For nearly a year, tariffs have shaped headlines, corporate earnings calls, and geopolitical negotiations. They were presented as leverage, protection, and a tool of economic pressure. But how far can a president go when invoking emergency powers to reshape global commerce?

The Supreme Court ruled last Friday that emergency law cannot be stretched to justify sweeping global tariffs. President Trump responded quickly, announcing a temporary 15% tariff on imports from all countries. The new measure relies on a different and untested provision, known as Section 122 of the Trade Act of 1974.

The trade-weighted average US tariff rate now stands at 13.2% under the new 15% Section 122 framework. This compares with 15.3% prior to the Supreme Court ruling and would have declined to 8.3% in the absence of a replacement. While the 15% blanket tariff takes effect this week, the more important development lies in the redistribution of tariff exposure.

The adjustment creates an unexpected realignment. Countries previously facing the highest tariff burdens now see the largest reductions. Brazil’s average tariff burden declines by 13.6%, China’s by 7.1%, and India’s by 5.6%. For Southeast Asian exporters Thailand, Vietnam, and Malaysia, this change is beneficial because their previous targeted tariffs are now replaced with a uniform 15% rate. From an equity perspective, the reduction in tariff pressure improves earnings visibility and strengthens external competitiveness. This should be supportive for equity market performance in these economies.

By contrast, several traditional US allies move in the opposite direction. The UK shifts from 10% to 15%, and parts of the EU and Japan move from lower historical rates into the new 15% framework. The UK, Italy, and Singapore register some of the largest increases in tariff exposure. In trade-weighted terms, the UK faces a 2.1% increase, Italy 1.7%, and Singapore 1.1%, positioning several close US trading partners among the most negatively impacted under the revised framework.

Source: Financial Times

Near-term uncertainty remains around the legal durability of replacement tariffs under Sections 232 and 301. However, Section 122 measures are capped at 15% and expire after 150 days unless extended by Congress. With IEEPA authority removed, the administration can no longer impose immediate, across-the-board tariff increases.

Tariff levels remain elevated relative to historical norms, but the overall burden is lower than before the ruling. The risk of sudden broad escalation has therefore diminished. Tariffs continue to shape trade policy, yet the reduced flexibility to raise them unilaterally lowers uncertainty around future changes.

The Supreme Court’s recent ruling on tariffs introduces short-term uncertainty while creating the potential for lower tariffs over time. In the long term, Morgan Stanley sees an opportunity for the president to gradually reduce certain elements of the current tariff regime.

For now, though, much remains unclear. Which authorities will replace the existing tariffs? Which sectors or countries will face measures that stick? And what happens to the bilateral agreements currently in place? With these questions unresolved, the overall macroeconomic impact might end up being modest.
The ruling doesn’t end the tariff conflict but offers some relief. Section 122 tariffs remain temporary at 15% for
 
150 days, while Sections 232 and 301 are still available but take time to implement.
Importantly, the removal of the IEEPA option makes it much harder for any president to announce sudden, sweeping tariffs like those on “Liberation Day.” This means that future tariff changes are likely to be smaller, more predictable, and less abrupt, which is generally welcomed by markets.

The ruling also reinforces the rule of law in the US, helping to attract foreign capital. This could support asset prices and, potentially, the dollar, though the net effect on the currency is uncertain. Lower tariffs might weigh on the dollar, but confidence in US institutions could encourage capital inflows.

Finally, the odds of Trump-era tariffs becoming permanent have fallen. Courts might strike down Section 122 tariffs due to the lack of “large and serious balance-of-payments deficits,” and even if upheld, they expire automatically unless Congress extends them a step far from guaran-teed. Sections 301 and 232 tariffs could replace them, but the Supreme Court has made broad, lasting tariff measures harder to impose.

From a macroeconomic perspective, the Supreme Court’s repeal of the IEEPA-based tariffs is unlikely to materially alter the trajectory of the US economy. The approximately $133 bn in tariff revenue collected under emergency authority is modest relative to the $30 tr economy and the $38.6 tr federal debt. Inflationary effects have remained contained and were already expected to ease further this year.

US growth continues to run near trend, and corporate earnings are projected to expand at a strong double-digit pace in 2026. Meanwhile, the 2025 trade deficit reached $901.5 bn, compared with $903 bn in 2024, despite the implementation of tariff measures.

For financial markets, the more meaningful development is the resolution of uncertainty surrounding executive tariff authority. The move to a 15% tariff under Section 122 keeps tariff levels close to recent averages and reduces the risk of renewed global trade disruption like April 2025. As Sections 232 and 301 are reviewed over the next 150 days, the overlap with the midterm election cycle makes materially higher tariff rates less likely.