U.S. Supreme Court Rules Against Broad-Based Country Specific Tariffs Under IEEPA

• On February 20th, 2026, the U.S. Supreme Court announced that it would be upholding the lower courts rulings, which found the administration's use of tariffs under the International Emergency Economic Powers Act (IEEPA) to be unlawful.
• The ruling came via a 6-3 majority in which the justices stated that the language of IEEPA did not permit the executive branch to implement tariffs, noting that if Congress is to vest tariff authority to the executive branch, it must do so explicitly. Henceforth, unless IEEPA is amended by an act of Congress, the executive branch will not be able to use it to implement tariffs.
• This ruling eliminates the majority of the administration's duties imposed since taking office. Tariffs justified using IEEPA included fentanyl tariffs against Canada, Mexico, and China, country specific tariffs targeting internet censorship in Brazil, countries that import Russian oil or export oil to Cuba, in addition to the reciprocal tariffs against nearly all countries.
• Revenues collected from IEEPA tariffs have totaled $133 billion, equal to 60% of total U.S. tariff revenue in 2025. The Supreme Court did not explicitly rule on how or if this revenue would be refunded, meaning the matter will likely be subject to further litigation.

Key Takeaways

• While this ruling was not entirely unexpected after several Supreme Court justices appeared sceptical of the administration's oral arguments in early November, the decision will have broad-based implications over the near-term. IEEPA tariffs constituted the bulk of the administration's tariff regime, with only product-specific tariffs on things like steel, aluminum, and autos now remaining.
• Since the decision did not address whether the administration is required to repay over $133 billion to thousands of companies, this will likely be the subject of future lawsuits. Additionally, the revenue loss could lead to upward pressure on U.S. Treasury yields over the near-term, as tariff revenue was previously expected to offset nearly two-thirds of the fiscal cost of the One Big Beautiful Bill Act.
• Financial markets reacted benignly to the Supreme Court decision, as investors largely expected the outcome. The 10- and 30-year U.S. Treasury yields rose 2-3bps after the decision, while the 2-year yield was largely unchanged. Equity markets rose on the news, with the S&P 500 up 0.5%.
• We expect the U.S. administration will act quickly to recreate its tariff regime using alternative tariff policies. This could include using any of the following statutes:
  • Section 122 tariffs, which allow for tariffs of up to 15% for 150 days to address large and persistent balance of payment deficits and/or defend the value of the dollar. 
  • Section 338 tariffs, which allow for tariffs of up to 50% against countries that discriminate against U.S. commerce.
  • Section 232 tariffs, which target products based on national security grounds and are currently in effect on steel, aluminum, copper, automobiles & parts, and lumber.
  • Section 301 tariffs, which target nations that engage in anticompetitive trade practices and are currently only imposed on China.
• While Section 122 and Section 338 tariffs can be imposed relatively quickly and without a formal investigation, neither has been used before and could be subject to legal challenges if imposed. Section 232 and Section 301 both require investigations, which can last for several months but have been broadly upheld by the courts.
• Bottom line, 2026 is likely to start off in a similar fashion to 2025, with elevated tariff uncertainty that subsides with time but weighs on the economy and pushes interest rates higher over the near-term thanks to higher inflation pressures. 

Key implications for Canada

• For Canada, removing the IEEPA tariffs represents some limited near-term relief, but it would be optimistic to assume it's permanent or a sustainable upside risk to growth. 
  • Canadian exports of product categories affected by industry-specific Section 232 tariffs are down roughly $15.5 billion through 2025, with all other exports down a similar $15.4 billion. However, the latter figure is muddied by the changes in oil and gold prices. Excluding these two commodities and products affected by 232 tariffs, flows to the U.S. are down a more modest $3.8 billion dollars (~1.4% year-on-year).
  • This suggests that even if the 35% tariffs were removed, the potential upside to exports is relatively limited.
• Some level of tariffs beyond the Section 232 levies currently in place remains the base case for Canada as the administration has multiple options for reconstructing its tariff regime. The focus should remain on the review of the USMCA agreement and what market access to the U.S. will look like as Canada looks to diversify its trade partnerships. 

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