Supreme court IEEPA tariff decision could raise market risk

The US Supreme Court’s reversal of President Trump’s tariff orders doesn’t reduce policy risk, but shifts it. We expect the administration to rely more on non-tariff measures, with risk concentrating at the company, industry, and sector levels, rather than manifesting through broader FX or macro volatility.

The US Supreme Court’s ruling that the use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs is unlawful would mark a major rebalancing in US foreign economic policy.

Under IEEPA, the president has been able to regulate or restrict economic activity without congressional approval following a national emergency declaration. Investors and foreign policy makers have spent the last year adapting to a world where the executive branch could impose tariffs overnight under emergency authority. The Court’s decision today effectively removes that option.

Tariff policy has been a key source of volatility across equities, emerging market currencies, supply chain assets, global cyclicals, and commodities. The ruling alters both the legal architecture and the political dynamics governing US trade measures just as the US moves toward midterm elections.

Investors now face a new regime: fewer sudden tariff shocks, more procedural friction, and a greater reliance on sanctions and regulatory tools for geopolitical competition. Paradoxically, this regime may prove less predictable than the one it replaces. Tariffs shift in legal form, but not intent.

Return to low-tariff world not likely

With tariffs sitting at the heart of the administration’s economic policy, a return to the low-tariff world of 2024 appears unlikely. The administration will rush to re-anchor existing tariffs under legal frameworks that undeniably authorize them—most plausibly Section 301 (unfair trade practices) or Section 232 (national security). Less-tested grounds such as sections 122 (balance of payments), 201 (global safeguards), or 338 (discriminatory treatment) may provide temporary legal cover.

This conversion process of tariffs will likely trigger some procedural delays, as investigations or consultations are required. Some tariffs may temporarily lapse; others may return in narrower form.

We may even see efforts in Congress to back-fill a foundation for the tariff-based trade regime, possibly by amending IEEPA to encompass tariffs or by creating a new emergency trade statute. However, the narrow Republican majority and procedural requirements for such a bill make that path unlikely to succeed this year.

From a markets perspective, this produces a short-term easing impulse: lower effective duties, higher margins for import heavy sectors, and a modestly softer dollar. But this easing won’t be linear. Moving old tariffs into new legal homes introduces headline risk as agencies craft new rationales. Expect episodic volatility around procedural deadlines and early re-imposition attempts, some of which will be challenged in court.  

Tariffs just one tool among many

The ruling structurally constrains the tariff tool, confining its use to trade law channels rather than emergency economic powers. But it does not do so completely; short-term tariff impositions of up to 15% remain firmly within the president’s toolbox even after the ruling. Still, it makes tariffs more targeted, slower, and more tied to documented trade harms—a change markets generally welcome.

But to focus narrowly on tariffs would be to miss the broader point: tariffs are only one of the options in the policy toolkit. Sanctions, licenses, export controls, and procurement restrictions are all non-tariff instruments that operate quickly under emergency authorities. And worse, while tariff rates were explicitly flexible, sanctions have a track record of being stickier once imposed.

The result is a regime where broad, economy-wide tariff shocks become less likely, but sector-specific regulatory risk increases—particularly in strategic sectors such as technology, critical minerals, and defense‑adjacent supply chains.

Such an environment rewards companies with strong regulatory engagement and sophisticated compliance programs. For macro assets, the ruling reduces the probability of sudden tariff-driven, risk-off episodes, but increases the slow-burn policy risk associated with administrative actions.

The recent example of the US considering the de-certification of Canadian-made aircraft is illustrative of how future geopolitical frictions could spill over into the economy and markets.

Macro tailwinds unlikely

The US collected around $130 billion in IEEPA-related tariff revenue in 2025, about 0.3% of GDP. Returning these payments to importers would create a notable uplift to their earnings. The opposite is true for government finances; returning tax revenues of this amount would create a fiscal loosening. Despite ruling against a key pillar of the president’s tariff policy, the Court did not force automatic refunds, instead leaving open the possibility to challenge past payments through the usual legal/administrative pathways, conditional to their requirements.

The legal and administrative barriers to getting one will, therefore, be high, significantly reducing the overall amounts paid back. While this suggests minimal macro tailwind, this may not be true at the sector or company level. The dynamic benefits larger companies with established regulatory/legal practices. Large players in the electronics, automotive, industrials, and chemicals sectors, which were all large IEEPA tariff payers, could see an earnings boost. Tax reclaim companies would benefit, a private market opportunity.

Limits on IEEPA tariffs could concentrate risk at the industry level

The Court’s restriction on IEEPA based tariffs reduces tariff-induced volatility, but markets had already become less responsive to tariff headlines over the past year. The ruling is, therefore, likely to raise the probability of market distortions, even as it narrows the scope for broad trade measures.

The impulse to augment the power of the executive as well as weaponize the interdependencies created by globalization has not receded but merely shifted channels—from broad country or sector tariffs to targeted measures. Market risk, therefore, is likely to concentrate at the company, industry, and sector levels (especially for capital goods), rather than manifest through broader FX or macro volatility.