In-depth analysis: The basis for the EU-US trade agreement is lacking – after the Supreme Court lifted most tariffs

After a resounding court defeat: Trump immediately imposes new tariffs – Is the trade war now escalating?

Trump's most powerful weapon is illegal: Why the trade war with the US is entering a completely new phase

A landmark ruling by the US Supreme Court has shaken the foundations of transatlantic trade relations: By a clear majority, the justices declared US President Donald Trump's far-reaching and dreaded "Liberation Day tariffs" unlawful. This bombshell from Washington has massive consequences for the global economy. With the illegal threat now removed, the EU Trade Committee sees no basis for the trade agreement between Brussels and Washington, hastily concluded only in the summer of 2025. While German companies may now be entitled to billions in refunds for overpaid tariffs, Trump is reacting with unprecedented fury – and a new tariff decree. Is the global trade war spiraling out of control, or does the European Union now have a unique opportunity to turn the tide at the negotiating table? This in-depth analysis clarifies the most important questions about the future of EU-US trade, assesses the constitutional dimension, and reveals the strategic options now on the table.

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Questions and answers on the future of transatlantic trade relations after the Supreme Court ruling of February 20, 2026:

What exactly did the Supreme Court decide on February 20, 2026?

The United States Supreme Court ruled by a 6-3 majority that the sweeping tariffs imposed by President Donald Trump on imports from nearly all of the United States' trading partners were unlawful. The court found that Trump exceeded his authority by invoking the International Emergency Economic Powers Act (IEEPA) of 1977 to impose tariffs without congressional approval. Chief Justice John Roberts, who wrote the majority opinion, made it unequivocally clear that the IEEPA does not grant the president the authority to impose tariffs. Roberts explicitly stated that the court's task was simply to determine whether the power to regulate imports, as conferred upon the president by the IEEPA, includes the power to impose tariffs, and he unequivocally answered that it does not.

The ruling thus upholds the decisions of the lower courts, in particular the Court of International Trade from May 2025 and the Court of Appeals from August 2025, which had already reached the same conclusion. It is noteworthy that the decision did not follow the usual ideological lines. In addition to the three liberal justices, the Trump-appointed justices Amy Coney Barrett and Neil Gorsuch also sided with the majority opinion. Justices Clarence Thomas, Samuel Alito, and Brett Kavanaugh voted against it.

Which tariffs are affected by the ruling and which are not?

The Supreme Court ruling affects all tariffs imposed under the IEEPA. This includes, in particular, the so-called Liberation Day tariffs of April 2, 2025, under which Trump imposed a base tariff of ten percent on nearly all imports into the US and set significantly higher country-specific tariffs for numerous countries. The original Liberation Day tariff rate for the European Union was 20 percent. Also affected are the fentanyl and smuggling tariffs against Canada, Mexico, and China, as well as other country-specific IEEPA surcharges.

However, tariffs based on other legal grounds are not affected. The so-called Section 232 tariffs on steel and aluminum, which were raised to 50 percent in June 2025, remain fully in effect. Likewise, the 25 percent auto tariffs based on Section 232 of the Trade Expansion Act continue to apply. Industry-specific tariffs on copper and wood products levied under Section 232 are also unaffected by the ruling. According to the Yale Budget Lab, however, the IEEPA tariffs now declared unlawful constituted the majority of the entire tariff regime established during 2025.

On what basis was the trade agreement between the EU and the USA founded?

The European Union and the United States reached a trade agreement on July 27, 2025, at a meeting between Commission President Ursula von der Leyen and President Trump in Turnberry, Scotland. The agreement was formalized in a joint declaration on August 21, 2025. The centerpiece of this agreement was the introduction of a uniform tariff rate of 15 percent for the vast majority of EU exports to the US. This cap replaced the significantly higher Liberation Day tariffs of 20 percent and the 30 percent tariffs that had been threatened in the interim.

The agreement stipulated that this 15 percent cap should also apply to sensitive product categories such as automobiles and automotive parts, pharmaceuticals, semiconductors, timber, and civil aviation products. For certain strategic products, such as natural resources, generic drugs, and chemical precursors, it was even agreed to apply only the most-favored-nation tariff, close to zero. The 50 percent tariffs on steel and aluminum were to be negotiated separately, with the aim of reducing them and introducing a quota system.

In return, the EU committed to suspending its prepared countermeasures and to import energy supplies worth hundreds of billions of dollars from the US. The EU subsequently suspended its already decided retaliatory tariffs on US goods worth a total of 93 billion euros. This suspension was extended until August 2026.

Why does the EU Trade Committee no longer see a basis for the agreement?

