Posted on: 26 February 2026
On 20 February 2026, the United States Supreme Court did something it hadn't done in decades: it told a sitting president that imposing tariffs is not his prerogative. Six justices to three, Learning Resources, Inc. v. Trump, and Chief Justice Roberts wrote a sentence worth more than a thousand editorials: "IEEPA contains no reference to tariffs or duties. The Government points to no statute in which Congress used the word 'regulate' to authorize taxation. And until now no President has read IEEPA to confer such power." End of discussion, at least on that front.
But the interesting story is not the ruling itself. The interesting story is what happened in the hours that followed, because it reveals a constitutional mechanism working exactly as its designers intended 250 years ago, even when it appears to be failing entirely.
Within hours of the Court's decision, Trump signed an executive order invoking Section 122 of the Trade Act of 1974, imposing a 10 per cent surcharge on all imports, subsequently raised to 15 per cent, the statutory maximum. The new tariffs took effect on 24 February, the same day the president delivered his first State of the Union address of his second term. The European Union froze ratification of the Turnberry Agreement. Japan demanded reassurances. And Britain, which had negotiated a baseline 10 per cent tariff ceiling, suddenly found itself unsure whether its deal still holds. A UK government spokesperson said at the weekend that "under any scenario, we expect our privileged trading position with the US to continue," language that betrays rather more uncertainty than it intends to conceal. According to the Yale Budget Lab, IEEPA tariffs already collected amount to roughly $165 billion that will likely need refunding; the Penn Wharton Budget Model estimates up to $175 billion.
For anyone in British business who spent the past year calibrating pricing, procurement and investment decisions around the assumption that the US-UK trade deal provided a stable framework, this is the moment to recalibrate. The legal foundation on which that deal was negotiated no longer exists. The threat of unlimited IEEPA tariffs was the stick that produced concessions from trading partners; without it, the bilateral agreements are contracts whose enforcement mechanism has been struck down by the very court system that was supposed to underpin them. Trade Representative Jamieson Greer insists the deals stand. Whether that proves true is another matter entirely.
To understand what is actually happening, you need to go back to 15 August 1971, when Richard Nixon went on television and announced the United States would no longer convert dollars to gold. Buried inside that announcement was something more immediately disruptive: a 10 per cent surcharge on all imports. Nixon used the Trading with the Enemy Act of 1917, a conceptual predecessor to IEEPA, to impose it. The economic logic was blunt: the balance of payments deficit had been worsening for years, foreign governments were converting dollar holdings into gold at an accelerating rate, and American reserves were draining. Treasury Secretary John Connally decided that "benign neglect" of the problem had run its course.
Robert Hormats, then a staff economist on the National Security Council, described the surcharge as "a lever only for securing appropriate currency revaluations." Paul Volcker, then Under Secretary of the Treasury for Monetary Affairs, believed "the president had been convinced that the import surcharge was both an essential negotiating tactic and a way to attract public support." It worked: by December 1971, the Smithsonian Agreement established new exchange rate parities and Nixon lifted the surcharge.
But the episode left Congress deeply uneasy. The president had acted under legally questionable authority, imposing a significant import tax without explicit congressional authorisation. The Customs Court ruled that the 1971 surcharge lacked legal backing. When Congress drafted the Trade Act of 1974, the Nixon precedent was precisely the event it was responding to. The question was whether the president should have this kind of authority at all, and if so, under what conditions. The answer was Section 122: explicit authority, but boxed in. Maximum rate of 15 per cent. Maximum duration of 150 days. No extension without a vote of Congress. Broad and uniform product coverage, not sectoral protection. The Congressional Research Service notes that legislators at the time did not expect it to see much use in the post-Bretton Woods world of floating exchange rates.
Here is the paradox that nobody is articulating with sufficient clarity. Section 122 was created in 1974 specifically to constrain presidential tariff power after Nixon had overreached. Half a century later, Trump invokes it as his fallback after the Supreme Court removed his primary weapon. The instrument designed to contain executive overreach becomes the refuge of the contained executive. It is rather like a burglar, blocked by the reinforced door the homeowner installed after the first break-in, climbing through the window the homeowner had left open for ventilation.
But the window is small, and this is the point. Section 122 has structural constraints that fundamentally alter the power dynamic. One hundred and fifty days means the tariffs expire automatically on 24 July 2026, unless Congress votes to extend them. This shifts the centre of gravity of American trade policy from the Oval Office to Capitol Hill, precisely as the Constitution intended. In a midterm election year, with approval ratings at 60 per cent disapproval and support for the president's immigration agenda in freefall, a vote to extend tariffs becomes a politically toxic choice for every member of Congress in a competitive district.
Then there is the question of legal footing. Section 122 requires "fundamental international payments problems": large and serious balance of payments deficits, imminent and significant dollar depreciation, or cooperation in correcting international payments disequilibrium. Gita Gopinath, Harvard economist and former IMF research director, argues that the United States does not have a balance of payments problem in the technical sense, because such a crisis only exists when a country is losing market access, signalled by sharply rising borrowing costs. Administration supporters counter that Congress enacted Section 122 after the US had already moved to floating rates, so the concept must be interpreted more broadly than mere reserve depletion. The matter will almost certainly end up before the courts, opening a second judicial front.
