Tariff chaos in the USA: What Trump's latest trade war means for Europe

When a man takes the entire global economy hostage and even the highest court cannot stop him

Donald Trump uses this 50-year-old legal trick to bypass the US Supreme Court

In February 2026, the United States experienced one of the most dramatic constitutional conflicts in decades. On February 20, 2026, the Supreme Court ruled in a 6-3 decision that the tariffs imposed by President Donald Trump under the International Emergency Economic Powers Act (IEEPA) were unlawful. This effectively removed the legal basis for roughly three-quarters of the Trump administration's total tariff revenue. But instead of complying with the ruling, the president announced new tariffs on a different legal basis that same day, demonstrating an attitude that teeters between constitutional ingenuity and institutional disregard. What was hailed as a legal victory for the separation of powers threatened to become an endless cycle of new legal bases, new tariffs, and continued economic uncertainty.

How the President overstretched the Constitution

The story of this conflict begins in April 2025, when Donald Trump, invoking the IEEPA, imposed sweeping tariffs on imports from nearly every country in the world. The IEEPA, a law passed in 1977, was originally designed to grant the president the authority, in emergency situations, to regulate certain economic transactions, such as freezing foreign assets or imposing sanctions on hostile states. No president in the more than fifty-year history of this law had ever attempted to derive from it the power to impose tariffs, and certainly not on this scale.

The White House argued that the tariffs were necessary to combat the trade deficit and address various problems defined by the administration as emergencies. Trump himself emphasized on his platform Truth Social that a victory on the tariff issue would bring significant financial and security benefits, while a defeat would leave the country virtually defenseless against other nations that had exploited it for years.

The opposing side quickly organized. As early as May 2025, the US Court of International Trade ruled unanimously that the IEEPA did not grant the president the authority to impose tariffs. In August 2025, the US Court of Appeals for the Federal Circuit upheld this assessment in a 7-4 decision, stating unequivocally that the fundamental power of Congress to levy taxes such as tariffs was exclusively assigned to the legislature by the Constitution. Tariffs, it asserted, were an essential power of Congress. Trump denounced the appeals court as biased and expressed confidence that the Supreme Court would rule in his favor.

The historic court ruling of February 20, 2026

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On February 20, 2026, the Supreme Court delivered its verdict, and it was devastating. In a 6-3 decision, the Supreme Court ruled that the IEEPA does not grant the president the authority to impose tariffs. Chief Justice John Roberts emphasized in the reasoning that the Constitution grants Congress the power to levy taxes and duties. The Founding Fathers had not assigned any share of the power to tax to the executive branch.

The court further stated that the administration's interpretation of the IEEPA, which grants the president the authority to unilaterally impose unlimited tariffs and change them at will, would constitute a drastic expansion of presidential power over tariff policy. James Sample, a law professor at Hofstra University, categorized the ruling as a reaffirmation of the fundamental principles of the separation of powers enshrined in the U.S. Constitution. The president had attempted to impose one of the largest tax increases in the country's history on American consumers without involving Congress.

The three dissenting justices were Samuel Alito, Clarence Thomas, and Brett Kavanaugh. In his dissenting opinion, Kavanaugh noted that the United States might have to refund billions of dollars to importers who had paid IEEPA tariffs, even if some of those importers had already passed the costs on to consumers.

Trump's defiant response: New tariffs on a new basis

Donald Trump had repeatedly made it clear beforehand that he would not change course even if he lost in court. Just hours after the ruling, the president called a press conference at the White House and announced that the verdict was deeply disappointing. He said he was ashamed of some of the judges. As widely expected, Trump announced that he would seek to challenge the tariffs that had been struck down by the court on a different legal basis.

That same evening, the president signed an executive order imposing a worldwide base tariff of 10 percent on all imports into the United States, in addition to existing tariffs. The new duties took effect on February 24, 2026. The legal basis for this is Section 122 of the Trade Act of 1974, a trade law that allows the president to impose temporary import surcharges of up to 15 percent for a maximum of 150 days.

The White House also defined a number of exceptions. Drugs and pharmaceutical ingredients, automobiles and heavy trucks, certain foodstuffs, critical minerals, and electronic products are not affected by the new tariffs. Goods from Canada and Mexico covered by the USMCA trade agreement negotiated during Trump's first term are also exempt. When a reporter asked whether he planned to impose the 10 percent tariffs for 150 days or indefinitely, Trump replied that one has the right to do pretty much whatever one wants.

