Fitch Ratings, based in New York, reported that the recent U.S. Supreme Court decision on February 20 has significantly impacted the U.S. effective tariff rate (ETR). The ruling invalidated the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose widespread tariffs on imports from most countries, effectively reducing the ETR by more than half—from 13% to approximately 5% to 6%.
In response, the administration quickly announced a 10% global tariff under Section 122 of the Trade Act of 1974, which was later increased to 15%. This move underscores the ongoing uncertainty in the U.S. trade regime, as the administration continues to advocate for high tariff barriers and seeks alternative methods to maintain them.
The Supreme Court’s decision clarified that the president lacks the authority to unilaterally impose tariffs via IEEPA. This ruling eliminates the foundation for generating an estimated USD 240 billion (4.5%) in annual federal revenues, based on the October-November IEEPA run rate, equating to 0.8% of GDP. The court did not address whether previously collected IEEPA tariffs must be refunded, introducing operational and legal challenges for importers who paid these tariffs and may now be eligible for refunds.
IEEPA-related tariffs previously constituted the majority of U.S. tariff revenue, representing roughly two-thirds of the October-November run rate, substantially exceeding other sectoral or China-specific tariffs levied under the Trade Acts of 1962 and 1974, which remain unaffected by the Supreme Court ruling.
The administration swiftly reacted to the court’s decision by announcing a replacement 10% levy under Section 122 of the Trade Act of 1974, allowing the executive to impose tariffs for up to 150 days without congressional approval. Over the weekend, President Trump declared that this levy would be set at 15%.
The decision to prohibit the use of IEEPA introduces significant uncertainties regarding U.S. trade policy, particularly concerning the regime that will succeed the initial 150 days of the Section 122 tariffs. According to the White House, all nations with trade agreements will have their goods exports to the U.S. subjected to the new 15% tariff rate. However, significant exemptions will apply, including for passenger vehicles, pharmaceuticals, goods compliant with the United States-Mexico-Canada Agreement (USMCA), and certain electronics, though specific details have not been disclosed. If exemptions similar to those applied to reciprocal IEEPA tariffs are also applicable to the new 15% tariff, the U.S. ETR is expected to stabilize at around 11.5% compared to the previous rate of 12.7%.
The Supreme Court ruling also raises questions about the fiscal impact and whether the administration will compensate for lost IEEPA-related tariff revenue, and on what timeline. Fitch estimated full-year tariff revenues at USD 350 billion, with the loss of IEEPA tariffs representing a reduction of around USD 240 billion (0.8% of GDP). However, the temporary 15% global tariff rate suggests that the near-term fiscal impact may be limited, although uncertainty remains regarding where the ETR and tariff revenues will settle after 150 days.
Fitch projected a general government (GG) deficit of 7.3% of GDP in 2026, with the OBBBA tax cuts reducing revenues, largely offset by tariff revenues. Any significant reduction in the effective tariff rate and total tariff revenues could negatively affect the deficit and debt, absent offsetting revenue or expenditure measures. Additionally, potential IEEPA refunds, estimated at around USD 175 billion (0.6% of GDP), could further threaten fiscal accounts.
