On 20 February 2026, the US Supreme Court delivered one of the most consequential trade rulings in modern American history.
In a 6-3 decision on Learning Resources v. Trump, the Court struck down 70% of the tariffs imposed under President Trump’s “Liberation Day” executive orders, ruling that the International Emergency Economic Powers Act (IEEPA) does not grant the President the power to tax, a right strictly reserved for Congress.
The ruling was widely hailed as a return to constitutional order.
But the immediate aftermath has been anything but orderly. Markets are recalibrating, the dollar is under pressure, and a $175 billion question now hangs over the economy.
Here is what traders need to understand about the financial fallout, and whether these tariffs ever made economic sense in the first place.
The Financial Fallout
The Court’s decision has created an immediate fiscal vacuum. Since April 2025, the US government collected roughly $175 billion in duties that are now considered unlawful, and the refund process is shaping up to be a costly ordeal.
Large corporations, like Walmart, Costco, and LVMH have the legal firepower to file thousands of claims and are first in line to reclaim billions. The problem is that roughly 90% of those tariff costs were already passed down to consumers through higher retail prices.
Ordinary shoppers will see none of that $175 billion return. Instead, the money flows back to corporate balance sheets, where it is more likely to fuel stock buybacks than lower the price of goods.
Within hours of the ruling, the White House moved to plug the gap. The administration invoked Section 122 of the Trade Act of 1974, imposing a temporary 15% global surcharge as a strategic bridge while it explores more durable measures under Sections 301 and 232.
However, experts are already pushing back. Section 122 was designed for the gold-standard era of the 1970s and is widely considered ill-suited to today’s floating exchange rate environment. That near-guarantees a fresh round of litigation and prolonged uncertainty for businesses trying to plan.
The Fiscal-Monetary Intersection
The ruling has fundamentally reshaped the outlook for both the US dollar and equity markets, and the effects are moving through two distinct channels: fiscal and monetary, with the Federal Reserve sitting squarely at the centre of the storm.
The most immediate pressure point is the federal budget. The sudden loss of approximately $150 billion in annual tariff revenue has punched a significant hole in a budget already under considerable strain, with the national debt standing near $38.7 trillion.
To offset that lost revenue, the government will need to increase Treasury issuance. That means more debt flooding into the bond market.
That surge in supply is pushing yields higher, particularly at the long end of the curve. For equity markets, this “yield squeeze” cuts both ways. Higher yields raise the cost of borrowing and crowd out private investment, weighing most heavily on tech-heavy stocks that are especially sensitive to rising rates.
On the currency side, the near-term picture points to mild downside pressure on the dollar. With tariff removal easing imported inflation, markets are increasingly pricing in earlier or deeper rate cuts from the Federal Reserve, which narrows the interest rate differentials that had previously supported the greenback.
The medium-term trajectory, however, is defined by a deeper tension. If interest payments on the ballooning national debt continue to outpace primary government expenditure, the US could find itself effectively printing money to cover the shortfall.
It’s a scenario that would inflict significant structural damage on the dollar.
To defend the dollar’s reserve currency status, the Federal Reserve under Kevin Warsh may need to adopt aggressive hard money tactics.
That could mean cutting rates strategically to ease the government’s interest burden, halting Treasury bill purchases to stop further monetary expansion, and uncapping bank cash-holding ratios to drive internal demand for the dollar within the financial system.
Did The Tariffs Actually Help the US?
To answer that fairly, the rhetoric needs to be set aside and the 2025 data examined on its own terms.
The primary justification for the tariffs was to close the trade gap. According to the Bureau of Economic Analysis, the 2025 trade deficit came in at $901.5 billion, a negligible 0.2% improvement from 2024.
Even where imports were disrupted, the adjustment largely came through trade diversion rather than the promised reshoring of American industry. Companies simply sourced from alternative countries, while retaliatory measures from trading partners dampened demand for US exports.
The jobs story is equally sobering. The tariffs were marketed as a lifeline for the American heartland, but between April and December 2025, the manufacturing sector shed 72,000 jobs.
Because roughly half of US imports are inputs for domestic production, like parts, chemicals, and raw metals, the tariffs effectively acted as a tax on American factories, eroding their global competitiveness rather than strengthening it.
On the fiscal side, tariff revenues proved largely cosmetic.
Once stripped out, the federal deficit under the tariff regime was larger than headline figures suggested, leaving the structural problem of fiscal overspending completely untouched.
With federal debt now approaching $39 trillion, the Court’s ruling has exposed an uncomfortable truth: tariffs were never a durable solution to America’s budget imbalance.
Final Verdict: Was The US Better Off?
Financially and structurally, the answer is no. A handful of primary metal producers saw a brief uptick in activity, but the broader economy absorbed higher consumer costs and a contraction in manufacturing employment. The gains were narrow; the pain was widespread.
The Supreme Court has corrected a constitutional overreach, and that matters. But the ruling has also laid bare what might be described as a robbery in plain sight. The public paid the tax, the government spent the revenue, and now corporations will keep the change. The $175 billion does not return to the people who funded it.
FAQ
What should traders be aware of following this Supreme Court ruling?
Watch Treasury yields for signs of further upward pressure as debt issuance rises. Monitor the dollar closely. Near-term weakness is likely as rate cut expectations build, but the medium-term picture depends heavily on how aggressively the Fed moves to shore up dollar credibility.
Finally, keep an eye on equity markets, particularly the tech sector, where the yield squeeze will continue to test valuations.
What does Section 122 say about tariffs?
Section 122 is a part of the Trade Act of 1974 that gives the US President a temporary authority to impose tariffs without long investigations or detailed reviews. This provision allows the US president to impose tariffs of up to 15%.
Trade activities under this provision can only last for 150 days unless extended through other trade authorities.
How did the Federal Reserve react to the US Supreme Court ruling on Trump’s tariffs?
Federal Reserve officials downplayed major policy shifts.
Fed Governor Christopher Waller stated the ruling would not significantly alter his interest rate outlook, supporting a pause on cuts if labour markets stabilise, and emphasised looking past temporary tariff effects on inflation.
Chicago Fed President Austan Goolsbee suggested the decision could help cool inflation.
St. Louis Fed President Alberto Musalem noted that replacement tariffs under other laws like Section 122 would leave his forecasts largely unchanged, though he plans to speak with CEOs to understand the impact of tariff uncertainty on companies.
