The Supreme Court overturned the "equal tariffs" policy. What happens next?

After the Supreme Court overturned the legal basis of tariffs under the IEEPA, the market's focus shifted from "whether tariffs are still in place" to "will there be refunds, how to change the legal provisions, and whether the trade framework agreements still hold". According to CCTV news, on February 20th, the Supreme Court of the United States ruled that the Trump administration's imposition of tariffs on imported goods under the International Emergency Economic Powers Act (IEEPA) was "illegal". In a press conference following the ruling, Trump responded by stating that he would sign an executive order on the same day, implementing a "10% global unified tariff" based on Section 122 of the Trade Act of 1974, and announced the initiation of multiple so-called 301 investigations. Not all tariffs are affected According to information from the Chase Wind Trading Platform, a recent HSBC research report cited key points of the ruling, stating that the Supreme Court determined that the IEEPA does not authorize the President to impose taxes on imports under the guise of an "emergency situation". UBS supplemented the interpretation, adding that Chief Justice John Roberts, representing the majority opinion, wrote, "IEEPA does not authorize the President to impose tariffs". This means that the core legal foundation of the tariff system set up by the Trump administration in 2025 using the IEEPA - starting with additional tariffs on Canada and Mexico, and subsequently expanding the "reciprocal/equivalent tariffs" to almost all trading partners on April 2, 2025 - has been removed. However, not all tariffs are affected. HSBC emphasized that this ruling does not affect existing: Section 232 tariffs (national security, sectoral tariffs) Section 301 tariffs Section 201 tariffs (safeguard measures, such as the 2018 CECEP Solar Energy tariffs) Tariff restructuring instead of overturning UBS believes that most IEEPA tariffs can be restructured using other trade authorizations, as many U.S. government officials have mentioned in recent months. Option 1: Do not seek alternative solutions The government may choose not to replace the rejected tariffs. In this case, the currently estimated weighted average tariff rate of 12.9% will decrease to 7.2%. If this lower tariff level continues (although UBS believes it is unlikely), the bank estimates that actual GDP growth this year will increase by an additional approximately 0.2 percentage points, and PCE inflation will decrease by about 30 basis points. In 2027, this would add approximately 0.1 percentage points of growth and reduce PCE inflation by approximately 20 basis points. Option 2: Plan B However, as the bank has previously pointed out, given the efforts and attention the government has put in place with regard to the implemented tariffs as an important part of its policy agenda (including recently linking investment transactions with trade policy), there is expected to be a "Plan B." The government still has other options. It can use the so-called Section 122 to implement a 15% comprehensive tariff within 150 days. They may use the results of the existing Section 301 investigations Is the 10% global tariff just a transition, and will the 301 investigation be the next move? The latest HSBC research also shows that Trump has announced that he will impose a 10% tariff on all countries based on Section 122 and initiate multiple 301 investigations. The bank explains that Section 122 can be used to address international balance of payments issues, with the following characteristics: it can impose a temporary tariff of up to 15% on all imported goods without the need for negotiations, but can only be implemented for a maximum of 150 days. No need for lengthy negotiations like industry tariffs first; But can only be implemented temporarily, for a maximum of 150 days; "Uniform application to all countries" also means that it is not very suitable as a negotiating leverage to pressure a single country. The bank's core judgment is that Section 122 is more like a "transitional solution." The reason is that it is "universally applicable," making it difficult to use it as a negotiating threat to a single country like the IEEPA system did with the ability to "increase or withdraw at any time". The more likely path is to use Section 122 to buy time while the 301 investigation is completed, and then switch to a differentiated tariff rate system. Will there be refunds? Why is it said to potentially drag into "years of litigation"? The most sensitive issue for the market is not the "nominal tariff rate", but whether tariffs already imposed need to be refunded, how much, and how. HSBC cited estimates indicating that by the end of 2025, the IEEPA tariffs brought in approximately $133 billion in revenue; if the related revenue is retrospectively overturned, the potential size of refunds that may need to be made could be as high as approximately $175 billion. In the dissenting opinions of the Supreme Court, Justice Kavanaugh warned in his dissent that the United States may need to refund tens of billions of dollars to importers who paid IEEPA tariffs. He directly pointed out that the court did not provide a pathway for the government regarding whether and how to refund the tens of billions of dollars collected. Trump tried to downplay the short-term impact at the press conference: "The ruling doesn't discuss refunds." He said the related issues "will likely take more than two years of lawsuits," implying that the government does not have immediate plans for large-scale refunds. UBS further mentioned that Bloomberg reported that nearly 1000 companies have filed cases in the Court of International Trade (CIT) to ensure their eligibility for refunds; the CIT has also previously stated that even if the tariffs have been settled, the court may still order refunds through a process called "reliquidation". But the key is: eligibility for refunds, scope, and pace still require further progress in judicial procedures. Are the "bilateral framework agreements" reached last year still valid? HSBC points out that the Supreme Court ruling itself did not explicitly address the various arrangements reached with countries like the UK, EU, and Japan over the past year. Justice Kavanaugh only mentioned in the dissenting opinion that the ruling "may bring uncertainty to these trade arrangements". The more troublesome issue is that these are mostly "framework agreements" rather than complete trade agreements, and the President does not have unilateral legal authorization to implement complete trade agreements, so the framework agreements themselves may not have strong binding power. HSBC gives an example where the tax rate reduced to 15% in the Japan framework agreement is still considered to be under the IEEPA system according to their interpretation - if the IEEPA tariffs are deemed illegal, these "post-reduction IEEPA tax rates" may also become invalid. Trump's statement is that Section 122 will be "uniformly applicable," but "some agreements will be retained, and some will not." One interpretation by HSBC is that the IEEPA tax rates in the framework agreements may be replaced by the 10% global tariff; while parts involving the upper limit of Section 232 tariffs and other content may still continue - provided that trading partners continue to fulfill their respective commitments. However, if they lose the leverage of "higher IEEPA tariffs," some countries may reevaluate their existing commitments. What does it mean for the market: four lines of finance-interest rates-US dollar-risk appetite 1) Finance: potential "giveback risk" after high tariff revenue increases. According to U.S. Treasury Department data, tariff revenues in 2025 totaled $264 billion (approximately 0.9% of nominal GDP), significantly higher than the $79 billion (0.3%) in 2024. HSBC states that if IEEPA-related revenues are overturned retrospectively, theoretically about $175 billion could be "in dispute". However, U.S. Treasury Secretary Besent stated at an event in Dallas that with the government using other legal tools, he expects little change in tariff revenue in 2026. 2) Interest rates: the core is the marginal increase in deficits and borrowing demands. HSBC believes that potential refunds and future revenue declines will increase existing high deficit pressures, driving yield curves steeper and swap spreads tighter; but short-term fluctuations may be offset by "refund uncertainty + new tariff paths," limiting directional trends or relative constraints. 3) US Dollar: policy noise rising, soft bias logic strengthening. HSBC states that this ruling reinforces their judgment of a "soft bias" for the US dollar. Even though the results were not entirely unexpected, the uncertainty of U.S. policy could still keep the dollar relatively weak. 4) Risk assets: HSBC's "risk appetite viewpoint remains unchanged," and may even marginally benefit. HSBC believes that the ruling will not have a significant impact on their "constructive" multi-asset viewpoint but may lead to a marginal improvement in the business decision-making environment due to the less flexible nature of alternative tools compared to the IEEPA system, potentially reducing the fluctuation of "opening and closing tariffs", which is marginal progress. This article is reproduced from "Wall Street See", and edited by Chen Xiaoyi.