Trump Pivots to 1974 Trade Act After SCOTUS Strikes Down Global Tariffs

The ruling by the US Supreme Court on February 20, 2026, represents a watershed moment for executive trade authority, forcing a rapid and aggressive pivot by the Trump administration. In a 6-3 decision, the Court determined that the executive branch overstepped its constitutional boundaries by utilizing the International Emergency Economic Powers Act (IEEPA) of 1977 to impose broad global tariffs. The core of the Court's argument rested on the principle that the power to levy taxes and generate revenue is a prerogative of Congress, not the President. While IEEPA allows for the regulation of trade during national emergencies, the Court found that using it as a mechanism for revenue generation—specifically to address trade deficits—was an impermissible overreach. This decision effectively invalidated the "Liberation Day" tariffs that had seen duties ranging from 10% to 50% applied to nearly every trading partner.

The immediate fallout of this ruling is a potential $130 billion liability for the US government. Since the implementation of the IEEPA-based tariffs, the administration has collected significant sums that may now be subject to refund claims. Legal experts suggest that while the Court did not explicitly order refunds, the ruling provides a robust foundation for businesses to seek the return of duties paid under an unlawful authority. For RegTech providers and corporate legal departments, this creates a massive administrative and litigation burden. Companies must now audit their customs records to quantify their exposure and prepare for what could be years of "clawback" litigation in the Court of International Trade. The complexity of these refunds is compounded by the fact that many costs have already been passed on to consumers, raising questions about who is rightfully entitled to the settlement.

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This decision effectively invalidated the "Liberation Day" tariffs that had seen duties ranging from 10% to 50% applied to nearly every trading partner.

In a defiant response, President Trump has turned to Section 122 of the Trade Act of 1974. This rarely used provision allows the President to impose temporary import surcharges of up to 15% for a period of 150 days to address "serious balance of payments" deficits. By shifting the legal justification from a national emergency to a balance-of-payments crisis, the administration is attempting to bypass the Supreme Court's immediate restriction. However, this move is inherently time-limited. After the 150-day window, the administration must either seek congressional approval to extend the tariffs or find another legal loophole. This creates a "ticking clock" scenario that will likely dominate the legislative agenda for the next five months, forcing a confrontation between the White House and a potentially divided Congress.

The escalation from a proposed 10% to a 15% tariff—the maximum allowed under Section 122—signals a "maximum pressure" tactic aimed at both foreign governments and the US judicial system. This move has already sent shockwaves through international markets, particularly for countries like the UK and Australia. These nations had previously negotiated 10% tariff deals with the US, which now appear to be superseded by the new 15% global levy. For India and other emerging markets, the sudden shift introduces a new layer of volatility into trade planning. The lack of clarity regarding whether the 15% rate will take effect on the original February 24 implementation date further complicates the compliance landscape for global supply chains, requiring real-time updates to customs and duty calculation software.

From a regulatory perspective, this development underscores the volatility of executive-led trade policy. RegTech platforms must now support highly dynamic tariff schedules that can change via social media announcements and emergency proclamations. While Section 232 (national security) and Section 301 (unfair trade practices) remain intact for specific industries like steel and aluminum, the attempt to apply a blanket global tariff under Section 122 will almost certainly face its own set of legal challenges. Analysts expect that the definition of a "serious balance of payments deficit" will be the next major battleground in the ongoing conflict between executive ambition and judicial oversight. Businesses should prepare for a period of sustained trade volatility where legal precedents are tested as frequently as market prices.