Why the Tariff Shock is Not Over

Archive edition · Market data and company circumstances reflect 28 February 2026, when this newsletter was sent.

The Next Phase of America’s Tariff War

When the U.S. Supreme Court struck down President Trump’s broad IEEPA-based tariffs, the first reaction was simple. It looked like a win for markets. A weaker tariff regime should mean less pressure on inflation, fewer costs for importers, and less uncertainty for global trade. But that reading is only half right.

For investors, the real takeaway is more nuanced. The ruling removed one important legal tool, but it did not end the broader protectionist push. Within days, the administration shifted to a temporary tariff under Section 122 of the Trade Act of 1974, with U.S. Customs collecting 10% while the White House said it was working toward 15%, the maximum allowed under that statute for 150 days.

At the same time, officials said they would continue using Section 301 investigations and maintain Section 232 tariffs already in place. In other words, the tariff regime is being reassembled through different laws, not abandoned.

What Changed in the Tariff Framework

U.S. tariffs have risen sharply in recent years.

The Supreme Court ruled 6–3 that the president could not use the International Emergency Economic Powers Act (IEEPA) to impose sweeping global tariffs. The Court’s core message was that tariff authority rests with Congress unless Congress has clearly delegated that power. That was a meaningful constitutional limit on executive action, and it knocked out a large part of the tariff structure that had been built under emergency powers.

But this is where investors need to avoid a common mistake. The Court did not say the president has no tariff authority. It said this particular law was the wrong vehicle. That matters because the administration still has other, more durable pathways available.

United States Trade Representative (USTR) has already said it will continue ongoing Section 301 investigations, including those involving Brazil and China, and Commerce’s Section 232 process remains available for imports viewed through a national security lens.

So the market is not moving from “tariffs” to “no tariffs.” It is moving from one tariff architecture to another. That distinction is the heart of the investment case.

Why This is not the Clear Win Markets Wanted

At first glance, the ruling did reduce tariff intensity. Yale’s Budget Lab estimates that before the Court’s decision, consumers were facing an overall average effective tariff rate of 16%, the highest since 1936. Immediately after the ruling, that rate fell to 9.1%. But once the temporary Section 122 tariff was imposed, the effective rate rose again to 13.7%. That means tariff pressure eased, but only partially.

This is why investors should be careful about treating the ruling as a straightforward disinflation or risk-on event. Yes, it interrupted the old tariff structure. But the replacement came quickly enough that the broader economic drag did not disappear. The legal defeat changed the shape of tariffs more than their presence.

Reuters also reported that after the ruling, Trump said the global tariff rate would rise from 10% to 15%, showing that the policy direction remained aggressive even after the court loss.

For markets, that means uncertainty remains elevated. The new regime may be narrower, slower, and more procedural. But that does not make it harmless. Sometimes a more selective tariff strategy actually creates more sector dispersion because it concentrates the pressure unevenly rather than spreading it broadly.

Why Earnings Matter More Than Headlines

The most important investing question is not whether tariffs exist. It is who ultimately pays for them.

Research from the New York Fed found that over the course of 2025, the average tariff rate on U.S. imports increased from 2.6% to 13%, and nearly 90% of the tariffs’ economic burden fell on U.S. firms and consumers. That is a crucial point. Tariffs are often framed politically as a cost imposed on foreign countries, but in practice much of the burden tends to flow back into domestic margins and domestic prices.

For investors, that has direct implications for earnings quality. If companies cannot pass the added costs on to customers, margins compress. If they do pass them on, inflation pressure can linger and demand can soften. Either way, tariffs are not just a trade-policy story. They are an earnings revision story, an inflation story, and in many cases a valuation story.

This is especially relevant for businesses that depend on imported inputs, operate with thin margins, or sell into highly price-sensitive categories. A company with strong pricing power and flexible sourcing is in a far better position than one whose business model depends on cheap cross-border supply chains staying stable.

Where the Pressure Could Show Up Next

From an investment standpoint, the next phase of tariffs is likely to be narrower, more deliberate, and more sector-specific. With USTR continuing to pursue Section 301 cases and Section 232 tariffs already remaining in force, the burden may increasingly fall on industries Washington views as strategically important or politically sensitive, rather than being distributed evenly across the import basket.

That shift carries two important implications for investors:

First, sector dispersion could widen. If tariffs are rebuilt through targeted investigations and national-security channels, the pressure is likely to become more concentrated across specific areas of the market. Companies exposed to industrial inputs, autos, metals, semiconductors, telecom equipment, and other strategic categories may face more direct risk than the broader index. At the same time, some consumer-facing and import-heavy businesses could see partial relief relative to the original “Liberation Day” framework, though not a full normalization.

Second, the implications are not confined to equities. The bond market is watching as well. Reuters reported that the tariff ruling raised concerns around Treasury revenues and the prospect of refunds, introducing another layer of fiscal uncertainty. Markets had already begun incorporating tariff revenues into the broader fiscal picture, so the legal challenge has added one more variable to rate expectations, deficit assumptions, and government borrowing dynamics.

• Sector dispersion could widen
• The impact may extend beyond equities

Why the Fiscal Risk Is Easy to Underestimate

One underappreciated part of this story is the refund risk. The Penn Wharton Budget Model estimated that reversing the IEEPA tariffs could generate up to $175 billion in refunds.

Reuters separately reported that more than $175 billion in tariff collections may now be subject to refund claims. That does not automatically mean the Treasury will write checks tomorrow. These cases can take time and may remain stuck in lower courts for months or years. But from a market standpoint, that uncertainty still matters.

Set that against the broader fiscal backdrop, and the issue becomes more important. The Congressional Budget Office projects a $1.9 trillion federal deficit in fiscal 2026. So while tariff revenue is not the entire fiscal picture, it is meaningful enough that investors cannot dismiss it as noise. When tariff revenues, refund litigation, and deficit financing start interacting, Treasury markets pay attention.

This helps explain why the ruling did not lead to a simple one-way rally in risk assets. A court defeat for tariffs reduces one source of inflation pressure, but it can also introduce new uncertainty around revenue, refunds, and the replacement policy path.

What Investors Should Watch Next

There are five developments worth tracking from here:

• Whether the temporary Section 122 tariff moves from 10% to 15%The administration has already signaled that it wants to push the rate higher, so this will be an important indicator of how aggressive the replacement tariff regime becomes.
• The pace of new Section 301 investigationsThese are likely to become one of the primary channels for rebuilding tariff pressure through a framework that is more procedurally grounded and legally durable.
• Any expansion or change in Section 232 tariffsThese tariffs remain in place, and further movement here would be especially relevant for industrials, autos, materials, and parts of the technology hardware supply chain.
• Company commentary during earnings callsThis is where the real economic impact becomes visible through sourcing adjustments, margin pressure, inventory decisions, pricing actions, and delayed capital expenditure. The macro story only truly matters once it reaches the income statement.
• Refund litigation and the bond market’s responseIf refund expectations rise while tariff revenues become less dependable, that could add another layer of uncertainty to an already fragile fiscal backdrop and influence Treasury market sentiment.

Archive note

This article preserves the analysis in our weekly newsletter sent 28 February 2026. Market prices, forecasts and company circumstances reflect the time of publication and may have changed.

This material is general information, not personal financial advice or a recommendation to trade. Investing and trading involve risk, including loss of capital.