal of agreeing to a new bilateral trade agreement, which would include rolling back some of the specific tariffs imposed on steel, aluminum, and cars produced in the U.K. in exchange for greater market access for U.S. agribusiness and tax and regulatory concessions to U.S. Big Tech companies. The announcement implies that the the 10% tariff President Trump placed on British imports will remain and that a quota of 100,000 cars would see tariffs reduced from 25% to this 10% baseline, while UK-produced steel and Rolls Royce jet engines would see tariffs reduced from 25% to zero.
The initial contours of this U.K. agreement indicate the difficulty in using this approach to advance a coherent strategy to rebalance U.S. trade relationships to support domestic manufacturing. If the Trump administration continues down this path, presumably, we would need to expect announcements in the near-term of nearly 90 individual “trade deals” with each major U.S. trading partner. This strategy represents a step backwards from the closed-door approach to negotiating trade agreements for special interests that has led to our current broken trading system. The Trump administration is side-stepping even the limited transparency and public accountability measures for formulating U.S. trade negotiating objectives, creating opportunities for self-dealing, conflicts of interest, and corruption.
Ad hoc executive agreements like this do not carry the force of law of trade agreements ratified by Congress and could be reversed at the end of Trump’s presidential term, or sooner if the president has a change of heart. As such, uncertainty about the durability of such “deals” will leave doubts among businesses, investors, workers, and consumers desiring predictability to plan for their futures.
April 2, 2025: Trump issued an executive order declaring a national economic emergency and levying tariffs on goods imports from virtually all U.S. trading partners, at a minimum of 10% but significantly higher for major trading partners.
April 5, 2025: Tariffs go into effect.
April 9, 2025: Trump lowers lowers most of the announced tariffs to 10 percent for 90 days, and increases tariffs on goods from China from 104 percent to 145 percent, including the 20 percent tariff announced in February. The announcement came after several days of alarm and plunging performance in the stock market and instability in the typically more-stable bond market. The original tariff announcement has also severely disrupted U.S. economic and diplomatic relations with other countries, many of which struggled to get responses from the White House on negotiations.
On April 2, 2025, President Trump issued an executive order titled, “Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits.” The order declares a national economic emergency over large and sustained U.S. trade deficits—the difference between how much the United States sells in exports to the rest of the world and how much it buys in imports. Invoking a variety of emergency legal authorities, the order invokes significant taxes on goods that Americans purchase from abroad, also called tariffs.
While the word “reciprocal” might imply these tariffs are meant to match in some way trade barriers to U.S. exports, the actual calculation of each country-specific tariff has no relation at all to genuine trade barriers. For each country, the “reciprocal tariff rate” is calculated as one-half multiplied by the bilateral trade deficit the United States runs with the country divided by the value of U.S. imports from that country. There is no information at all about legal or regulatory barriers or tariffs on U.S. exports that is reflected in this formula – it is functionally arbitrary in setting the reciprocal tariff levels.
Impact:
In 2024 the average effective tariff rate on goods entering the United States was less than 3%. The “reciprocal” tariffs will raise it to just under 19%. Tariffs will now cover functionally all goods imports into the United States – over $3 trillion. This level of tariffs will raise taxes on U.S. households by roughly $450 billion and will see a sharp reduction in both imports and exports.
Tariffs can be a useful tool in industrial policy for well-defined strategic goals, but broad-based tariffs that significantly raise the average effective tariff rate in the United States are unwise. Without a strategic plan, and applied broadly across all sectors, these tariffs will not provide a meaningful boost to U.S. manufacturing.