Wall Street In-Depth Analysis of "Trump IEEPA Tariff Rejection": Tariffs May Be Reduced in the Second Half of the Year, Refunds Could Turn into Comprehensive Stimulus, Potential Industry Benefits

After the U.S. Supreme Court overturned the tariffs implemented by Trump under the International Emergency Economic Powers Act (IEEPA), major Wall Street investment banks believe this ruling has limited actual impact on the economy and markets. However, it creates room for a moderate shift in tariff policy in the second half of the year and may also lead to a voter rebate plan worth up to $120 billion. Goldman Sachs and Morgan Stanley’s analyses show that the effective tariff rate has only decreased slightly by about 1 percentage point, with inflation transmission essentially complete, and tariffs expiring after July will force the government to adopt more exemptions.

According to CCTV News, on the 20th, the U.S. Supreme Court ruled that the U.S. government’s large-scale tariff policies were “ultra vires.” The Supreme Court, in a 6-3 decision, declared that tariffs imposed by the Trump administration under the IEEPA are unconstitutional. As reported by CCTV, on the 21st, Trump announced that the newly imposed “global import tariffs” rate would be raised from 10% to 15%. These tariffs will last until July 24, after which more lasting measures may be implemented under Section 301.

Goldman Sachs estimates that after policy adjustments, the effective tariff rate since early 2025 will decrease from slightly above 10 percentage points to about 9 percentage points, roughly in line with market expectations. Morgan Stanley notes that assuming the current tariff structure shifts to different legal authorizations and remains largely unchanged, with limited rebate scale (estimated at a midpoint of $85 billion), corporate spending and hiring intentions are unlikely to change significantly.

There remains significant uncertainty regarding rebates. The Supreme Court did not specify whether the government must refund tariffs or the specific timing. Goldman Sachs estimates that approximately $180 billion in tariffs have been collected under the IEEPA, most of which will be refunded in installments over the next year or so. Since U.S. consumers bear about 90% of the tariff burden, this effectively provides Trump with an opportunity to directly distribute up to $120 billion in stimulus payments to the middle class before the midterm elections.

Limited actual tariff reduction, inflation pressures have peaked

Although the Supreme Court overturned the IEEPA tariffs, Wall Street believes the impact on inflation and economic growth will be very limited. Goldman Sachs’s analysis shows that the transmission of tariffs to consumer prices has largely been completed.

Goldman estimates that, as of January, tariff transmission increased the core Personal Consumption Expenditures (PCE) price index by about 0.7%, and over the remaining 2026 period, it will add only an additional 0.1%. For goods with an 10-month implementation period, the tariff transmission rate exceeds 60%, and the incremental transmission after the first five months is small, indicating most price transmission was completed before the Supreme Court ruling. Goldman assumes the transmission rate will peak at 70%.

Alec Phillips, Goldman Sachs’s chief political economist, points out that although the effective tariff rate has slightly decreased, the bank does not expect a net disinflationary effect in the remaining 2026 period because companies are slow to lower prices in response to tariff reductions compared to how quickly they raised prices due to tariffs. However, most future price increases for goods facing tariff reductions will be smaller than usual.

In terms of economic activity, the latest changes will most directly affect U.S. imports. Tariffs on some countries will drop significantly, potentially causing a rebound in exports to the U.S. from these countries in Q1 and Q2 after a sluggish period. But Goldman believes the impact on GDP should be offset by increased inventory accumulation, reduced imports from re-exporting countries, and slight declines in imports from countries with rising tariffs.

Goldman’s tracking estimate for Q1 2026 GDP is 3.4%, including a 1.3 percentage point contribution from the end of the government shutdown in Q4 2025, implying a potential underlying growth rate of about 2.1% after excluding this special factor. The bank maintains its forecast of 2.5% year-over-year growth in Q4 2026, up from 2.2% in Q4 2025, partly reflecting the fading of tariff drag and the positive policy impulse from tax cuts.

Tariffs may become more lenient after July, with exemptions likely expanding

Section 122 of the Trade Act provides a statutory limit of 15% on tariffs and restricts their duration to 150 days, “unless Congress enacts legislation to extend the period.” An executive order signed by Trump on February 20 explicitly states that current tariffs will expire on July 24.

Morgan Stanley believes that although Trump quickly announced raising tariffs under Section 122 to 15%, the president is expected to pursue a more moderate tariff policy behind the scenes. This would involve more exceptions, exemptions, and delays, consistent with recent measures taken by the government over the past few months. Such measures could benefit countries and products not covered by new investigations under Section 232 or Section 301.

Goldman Sachs has detailed analyses of tariff changes faced by different trading partners. Larger economies, especially the EU, Japan, and Switzerland, previously reached agreements with the Trump administration to implement maximum tariffs of 15% (up from current rates typically between 0-2.5%), including existing U.S. tariffs. These trading partners may now face incremental tariff increases, as the 15% rate will “stack” on top of existing U.S. tariffs.