Bernd Lange, chairman of the European Parliament's Committee on International Trade, declared on Deutschlandfunk radio on February 21, 2026, that the existing trade deal with the US was no longer valid following the Supreme Court ruling. His reasoning rested on several key arguments. The trade agreement of July 2025 was concluded on the premise that the US had created a massive threat through the IEEPA tariffs. The EU accepted the 15 percent tariff as a compromise to avert the significantly higher Liberation Day tariffs of 20 percent and the subsequently threatened 30 percent. Now that the Supreme Court has declared these tariffs illegal, the basis for this compromise has disappeared.

Lange emphasized that the ruling reaffirmed that trade policy is a matter for the US Congress, not the president. He described the verdict as the biggest setback for Trump in his second term and spoke of absolute chaos in the current situation. The stability necessary for good trade relations is currently lacking. Lange announced a special meeting for the following Monday of the negotiating team for the agreement with the US and the legal service of the European Parliament.

How did Trump react to the verdict and what new measures did he take?

Trump reacted extremely sharply to the ruling and personally attacked the majority justices. He called the Republican justices who voted against him fools and pets of the Democrats, accusing them of being unpatriotic and disloyal to the Constitution. He called the ruling deeply disappointing and a disgrace to the nation.

That same evening, February 20, 2026, Trump signed an executive order imposing a new global tariff of ten percent, citing Section 122 of the Trade Act of 1974. The very next day, February 21, he increased this tariff to 15 percent, the maximum rate permitted under Section 122. These new tariffs were scheduled to take effect on February 24, 2026. Certain product categories, including critical minerals, beef, fruit, automobiles, pharmaceuticals, and products from Canada and Mexico, were exempt from the new tariffs.

Section 122 allows the president to impose tariffs of up to 15 percent for a maximum of 150 days in cases of large and serious balance of payments deficits, unless Congress approves an extension. No president before Trump had ever used this law to impose tariffs.

What legal risks exist for Trump's new tariffs under Section 122?

The new tariffs under Section 122 are by no means immune to legal challenges. Legal experts point to several weaknesses. Section 122 was created in the 1970s during the dollar and exchange rate crisis to address short-term balance-of-payments imbalances. It was not designed as an instrument for global trade pressure or as leverage in negotiations. The same logic the Supreme Court applied to the IEEPA—that expanding presidential powers beyond the original purpose of the law is impermissible—could also be applied to Section 122.

Neal Katyal, the former U.S. Deputy Solicitor General and lead attorney for the plaintiffs in the IEEPA case, emphasized immediately after the ruling that only Congress can impose taxes on the American people. Many legal experts interpret this argument to mean that the constitutional restrictions apply not only to the IEEPA but to any form of presidential tariff imposition without congressional approval. The fact that the new 15 percent tariffs are applied across the board to all global imports, without industry-specific or country-specific investigations, could reignite the same constitutional debate about the power to tax.

What does the ruling mean for the approximately $134 billion in tariffs already collected?

One of the most pressing questions concerns the reimbursement of tariffs already paid under the IEEPA. While the court clarified that the IEEPA tariffs were illegal, it did not provide specific instructions for repayment. Chief Justice Roberts deliberately left the question open. In the dissenting opinion, however, Justice Kavanaugh pointed out that the federal government might be obligated to reimburse billions of dollars to importers.

Estimates of the total amount vary. Reuters puts the tariffs collected under IEEPA at over $130 billion, while the Yale Budget Lab estimates over $200 billion for 2025. Bernd Lange estimates that German companies or their American importers alone have overpaid more than €100 billion. Over 300,000 importers are potentially affected by refund claims.

The practical implementation of the repayments, however, will take years. Trump himself indicated that potential refunds would get bogged down in years of litigation. Treasury Secretary Bessent also confirmed that discussions about refunds could stretch over several years. While the Court of International Trade has confirmed its jurisdiction to handle refund claims, the actual process—whether administrative through Customs and Border Protection (CBP) or judicial—remains entirely unclear.

How is the EU Commission reacting to the ruling?

The European Commission initially reacted cautiously and diplomatically. A spokesperson stated that the Commission would carefully analyze the ruling and was in close contact with the US government to gain clarity on the steps it intended to take in response. Businesses on both sides of the Atlantic depend on stability and predictability in trade relations. The EU therefore remains committed to low tariffs and is working towards their reduction.

In a more detailed statement, the European Commission emphasized that it expected the US to uphold its commitments under the joint declaration, just as the EU adheres to its own obligations. It was particularly important that EU products continue to benefit from the most competitive treatment, without tariffs being increased beyond the previously agreed ceiling. This position stands in some tension with the considerably more assertive stance of the European Parliament under Bernd Lange, which declared the deal invalid.

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What role does the Greenland dispute play in the trade agreement?