In addition, the president announced the initiation of new investigations under Section 301 and other trade laws to protect the country from unfair trade practices. Trade Representative Jamieson Greer stated that details of the new Section 301 investigations would be released in the coming days. When asked whether tariffs could ultimately increase, Trump replied that it was potentially possible and depended on the individual country. Certain nations that had truly exploited the U.S. over the years might experience higher tariffs, while others would consider the rates very reasonable.

The questionable legal basis: Section 122 under scrutiny

The choice of Section 122 as the legal basis for the new tariffs reveals both the resolve and the legal vulnerability of the Trump administration. This law was introduced in 1973 in response to the collapse of the Bretton Woods system of fixed exchange rates and served a very specific purpose: to allow the president to take temporary action in the face of fundamental international balance of payments problems.

The conditions for applying Section 122 are narrowly defined. The President may impose tariffs only if the United States is suffering from fundamental international payment problems, and the measures must serve one of three specific purposes: addressing large and severe balance-of-payments deficits, preventing an imminent and substantial devaluation of the dollar in the foreign exchange markets, or cooperating with other countries to correct an international balance-of-payments imbalance.

Trade law experts strongly doubt that these conditions are met. Since the United States transitioned to a system of flexible exchange rates in the early 1970s, the problem of fundamental international balance-of-payments disturbances, as classically defined, simply no longer exists. Section 122 has never been invoked in its more than fifty years of existence because it has become de facto obsolete. The fact that Trump is now invoking a law designed for an economic reality that has not existed for more than half a century raises serious questions about the viability of these new tariffs.

Another structural disadvantage of Section 122 compared to the IEEPA lies in its lack of flexibility. The tariffs must be non-discriminatory, meaning the US cannot grant preferential treatment to some trading partners and not to others. Furthermore, the 150-day limit is a hard limit. Any extension beyond this requires congressional approval. This presents the administration with a fundamental problem: either it succeeds in establishing alternative legal grounds within five months through investigations under Sections 301 and 232, or Congress must intervene, which, given the current political climate, is by no means certain.

The customs landscape after the verdict: What remains, what falls

The Supreme Court ruling fundamentally altered the American tariff architecture, but by no means completely dismantled it. To understand the economic implications, it is crucial to differentiate between the various tariff categories.

All tariffs based solely on the IEEPA have been abolished with immediate effect. This includes the 10% base tariff on imports from almost all countries, the so-called reciprocal tariffs, which ranged from 10% to over 50% depending on the country, and the tariffs justified by the need to combat fentanyl trafficking. Specifically for the European Union, this means that the previously applicable 15% tariff, agreed upon under the EU-US trade agreement of July 2025, no longer has its IEEPA basis.

However, all tariffs based on other legal grounds remain in effect. Section 232 tariffs of 50 percent on steel and aluminum continue unchanged. Since March 2025, all previously existing country exemptions and tariff quotas for steel and aluminum have been eliminated, meaning these rates apply to all importers without exception. The Section 232 tariffs on automobiles also remain in effect. Likewise, the Section 301 tariffs on Chinese goods remain in effect, including a 25 percent tariff on certain semiconductors and chip manufacturing equipment, which took effect in January 2026. The 178 Section 301 exemptions for Chinese products, which were extended under the Trump-Xi trade agreement of November 2025, remain valid until November 2026.

In addition, a new 10 percent Section 122 duty will be levied as an extra charge on all imports. Treasury Secretary Scott Bessent claimed that the combination of the Section 122 duties with the existing Section 232 and Section 301 duties will result in virtually unchanged customs revenue in 2026.

The billion-dollar problem of refunds

One of the most pressing questions, which the Supreme Court explicitly left open, concerns the fate of the customs revenue already collected. Since the court determined that the IEEPA does not grant the president the authority to impose customs duties, every dollar collected under that authority lacks a valid legal basis.

The numbers are staggering. The Treasury Department collected a total of $287 billion in customs duties in 2025, a 192 percent increase over the previous year. By mid-December 2025, approximately $130 billion of that was IEEPA customs duty levied on 34 million import transactions from more than 300,000 importers. The Tax Foundation estimates that by February 20, 2026, more than $160 billion in customs duties had been illegally collected under the IEEPA. The Penn-Wharton Budget Model puts the potential refunds at as high as $175 billion.

But the path to refunds is anything but clear. The Supreme Court has neither ruled on whether refunds must be issued, nor on how such a process should be handled administratively. Treasury Secretary Bessent indicated in a meeting with business leaders in Dallas that the refund issue could drag on for weeks, months, or even years, since the Supreme Court has not provided any specific guidance.

