US Supreme Court blocks Trump tariffs – but the trade war isn't over | ODI

By now you have seen the headlines: the US Supreme Court (SCOTUS) has ruled that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) are unlawful. Yet, trade policy uncertainty shows no signs of easing. Within hours of the ruling, the Trump administration responded with new (and modified) global tariffs.

The bigger picture? Despite the Court’s landmark ruling, tariffs – and the uncertainty surrounding them – are not going away. The economic and legal damage has already been done.

The Supreme Court’s 6-3 decision is significant because it limits one specific instrument, not the broader strategy. The Court held that the IEEPA does not authorise the president to impose sweeping tariffs without the involvement of a congressional delegation. Put simply: presidential authority to regulate imports does not automatically include the power to levy tariffs. This ruling removes the most flexible pathway for deploying reciprocal and drug-trafficking tariffs (Supreme Court, 2026). But IEEPA is only one tool in a much larger trade arsenal. Non-IEEPA tariffs, including steel and aluminium, remain in place.

The real question, therefore, is not whether tariffs continue, but what the administration can do next and what economic and legal damage has already been absorbed.

The gap between ambition and outcome intensifies

Over the past year, tariffs were positioned as a central economic policy tool aimed at raising revenue, reducing the trade deficit and strengthening domestic manufacturing. The results have been mixed at best.

While tariff revenue surged, underscoring their fiscal impact, structural outcomes lagged. The trade deficit persisted. Domestic production did not return at scale. Instead, trade flows rerouted: production shifted across countries rather than back to the United States.

Tariffs operated primarily through domestic cost transmission. Firms and consumers bore the brunt through higher prices and margin compression, while supply chains reorganised geographically. Factories closed. Investment shifted. These adjustments are costly – and often irreversible. Economically, the policy has redistributed activity away from the US rather than fundamentally reshaping it.

What Trump has done – and what comes next

From an economic perspective, the strategy persists through substitution.

The ruling does not remove the tariff toolkit. Alternative statutory pathways allow targeted tariffs, and the administration can initiate new investigations or deploy temporary measures – all of which create more uncertainty.

Indeed, within moments of the SCOTUS opinion being released, President Trump announced a 10% global tariff, later raised to 15%, with a limited validity of up to 150 days – after which further congressional approval will be required. This is likely to temporarily limit the immediate impact of the ruling, as many prior reciprocal tariffs were below 15%. Twenty-six countries, however, will experience some benefits as tariffs will be effectively reduced, with six receiving reductions of 20% or more. This could modestly ease inflationary pressures in the US. Some of the beneficiaries are major garment exporters to the US, including Bangladesh and Vietnam, potentially improving women’s employment prospects in those economies. However, the most vulnerable African countries will experience an increase in the baseline tariff.

Yet ambiguity will persist. National security and unfair practices investigations are expected to follow, subject to procedural requirements. Tariff imposition, therefore, will still be possible – just slower and more legally choreographed.

Section 338 of the 1930 Tariff Act, for example, allows tariffs of up to 50% based on discriminatory trade concerns against the US – a provision democrats have previously sought to repeal. Non-tariff instruments such as export controls, sanctions and regulatory restrictions provide additional leverage.

Escalation, therefore, becomes slower and more procedural, but not impossible. Tariffs shift from a rapid bargaining instrument to a layered policy process. The economic implication is reduced credibility of policy announcements from the White House but continued redistribution across sectors and partners. For markets and firms, the change is not the disappearance of risk but its transformation. Policy cycles become longer, more political and less predictable. Investment decisions must now factor in substitution across restrictive trade policy instruments rather than assume removal of tariffs altogether.

The damage already done

The central economic story is adjustment – and adjustment is rarely reversible.

Exporters have already accepted lower margins, laid off workers and rerouted shipments to preserve US markets. Consumers have already absorbed higher prices for everyday purchases. These responses involve irreversible costs – paid regardless of what policy changes tomorrow. Markets reacted swiftly. The US dollar weakened following the initial tariff announcements and fell further after the SCOTUS decision, reflecting depended uncertainty.

Countries that negotiated tariff relief face a particularly clear example of “sunk costs”. Partners including the UK, Japan, the EU, Malaysia, Argentina, Indonesia and Vietnam, either offered additional market access beyond most-favoured-nation (MFN) terms or pledged to buy more American goods in exchange for a reduction in “Liberation Day” tariffs. Those extra concessions – now part of a “lopsided deal” to US exports and investors – remain in place. The tariff relief they negotiated may not be, leaving them with the same treatment as countries that did not broker a deal at all. But uncertainty looms over how the final applied tariffs will play out.

International legal certainty has also eroded. International law rests on the principle that agreements must be honoured, even when political winds shifts. Its rationale is certainty. But Trump agreements are more political than binding legal commitments, opening the room for countries to “ignore” or renegotiate its trade agreements if politically feasible. The result? More uncertainty and politically-driven trade. Signals on the prevalence of global tariffs or trade deals have been mixed.

This creates asymmetry. With tariffs withdrawn or invalidated, compensation mechanisms or refunds will typically go to US importers that paid duties – potentially wiping out estimated US$287 billion in tariff revenue collected over the past few months. Smaller importers are likely to feel the greatest strain.

Exporters that lost orders or redirected supply and consumers that absorbed price pressures receive no equivalent relief. The only recourse is that exporting countries may receive some compensation through international courts but remain constrained by the pace of trade law dispute mechanisms, asymmetry of information and the lack of resources.

Mostly losers all around

The outcome is that there is no clear winner.

The United States gained revenue but failed to trigger structural change. The Supreme Court ruling constrained presidential authority but does not reverse these effects. Rapid escalation may be curtailed, but leaves the broader strategy, meaning policy uncertainty continues while the original objectives remain only partially met.

For economists, the conclusion is familiar. Exporters adapted rather than collapsed. Trade rerouted. In some sectors, it even expanded through new suppliers. So, tariffs proved effective at shifting costs – far less effective at reshaping fundamentals and often expensive to unwind. The experiment generated visible political signalling and real economic disruption, but the gap between intent and outcome remains.

This reinforces the core finding that tariffs changed the geography of trade without delivering the structural gains used to justify them.

In that sense, the waste is not simply financial. It lies in sunk investments, policy uncertainty and supply chain changes made under assumptions of stability that proved uncertain. Partner countries absorbed adjustment. Firms diversified defensively, often at the expense of long-term efficiency. Developing economies experienced volatility tied to value chain exposure. And President Trump’s central promise – to bring back manufacturing and jobs to the US – remains elusive. The penguins, at least, are safe among this newfound uncertainty. The global trading system is not!