The EU-US trade agreement was already in a precarious position before the Supreme Court ruling. In January 2026, President Trump threatened to impose additional tariffs on eight European countries if they did not support his plans to annex Greenland. As a result, the main political groups in the European Parliament suspended ratification of the trade agreement. The vote in the Trade Committee, scheduled for January 26, 2026, was postponed indefinitely.

Bernd Lange explained that the US president had finally gone too far with the threat of extra tariffs related to Greenland. He accused Trump of violating the agreement. Thus, at the time of the Supreme Court ruling, a double burden converged. First, parliamentary ratification of the agreement was already frozen due to the Greenland dispute. Second, the court ruling now destroyed the legal basis for the US tariff architecture. The decision on how to proceed therefore rests primarily with the members of parliament, who were scheduled to meet for a special session on Monday following the ruling.

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What strategic options does the EU now have?

The EU faces a fundamental dilemma. On the one hand, it could try to renegotiate the existing agreement and secure better terms, now that the threat of high IEEPA tariffs has been removed. On the other hand, renegotiation carries the risk that no agreement will be reached at all, and transatlantic trade relations will escalate further.

Samina Sultan from the German Economic Institute in Cologne framed the central question as follows: the EU must ask itself whether it is politically in a position to demand more, or whether it is not worthwhile to renegotiate the agreement once it has been negotiated. Sultan emphasized that the ruling does not affect all tariffs and that many of the tariffs, particularly those affecting German companies, will remain in place. The 15 percent tariff on cars and the 50 percent duties on steel and aluminum will continue to apply.

Sultan recommended that the EU wait and see if Trump finds a new, permanent legal basis for his tariff policy. At the same time, Brussels would be closely monitoring how other countries, particularly Canada, reacted to the new circumstances. However, the IW expert also pointed out that the IEEPA was the most powerful tool in Trump's arsenal, and all other options were either time-limited or subject to extensive review processes.

What does the 150-day period for Section 122 customs duties mean for the EU?

Limiting the Section 122 tariffs to a maximum of 150 days creates an entirely new time-pressure scenario. If it takes effect on February 24, 2026, these tariffs would automatically expire at the end of July 2026 without an extension by Congress. This stands in stark contrast to the previous situation, in which Trump could impose tariffs of unlimited duration and amount through the IEEPA.

This results in a changed dynamic for the EU in negotiations. The previous threat from the US was clear: you won't get a better deal. This threat loses considerable force when the US itself is under pressure from an expiring deadline. However, the Trump administration has already announced that it will launch further trade investigations under Section 301, which could lead to additional future tariffs. Furthermore, after the 150-day period expires, Trump could theoretically invoke Section 122 again, although this would likely provoke further legal challenges.

The administration has also indicated that countries with trade agreements with the US must continue to adhere to them, even if the agreed-upon tariffs exceed the new Section 122 rates. For countries like Malaysia and Cambodia, whose agreements stipulate tariffs of 19 percent, this would mean paying higher tariffs than the general 15 percent rate. Whether this requirement is enforceable given the changed legal situation remains to be seen.

How have other countries reacted to the verdict?

The international community reacted with widespread relief to the ruling, although considerable uncertainty remains regarding the next steps. The British government stated it would work with the White House to clarify the ruling's implications for British and global tariffs. However, the British Chambers of Commerce cautioned that the ruling did little to resolve the uncertainty facing British businesses, as the president still had alternative options for maintaining his tariff policies.

Indonesia's chief negotiator for US tariffs has confirmed that the trade agreement with the US, which includes tariffs of 19 percent, remains valid despite the court ruling. Countries like Vietnam and Brazil, which are still negotiating with the US, are now faced with the question of whether they should reconsider their existing negotiating positions in light of the new situation.

What long-term effects will the ruling have on US trade policy?

The Supreme Court's ruling has fundamental implications for the architecture of American trade policy. It unequivocally clarifies that the power to impose tariffs and taxes lies with Congress, not the President. In his reasoning, Roberts emphasized that the President had claimed the unilateral authority to impose tariffs of unlimited amount, duration, and scope, and that he would have had to demonstrate explicit authorization from Congress for such power, which he failed to do.

Samina Sultan from the IW summarizes it this way: the Trump administration will continue to try new things to put pressure on the EU, and this will continue for the next three years. However, the tools are now more limited. Section 122 is capped at 150 days and 15 percent. Section 301 requires extensive investigations before tariffs can be imposed. Section 232 is limited to national security issues and is already exhausted for steel, aluminum, and cars.

The most likely long-term development is that the Trump administration will persuade Congress to pass a new law granting the president explicit tariff powers. Whether Congress, where Trump's Republican Party holds the majority, will be willing to do so depends on the internal party debate about free trade versus protectionism.

What does all this mean specifically for German companies?