More than a thousand lawsuits have already been filed with the US Court of International Trade to secure refunds in the event of a ruling against the IEEPA tariffs. Tim Brightbill, co-chair of the international trade practice at the law firm Wiley, emphasized the enormous importance of the refund issue and pointed out that a clear and transparent refund process is essential. Scott Lincicome of the Cato Institute called on the federal government to immediately refund the unlawfully collected tariffs.

An additional problem arises from the question of who ultimately benefits from any refunds. The tariffs were paid to the government by the importers. Should there be refunds, they will initially go to the companies, not to the consumers. Whether and to what extent companies will pass on refunds to their customers is entirely uncertain. Natasha Sarin, who held a leading position in the Treasury Department during the Biden administration, made it clear that consumers shouldn't get their hopes up too soon. While the approximately $150 billion that consumers had paid in these tariffs had been declared illegal, even in the best-case scenario, everything depends on whether companies actually pass the refunds on to consumers.

What American households really feel

The economic impact on American consumers is significant, but the relief provided by the ruling is less than one might initially expect. The Yale Budget Lab, one of the most respected research institutions for fiscal and economic policy, provides the most detailed calculations.

Before the ruling, the effective US tariff on all imports was 16.9 percent. With the repeal of the IEEPA tariffs, this rate drops to 9.1 percent, almost halving it. BMO Capital Markets quantified the decline in the average tariff rate from around 17 percent to about seven percent. However, the new Section 122 tariff of ten percent significantly increases this rate again.

For individual households, the new tariff structure, as determined by the ruling, means a short-term increase in consumer prices of 0.6 percent if the tariff costs are passed on in full, which corresponds to an average income loss of approximately $800 per household. After adjusting consumption patterns, i.e., switching to cheaper alternatives, the price increase is 0.5 percent, which corresponds to a loss of around $600 per household. Without the Supreme Court ruling, the burden would have been approximately $1,700 per household. The Tax Foundation had calculated additional costs of around $1,000 per household for 2025 and $1,300 for 2026.

A particularly revealing study by the Federal Reserve Bank of New York found that nearly 90 percent of the economic burden from the tariffs fell on American companies and consumers. This refutes the Trump administration's repeated claim that the tariffs were borne by foreign exporters. The Trump administration disputed the findings of the Fed study without offering any credible counterarguments.

Inflation is already in a precarious position. The Personal Consumption Expenditures Index, the Federal Reserve's preferred inflation measure, indicated an annual inflation rate of 2.9 percent immediately before the ruling, almost a full percentage point above the Fed's target of two percent. The tariffs are contributing to price increases across all categories of goods, from furniture and clothing to food, electronics, and automobiles.

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The macroeconomic disruptions

Beyond the individual household burden, the macroeconomic consequences of the tariff policy are taking on worrying contours. The Yale Budget Lab predicts that the tariff architecture remaining after the ruling will increase the unemployment rate by 0.3 percentage points by the end of 2026, assuming the Section 122 tariffs expire after 150 days. An extension would result in an even greater negative employment effect. Before the ruling, when the full IEEPA tariff regime was still in effect, the forecast was for a 0.7 percentage point increase in the unemployment rate and a decline in employment of approximately 1.3 million jobs by the end of 2026.

The impact on real gross domestic product is also significant, although mitigated by the ruling. In the long run, the US economy will be permanently 0.1 percent smaller than it would have been without the remaining tariffs, which equates to an annual loss of about $30 billion. Had the IEEPA tariffs been maintained, the long-term GDP loss would have been 0.3 percent. The Yale Budget Lab also estimates that the temporary fiscal stimulus from IEEPA refunds could roughly offset the negative growth effects of the remaining tariffs by 2026, though there is considerable uncertainty about the timing and terms of the refunds.

The fiscal implications are considerable. According to calculations by the Yale Budget Lab, the current tariff regime will generate approximately $1.3 trillion in revenue over ten years, conventionally valued. The 150-day Section 122 tariffs contribute about $30 billion to this. However, when negative growth effects are taken into account, resulting in lost tax revenue in other areas, the net dynamic revenue falls to about $1.1 trillion over the decade. This is roughly half of what would have been collected had the IEEPA tariffs remained in place.

The reaction of the financial markets

Financial markets reacted to the ruling with cautious optimism, which was, however, dampened by the immediate announcement of new tariffs. The S&P 500 rose 0.69 percent on Friday to 6,909 points, the Nasdaq Composite gained 0.90 percent to 22,007 points, and the Dow Jones Industrial Average added 230 points to close at 49,626 points.

