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The long-awaited US Supreme Court decision on the legality of many of President Trump’s tariffs was handed down last Friday. The result was widely expected, with the Court ruling that Trump did not have the authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA). As a result, Trump’s reciprocal tariffs imposed after Liberation Day and the additional country tariffs applied to China, Canada and Mexico under the guise of a fentanyl emergency have been struck down.
Following the Supreme Court decision, Trump quickly fired back to increase tariffs under a different legal authority (section 122 of the Trade Act). Trump has imposed a new worldwide tariff of 10% (and threatened to go to 15%) as a substitute for the tariffs the Supreme Court overturned. However, these tariffs can only be applied for 150 days before they would need to be ratified by Congress. Consequently, the Trump administration is also conducting trade investigations to enable them to impose tariffs under alternative authorities relating to unfair trade practices or national security grounds.
Leaving aside all the nuance from these developments, what are the key takeaways from developments this week? First, the most obvious conclusion is that trade policy uncertainty is here to stay in 2026 following a brief reprieve in late 2025. However, we are not talking about a dramatic change to policy here, unlike the experience of April 2025, so the changes are likely to be absorbed by financial markets without too much disruption, as was evident this week.
Second, and more importantly, the US effective tariff rate is likely to be a little lower following the Supreme Court ruling. The Yale Budget Lab has estimated that the US effective tariff rate declined from around 16% prior to the Supreme Court ruling to 9.1% following the decision. This has since risen to 12.2% after the new 10% worldwide tariff has been imposed and would reach 13.7% if Trump follows through with his threats and lifts the new worldwide tariff rate to 15%. Either way, we are currently expecting a lower effective tariff rate following the Supreme Court decision, not a higher rate.
We would expect that these new modestly lower tariff rates will provide a slightly smaller US inflation impulse than was expected under Trump’s previous tariff settings. However, the difference is expected to be relatively minor, with the lower tariffs likely to subtract around 0.1-0.2ppt from our US CPI forecasts. The Fed is expected to continue to look through the tariff-induced impacts on inflation and focus instead on the second-round implications, which should be slightly smaller given the lower tariff rates. Our base-case view remains for the US Federal Reserve to cut rates once more in June, although these developments do increase the likelihood that we see two cuts by the Fed this year.
Another impact of the tariff changes is that there will be some notable winners. Brazil, who was facing an effective tariff rate of almost 26% prior to the Supreme Court ruling would see their rate fall to around 11% under the new 10% worldwide tariff. China’s effective rate is likely to decline from 37% to 27%, while India is also expected to see a significant cut to their tariff rate. We would expect these countries will try to take advantage of these lower rates and front-load exports to the US ahead of any potential higher tariff rate that Trump may seek to impose on those countries later this year.
For Australia, the implications are minor. We estimate that our effective tariff rate is virtually unchanged at 10% under the new 10% worldwide tariff rate compared to that which existed prior to the Supreme Court decision when we were subject to the 10% reciprocal tariff rate. However, the risk for Australia is if Trump lifts this new worldwide tariff rate to 15%, then we would be facing a higher tariff rate than seen in 2025.
One aspect that remains unresolved by the Supreme Court decision is what will happen to the tariffs already paid. Reports from the Wall Street Journal note that “at least 1,800 companies have filed lawsuits seeking refunds.” The refunds could amount to around $130 billion based on the duties collected by the US since the tariffs were in force.
The global economy has shown remarkable resilience to Trump’s tariffs imposed in 2025. While the last week has seen tariffs return to centre stage and uncertainty once again spike, these trade policy shifts are unlikely to undermine the resilience of the global economy. After all, we are talking about many economies facing a lower tariff rate, not a higher rate. However, the question remains as to how long the current arrangements remain in place before Trump once again changes the rules of the game.