For German companies, the situation is mixed. On the one hand, there is the possibility of claiming refunds for overpaid IEEPA duties. Bernd Lange estimates the volume for German companies and their American importers alone at over €100 billion. However, these claims must be filed with the Court of International Trade in New York, and hundreds of thousands of applications are expected.

On the other hand, significant burdens remain. The 50 percent tariffs on steel and aluminum, which particularly affect the German metal industry, remain unchanged. The 15 percent tariffs on automobiles under the previous trade agreement also remain in effect. For companies in these sectors, the ruling will change little in the short term. IW economist Sultan explicitly warns against companies becoming complacent, as this would be premature.

The EU must also think long-term and look for alternatives. The agreements with South America, India, and Indonesia are important building blocks for greater diversification, Sultan said. It's not just about dependence on the US, but also on China. However, it will take time before the effects are felt by companies.

How should the constitutional dimension of the ruling be classified?

Constitutional scholars are calling the Supreme Court's ruling historically significant. Peter Shane, an expert in constitutional law and presidential authority at New York University, commented that the court had shown it would not automatically uphold every measure on Trump's agenda. This is arguably the most significant defeat for the Trump administration before the conservative Supreme Court, which had previously ruled largely in favor of the president on other issues such as immigration, the firing of agency heads, and federal spending cuts.

Justice Elena Kagan issued a dissenting opinion, stating that the normal principles of statutory interpretation already led to the same conclusion. The relevant law grants the president emergency powers to regulate imports and does not imply the power to impose taxes. This underscores the broad judicial consensus against the tariff policy.

Of particular importance is the principle Roberts emphasized, namely that when Congress delegates the authority to impose tariffs, it must do so clearly and with careful limitations, and that neither of these conditions were met here. This principle could also prove relevant for future attempts at presidential tariff policy under other legal frameworks.

What scenarios are conceivable for the coming months?

Several possible developments are emerging for the coming months. In the first scenario, the US and the EU maintain the existing trade agreement and adapt it to the new legal situation. The 15 percent tariffs under Section 122 happen to correspond exactly to the upper limit agreed upon in the agreement. If Trump consistently applies these tariffs and the sector-specific exemptions remain in place, the status quo could be largely preserved.

In the second scenario, the EU uses the changed balance of power to negotiate better terms. Without the threat of unlimited IEEPA tariffs and knowing that the Section 122 tariffs will automatically expire at the end of July, the EU would have a stronger negotiating position. It could demand lower tariffs, exemptions for further product categories, or more binding commitments regarding steel and aluminum.

In the third scenario, the conflict escalates further. Should Trump attempt to create new permanent legal bases for his tariff policy or repeatedly renew the Section 122 tariffs, the EU could activate its currently suspended countermeasures on US goods worth €93 billion. The suspension of these measures is in effect until August 2026, which provides a certain time buffer.

Why is the uncertainty for companies still so high?

Despite the seemingly clear ruling by the Supreme Court, uncertainty remains extremely high for businesses on both sides of the Atlantic. The Süddeutsche Zeitung aptly described the situation as one in which, given Trump's tirades, no one really knows what the future holds. This uncertainty has several causes.

First, it is unclear whether the Section 122 tariffs will withstand legal scrutiny. Companies do not know whether they will have to factor these tariffs into their long-term costs or whether they, too, will be declared illegal. Second, the issue of refunds is completely unresolved. Companies that have suffered under the IEEPA tariffs do not know if or when they will receive their money back. Third, the future of the EU-US trade agreement is uncertain, as it has neither been ratified by the European Parliament nor rests on a stable legal foundation.

While the European Commission has expressed its preference for stability and predictability, the reality is quite different. The trade conflict between the US and its partners has escalated into an institutional crisis, fundamentally challenging the limits of presidential power, the role of Congress in trade policy, and the reliability of international agreements. This creates an extremely difficult environment for businesses that need to make investment decisions and plan supply chains.

What conclusion can be drawn from the overall situation?

The Supreme Court's ruling against the IEEPA tariffs has shaken the transatlantic trade architecture to its core. The trade agreement of July 2025 was concluded under conditions that no longer exist. The EU accepted a compromise to avert a threat that has turned out to be illegal. That, under these circumstances, the chairman of the European Parliament's trade committee has declared the deal no longer valid is a logical consequence.

At the same time, it would be risky for the EU to prematurely terminate the agreement. The Section 232 tariffs on steel, aluminum, and automobiles remain in place, and the Trump administration has other tools to exert pressure. The coming months will be crucial. The 150-day expiration period for the Section 122 tariffs sets a natural deadline by which either Congress will act, new legislation will be created, or an entirely new negotiating situation will arise. The only certainty in this situation is that the uncertainty will persist.

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