Companies heavily reliant on imports benefited particularly. Pinduoduo Holdings, the parent company of the discount platform Temu, led the Nasdaq 100 with a gain of over 4.5 percent. At the same time, the dollar and US Treasury bonds fell, suggesting concerns about the fiscal consequences of potential mass refunds.

The market reaction was more moderate overall than would have been expected had the tariffs been completely lifted. JPMorgan's trading department had calculated various scenarios beforehand: In the case of a lifting of the tariffs followed immediately by their reimposition—the scenario assessed at 64 percent probability and which ultimately occurred—a rise in the S&P 500 of 0.5 to 0.75 percent was expected after an initial rally. The actual performance corresponded almost exactly to this forecast. However, it was striking that retail investors held back. According to VandaTrack strategist Viraj Patel, small investors barely invested in stocks after the ruling was announced, and net inflows from individual investors this week are likely to be among the weakest in recent years.

The transatlantic dimension: Europe between relief and escalation

For the European Union, the Supreme Court ruling presents a complex situation that extends far beyond the immediate issue of tariffs. In July 2025, the EU and the US concluded a trade agreement that imposed a 15 percent tariff on the majority of EU exports to the US. In return, the EU committed to purchasing $750 billion of American energy over three years and investing at least $600 billion in the US economy. The agreement was widely criticized as asymmetrical because it unilaterally imposed tariffs on EU exports, while US exports to the EU remained largely tariff-free. The previous average tariff on EU goods in the US was around 4.6 percent.

The situation escalated in January 2026 when Trump threatened additional tariffs of 10 percent, with a possible increase to 25 percent, on imports from eight European countries, including Denmark, Sweden, France, Germany, the Netherlands, Finland, Norway, and the United Kingdom. The justification was remarkable: the tariffs would remain in place until these countries dropped their opposition to the American purchase of Greenland. European leaders reacted with unanimous rejection. EU Commission President Ursula von der Leyen described the tariffs as a mistake, especially among long-standing allies, and questioned Trump's reliability. Manfred Weber, leader of the European People's Party in the European Parliament, called for the blocking of the EU-US trade agreement.

The Greenland tariffs have effectively frozen the ratification of the EU-US trade agreement. At the same time, the debate has revived calls for the use of the EU's anti-coercive instrument, introduced in 2023 to combat political blackmail through trade, which would allow the EU to take drastic countermeasures, from restricting access to public tenders to blocking American companies from the EU single market.

With the Supreme Court ruling, the IEEPA basis for the 15 percent tariff agreed upon in the trade agreement has now been eliminated. It has been replaced by the new Section 122 tariff of 10 percent, in addition to the existing Section 232 tariffs of 50 percent on steel and aluminum. Paradoxically, this makes the situation somewhat more favorable for European exporters in the short term than it was under the trade agreement, since the overall tariff has been reduced from 15 to 10 percent. However, this advantage is limited to a maximum of 150 days, and the uncertainty surrounding what will happen after that undermines any planning certainty.

China and the rest of the world: Differentiated impacts

The impact of the ruling varies considerably depending on the trading partner. China is in a special position, as bilateral trade relations are based on a separate agreement signed by Trump and Xi Jinping in South Korea in November 2025. The Section 301 tariffs on Chinese goods, which date back to Trump's first term and have been successively expanded, remain fully in effect. Certain exemptions for 178 product categories have been extended until November 2026.

Analysts pointed out that the ruling comes just two months before a planned meeting between Trump and Xi Jinping, where tariffs were expected to be a key negotiating tool. The loss of the IEEPA's powers weakens Trump's negotiating position with China, as the reciprocal tariffs that served as leverage have been eliminated.

For other trading partners such as Japan, South Korea, and the Southeast Asian countries, the ruling means temporary relief. The high reciprocal IEEPA tariffs, which in some cases exceeded 50 percent, are no longer valid. They are replaced by a flat Section 122 tariff of ten percent, but only for 150 days. The question of what the tariff landscape will look like after that depends largely on how quickly and successfully the Trump administration can conclude new Section 301 investigations, which typically take months.

The domestic political dimension: Tariffs as an election campaign issue

The political implications of the ruling can hardly be overstated, especially with the midterm elections in November 2026 in mind. Trump's tariffs are the centerpiece of his economic policy, but also his greatest political risk. A New York Times/Siena University poll found that a majority of Americans, including 58 percent of independent voters, oppose Trump's tariffs. In a Fox News poll, the tariffs ranked among Trump's least popular policy measures.