Conversely, several other trading partners accounting for over half of U.S. imports in 2025 have agreements with the U.S. and are less likely to be prioritized for investigation under Section 301. These include Argentina, Australia, Bangladesh, Cambodia, Ecuador, El Salvador, the EU, Guatemala, India, Indonesia, Japan, South Korea, Malaysia, Switzerland, Thailand, the UK, and Vietnam.

The largest risk of recent Section 301 investigations—about 10% of U.S. imports—includes Brazil and South Africa. Overall, Goldman Sachs expects the 15% rate announced now to persist until the end of the year, with exemptions matching those under IEEPA tariffs. By early 2027, the government is expected to use Section 301 and other authorities to restore tariffs close to pre-judgment levels.

Morgan Stanley notes that risks point in different directions over time. After July, the risk leans toward lower tariffs, as the government may find it difficult to fully replace expiring Section 122 tariffs with other authorities. However, after the midterm elections and into early 2027, risks tend toward higher tariffs.

Uncertain rebate procedures may become a midterm election stimulus tool

Rebate issues could become the biggest fiscal policy variable in 2026. The Supreme Court did not specify whether the Trump administration must refund tariffs or within what timeframe. Justice Kavanaugh, in dissent, reiterated that the rebate process “could be a mess.”

Nevertheless, tariffs could be halted immediately. Given the broad overturning of IEEPA tariff authority, continued collection would lack legal basis. This could lead to long-term uncertainty, as rebate issues are left to lower courts to decide.

Goldman Sachs estimates that approximately $180 billion in tariffs have been collected under IEEPA, most of which will be refunded in installments over the next year or so. Historically, refunds were initially limited to companies that filed complaints or lawsuits through procedures established by CBP or the Treasury, which may ultimately restrict the scope of refunds.

However, analyses suggest that since various politically motivated media calculations indicate that U.S. consumers bear 90% of the tariff burden, Trump could use this to directly distribute stimulus payments to the middle class before the midterm elections—up to $120 billion (about 90% of the $133 billion in IEEPA tariffs refunded). This could be called the “2026 Trump Tariff Rebate Stimulus Plan.”

Morgan Stanley believes that if importers receive refunds but must repay them through additional future tariffs, this would be close to the current situation. But if the government chooses to let effective tariffs decline during new investigations under Section 232 and Section 301 (most likely later this year or in 2027), it would temporarily ease inflation and delay companies’ payment of new tariffs until 2027, supporting a more constructive outlook on economic growth.

Market impact: U.S. Treasuries under pressure short-term, dollar weakening mid-term

Wall Street’s views on the market impact of the ruling are diverging, with significant differences between short-term and medium-term logic.

In the U.S. Treasury market, Morgan Stanley believes that since the government will use other existing authorities to reimpose tariffs, expectations for the short-term path of the fiscal deficit are unlikely to change. Regarding refunds, the Supreme Court’s ruling “did not specify whether and how the government will refund the tens of billions of dollars collected from importers” (citing Justice Kavanaugh’s dissent).

Before investors understand the specific contours of the Supreme Court’s decision, they may perceive higher rather than lower risk premiums on Treasuries. As expected, the initial market reaction is a sell-off of Treasuries, as investors believe this will force the Treasury to increase bond issuance more quickly.

However, Morgan Stanley expects this reaction to be short-lived because most investors will eventually realize that the potential incremental issuance will mainly involve short-term Treasury bills. Another key factor is that, although the Treasury may face additional obligations, it does not need to wait until refunds are made to start building the general account (TGA) balance. Therefore, Morgan Stanley expects a second, more sustained reaction: investors “buy on the dip” and push yields lower, as their focus shifts back to downside risks to inflation.

In the dollar market, Morgan Stanley anticipates reduced scope for the U.S. government to use immediate tariff authority as a diplomatic tool, which could marginally lower the negative risk premium associated with holding dollar exposure.

However, offsetting factors may sustain (or even widen) this dollar negative risk premium, including geopolitical uncertainties and doubts about U.S. monetary policy. Additionally, the mechanical positive impact on global growth (since tariffs under different authorities take time to implement and may be enacted at lower levels) could boost global growth expectations, further weighing on the dollar. Therefore, Morgan Stanley continues to expect dollar depreciation.

Goldman Sachs emphasizes that tariffs on some countries will decline significantly, and their imports to the U.S. in Q1 and Q2 may rebound from low levels, although the impact on GDP should be offset by other factors. Changes in trade flows will also have differentiated effects on various currencies.

Overall, Wall Street views the Supreme Court’s ruling as legally significant but relatively moderate in terms of economic and market impact. The real uncertainties lie in the tariff policy path after July and how rebates translate into actual fiscal stimulus, both of which could bring unexpected positive surprises to the market in the second half of the year.

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