By Markus Manly | Macro & Rates Analyst
3-minute read.
On Friday, the Supreme Court ruled that the administration could not rely on the International Emergency Economic Powers Act (IEEPA) as the legal basis for many of the tariffs imposed last year. That decision effectively invalidated roughly 60–70% of the existing tariff framework and raised immediate questions about whether tariff rates would meaningfully come down. They didn’t. Instead, the tariff framework was quickly rebuilt using a different legal tool.
Within hours of the ruling, the administration announced a new, global tariff under Section 122 of the Trade Act of 1974. This statute allows the president to impose temporary tariffs of up to 15% for a maximum of 150 days in response to serious balance‑of‑payments concerns. The tariff was initially set at 10% and was raised to the full 15% by Saturday, taking effect on February 24th. At the same time, existing Section 232 tariffs on steel, aluminum, autos, and other strategic sectors were left intact, and several Section 301 investigations — some new, some ongoing – continued to move forward.
What makes this shift particularly significant is how central, and ultimately fragile, IEEPA had become within the global tariff regime in a relatively short period of time. As shown in the accompanying chart, tariffs imposed under IEEPA had grown to account for the majority of U.S. trade‑remedy revenue since first announced in early 2025. In effect, a single legal statute had quietly become the backbone of recent trade policy and deal negotiation. The court’s decision therefore did not just remove a subset of tariffs, it exposed how concentrated that legal foundation had become.
The temporary pivot to Section 122 changes the global distribution of tariff pressure in a meaningful way. Because Section 122 applies a uniform, time‑limited tariff, it compresses outcomes across countries. Trading partners that had been facing especially punitive IEEPA‑based tariffs now see those rates effectively capped at 15%, while countries that previously benefited from lower relative rates negotiated through trade deals now face higher marginal exposure. Rather than representing a broad escalation or de‑escalation, this shift functions more like a redistribution of tariff burden across the global trade landscape.
Importantly, the administration’s Section 122 fact sheet confirms that the new temporary tariff preserves many of the same exemptions that existed under the prior IEEPA‑based framework. The duty taking effect on February 24th will exclude several categories that had previously been exempt, including critical minerals, pharmaceuticals, certain electronics, and goods that are compliant with USMCA rules of origin. As a result, while the legal authority has changed, the immediate impact on several key supply chains is likely to be more limited than a headline global tariff might suggest.
With IEEPA tariffs removed and Section 122 serving as a temporary bridge, countries which saw punitive rates applied last year benefit, while trading partners that were amicable to negotiation are disadvantaged on a relative basis. Most importantly, China’s relative tariff burden declines under the new temporary tariff regime. This does not imply a softer long‑term stance toward China, but it does highlight an important sequencing issue: removing IEEPA flattens tariff outcomes before more targeted measures can be rebuilt through lengthier trade review processes.
That sequencing matters because more durable tariff tools take time to implement. Section 301 tariffs are imposed following formal investigations into unfair trade practices, which involve extensive reviews, negotiations, and public comment periods. Section 232 tariffs are tied to national security assessments and require interagency analysis before they can be enacted. These tools are more legally sound than IEEPA or Section 122, but they cannot be deployed quickly. Until that process plays out, the effective tariff rate will be volatile as the legal framework underneath it shifts.
This also brings refunds into focus. Roughly $175 billion in tariffs were collected under IEEPA, and those duties are now potentially subject to reimbursement. While Customs and Border Protection typically applies a 6% interest rate to overpayments from corporations, the timing and mechanics of the refund process remain unclear and are likely to be uneven. Ideally, this would incentivize the Treasury to expedite the issuance of refunds and minimize the additional interest burden on taxpayers. In reality, it is unclear how lower trade court proceedings will be settled or how the issue of refunds will be resolved. For companies with large historical tariff burdens and the means to pursue claims, refunds could represent a modest tailwind. For others, the uncertainty itself adds friction.
Looking ahead, the most consequential question is what happens after July 24th, when Section 122 is scheduled to expire. Section 122 requires congressional approval to extend beyond the 150-day allotment, so the current statute is only a temporary measure. This increases the likelihood that the administration shifts more decisively to Sections 301 and 232 to rebuild the tariff framework later this year.
That rebuilding process will determine not just whether tariffs remain in place, but how they are distributed across countries and sectors — and whether prior trade deals negotiated under IEEPA remain intact or need to be revisited. While the overall effective tariff rate today likely sits in the low to mid-teens percent range, the path forward could look very different depending on how aggressively those more durable statutes are used and where they are targeted.
In the near term, we expect primarily micro‑level effects. Companies may front‑load imports ahead of potential future tariffs, trade flows could become more volatile, and business uncertainty may rise modestly as firms adjust once again to a shifting policy backdrop. These dynamics can create short‑term distortions, but they do not materially change the broader economic picture.
From a macro perspective, this episode does not alter the inflation outlook or the Federal Reserve’s policy stance. Markets have largely learned to look through tariff‑related volatility, and the overall level of trade restriction has not materially increased.
Ultimately, we believe this looks less like a reversal of trade policy and more like a reset. The key question is not whether tariffs exist — but how and where the administration chooses to rebuild them once temporary measures expire. We will continue to monitor these developments closely and keep you informed as clarity improves.
Let’s Talk.
Smith Capital Investors
The opinions and views expressed are as of the date published and are subject to change without notice. Information presented herein is for discussion and illustrative purposes only and should not be used or construed as financial, legal, or tax advice, and is not a recommendation or an offer or solicitation to buy, sell, or hold any security, investment strategy, or market sector. No forecasts can be guaranteed. Any investment or management recommendation in this document is not meant to be impartial investment advice or advice in a fiduciary capacity and is not tailored to the investment needs of any specific individual or category of individuals. Opinions and examples are meant as an illustration of broader themes, are not an indication of trading intent, and are subject to change at any time due to changes in the market or economic conditions. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties concerning the results obtained from its use. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio.
The information included in this letter and provided link may contain statements related to future events or developments that may constitute forward-looking statements. These statements may be in the form of financial projections or may be identified by words such as “expectation,” “anticipate,” “intend,” “believe,” “could,” “estimate,” “will,” “should” or words of similar meaning. Such statements are based on the current expectations and certain assumptions of the author and are, therefore, subject to certain risks and uncertainties. A variety of factors may affect the operations, performance, business strategy and results of the issuer, and could cause the actual results, performance or achievements of the issuer to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements or anticipated on the basis of historical trends.
Past performance is no guarantee of future results. Investing in a bond market is subject to risks, including market, interest rate, issuer, credit, inflation, default, and liquidity risk. The bond market is volatile. The value of most bonds and bond strategies are impacted by changes in interest rates. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens. High yield or “junk” bonds involve a greater risk of default and price volatility and can experience sudden and sharp price swings.
You should not construe this paper as investment, legal or tax advice. It does not take into account the investment objectives, financial situation and particular needs of any investor. Please consider the charges, risks, expenses, and investment objectives carefully before investing. Please see a prospectus, or, if available, a summary prospectus containing this and other information. Read it carefully before you invest or send money. Investing involves risk, including the possible loss of principal and fluctuation of value. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission from Smith Capital Investors. Smith Capital Investors, LLC is a registered investment adviser with the Securities and Exchange Commission (“SEC”). Registration does not imply a certain level of skill or training.
FOR INSTITUTIONAL INVESTOR USE ONLY
SCI00826