The mechanism at work is what the American Constitution's designers called "ambition counteracting ambition," the principle James Madison described in Federalist No. 51. The Supreme Court reaffirms that the power of taxation belongs to Congress. The president responds by finding an alternative instrument. But that instrument has a built-in timer that returns the question to Congress. Congress must vote in the middle of an election campaign. Voters will deliver their verdict in November. The system does not prevent the president from acting; it compels him to seek democratic authorisation within a defined timeframe.
Last night's State of the Union staged this mechanism with almost theatrical precision. Trump called the ruling "an unfortunate decision" and "an unfortunate involvement of the Supreme Court" with Chief Justice Roberts sitting mere feet away, motionless, hands folded over his robes. Beside him sat Barrett and Kagan, who had voted with the majority, and Kavanaugh, author of the dissent. Trump had greeted each justice individually upon entering the chamber; weeks earlier he had publicly attacked them, calling the ruling "a disgrace." The scene was reminiscent of 2010, when Obama criticised the Citizens United decision in front of the justices during his State of the Union and Justice Alito was caught mouthing "not true." Roberts later remarked that if the presidential address had degenerated into "a political pep rally," he was not sure why the Court should attend. Sixteen years on, there he sat again.
But the most revealing passage was not the comment on the ruling. It was Trump's assertion that "congressional action will not be necessary" to keep the tariffs in place. This is structurally false. Section 122 explicitly provides that the tariffs expire after 150 days "unless extended by an Act of the Congress." The president could theoretically let them lapse and declare a fresh balance of payments emergency to restart the clock, but that manoeuvre would almost certainly face legal challenge. The other significant signal: in a 107-minute speech, the longest in recent history, China was not mentioned once. The president who built a global trade war around the confrontation with Beijing did not spend a single word on his principal adversary. Most likely because his visit to Beijing is scheduled for next month, and arriving there with the IEEPA tariffs invalidated by the Court fundamentally alters the balance of power at the negotiating table.
None of this means the system of checks and balances operates painlessly. The $133 billion in IEEPA tariffs collected unlawfully is an enormous problem. Companies that paid those tariffs are already queueing for refunds, but the process could take 12 to 18 months according to TD Securities estimates. Those who absorbed the costs without passing them to consumers suffered real economic damage on the basis of an authority the Court has declared nonexistent. Last night, Treasury Secretary Scott Bessent declined to commit on refunds, saying the administration would "wait to see what the lower court says." Translation: months of litigation before a single dollar is returned. For British exporters who adjusted margins to accommodate tariffs that have now been ruled illegal, the question of whether and when those costs might be recovered is not academic. It is a balance sheet problem that will occupy finance directors and trade lawyers well into next year.
Anyone who designs organisational systems recognises the pattern immediately. It is the same mechanism you observe when a company builds its entire strategy around a single critical resource controlled by a third party: it works until it doesn't, then a single point of failure collapses the whole architecture. Trump had built his entire second-term trade policy on IEEPA because it offered speed (no preliminary investigation required), scope (no ceiling on tariff rates), duration (no time limit), and flexibility (different rates for different countries). Section 122 offers only speed, but with a 15 per cent cap, a 150-day limit, and a requirement for uniform coverage. It is like going from a chef's knife to a penknife: it still cuts, but the range of possible operations narrows dramatically.
The structural question that markets and trading partners must address over the coming months is whether this transition represents a permanent scaling back or a chaotic interregnum. The administration is already launching fresh investigations under Section 232 (national security) and Section 301 (unfair trade practices) to rebuild a permanent tariff architecture that does not depend on emergency powers. But those investigations take months. Meanwhile, the "tariff cliff" of 24 July looms. And the November elections turn every congressional move into an electoral calculation.
The parallel with Nixon is instructive in its outcome as well. The 1971 surcharge lasted four months and produced precisely what it was meant to produce: a renegotiation of global monetary arrangements. It was a temporary instrument with a defined objective. The Section 122 tariffs of 2026 are being used as an emergency substitute for a permanent policy, which is structurally different. Nixon knew what he wanted to achieve and used the surcharge as a lever to achieve it. The open question is whether the current administration has an equally defined objective or is simply buying time whilst rebuilding the legal foundations of its trade policy.
For anyone operating in contexts where decisions are measured in hundreds of millions, the signal is clear: American regulatory uncertainty on tariffs has not been resolved by the Supreme Court ruling. It has been transformed. What was an illegal but stable regime has become a legal but inherently temporary one. Planning supply chains, investment, and pricing on a horizon that extends no further than 24 July 2026 without knowing what comes next is not strategy; it is navigation by dead reckoning. And the fog, in this instance, will only lift when Congress is forced to do what the Constitution has always intended it to do: decide.