Democrats see the tariff issue as their best weapon in the midterm elections. Rahm Emanuel, former chief of staff under President Obama, put it succinctly: The president is trailing far in the polls on the economy, and now he wants to push for something that is unpopular with the American people. People see the tariffs as a direct burden on their wallets and a cause of inflation. Trump will thus further lower his poll numbers on the most important issue of the election.

The polling data supports this assessment. Democrats lead on the generic congressional ballot by a margin of 4.8 to seven percentage points, depending on the polling institute. According to a Quinnipiac University poll, 54 percent of respondents believe Trump has exceeded his authority. An NPR/PBS News/Marist poll found that 57 percent of respondents disapprove of Trump's economic management. Even among Trump's core supporters, including self-proclaimed MAGA supporters, signs of erosion are evident: The likelihood that respondents believe the country is headed in the wrong direction increased by six percentage points since August, according to an NBC News analysis.

Cracks are also appearing within the Republican Party. Don Bacon, a retiring Republican congressman from Nebraska, described the tariff policy as bad policy and damaging to his party's political prospects. For many Republicans, the strategic dilemma lies in the fact that Trump missed an opportunity to distance himself from an unpopular policy under the guise of the court ruling and instead doubled down.

Goldman Sachs' chief political economist, Alec Phillips, noted that the cost of living is the top issue for voters, cited by 29 percent of respondents – even higher than before the 2024 presidential election. The most obvious policy lever to alleviate this problem, according to Phillips, would be tariff reductions.

Institutional implications: The limits of presidential power

The Supreme Court's ruling has implications that extend far beyond the immediate issue of tariffs. It sets clear limits to the trend, ongoing for years, of expanding presidential powers in economic policy. The decision reaffirms the principle that the power to tax, which includes tariffs, is an exclusive prerogative of Congress and cannot be transferred to the executive branch through broadly worded emergency legislation.

Steve Vladeck, Supreme Court analyst at CNN and professor at Georgetown University, pointed out that this ruling is the first Supreme Court decision to deal Trump a significant defeat in a case that was subject to full review from the outset. The fact that six of the nine justices, including several appointed by conservative presidents, voted against the administration's position lends the ruling particular weight and makes it difficult to dismiss as partisan.

At the same time, the case reveals the limits of judicial review. While the Supreme Court struck down the legal basis, it neither ordered refunds nor prevented the administration from immediately resorting to other legal grounds. Trump's ability to impose new tariffs within hours on a different legal basis demonstrates that a determined president with sufficient creative will can maintain the tariff regime, at least temporarily and on a more questionable legal basis.

The forecast: Five months of uncertainty

The next 150 days, the period during which the Section 122 tariffs are in effect, will be a test for American trade policy, international economic relations, and the domestic balance of power. Several possible developments are emerging.

The Trump administration will use the deadline to establish new, permanent legal grounds for increased tariffs through Section 301 investigations and expanded Section 232 proceedings. However, these proceedings typically require months of investigation, and their legal validity will certainly be challenged. A new wave of lawsuits is expected to occupy the courts, this time focusing on whether Section 122 is even applicable in the absence of fundamental balance-of-payments problems.

Economic uncertainty will persist and may even increase. Heather Boushey, a former White House advisor under Biden and a professor at the University of Pennsylvania, warned that the uncertainty surrounding this chaotic trade policy will continue to burden consumers and businesses, creating confusion and driving up prices. Businesses may maintain higher prices while awaiting further developments, partially negating the theoretical benefits of the ruling for consumers.

The issue of refunds will develop into a complex economic and legal matter in its own right. Should the federal government actually have to repay $150 to $175 billion to importers, this would have a significant impact on the federal budget and could, depending on the timing, act either as a stimulus or as a budgetary burden.

For Europe, China, and the US's other trading partners, a period of intensive renegotiation is beginning under changed circumstances. The EU must decide whether to resume the frozen trade agreement under the new conditions, take its own countermeasures, or wait and see. The decision will depend significantly on how American domestic politics develops in the months leading up to the midterm elections.

Ultimately, the crucial question remains whether the United States' political system is capable of producing a trade policy built on stable legal foundations and predictable enough to allow businesses and trading partners to plan for the long term. While the Supreme Court's ruling reaffirmed constitutional principles, it did not resolve the structural crisis of American trade policy. A president willing to exploit every available legal loophole and change course if necessary, a politically divided Congress, and an economy burdened by uncertainty: this constellation promises many more months of wrangling over one of the most fundamental issues of the American economic order.

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