SLP Alpha

Summary

The U.S. Supreme Court’s 6-3 decision striking down the use of the International Emergency Economic Powers Act (IEEPA) for sweeping global tariffs marks a turning point for international trade. By ruling that the US executive branch overstepped its constitutional authority to impose taxes, the Court immediately invalidated the complex web of “reciprocal” tariffs and bilateral carve-outs negotiated over the past year. The administration reacted by invoking Section 122 of the Trade Act of 1974, replacing the targeted levies with a temporary, flat 15% global tariff. While overall headline tariff burden decreased somewhat, the underlying friction of protectionism remains firmly intact though through a different legal mechanism.

Path ahead

For a more permanent or targeted approach, the executive branch must now rely on older, more procedurally demanding statutes like Section 232 (Trade Expansion Act of 1962) and Section 301 (Trade Act of 1974). Section 232 allows for unlimited tariffs based on “national security” threats, which the administration already uses for steel and aluminum, while Section 301 permits retaliatory tariffs against specific countries for unfair trade practices. Unlike IEEPA, these laws require time-consuming, formal interagency investigations and public comment periods before taxes can be applied. Additionally, the administration has teased using Section 338 of the Tariff Act of 1930, a law allowing up to 50% duties on nations discriminating against U.S. commerce. While the President still has tools to build a tariff wall, the legal foundation is now much slower, narrower, and vulnerable to future litigation.

Section 232 (Trade Expansion Act of 1962) allows imposing tariffs based on a threat to “National Security” (currently used for steel and aluminum). The process: The Department of Commerce (DOC) officially launches an investigation; The Secretary of Commerce has up to 270 days to investigate whether the imported product “threatens to impair” U.S. national security. This includes mandatory consultations with the Secretary of Defense; The Report: The DOC submits a final report with recommendations to the President. Important –  “National Security” definition limits the use of Section 232. While it is legally broad, using it to tax standard consumer goods (like shoes or toys) invites immediate legal challenges and pushes the definition to its breaking point.

Section 301 (Trade Act of 1974) allows imposing tariffs to retaliate against foreign countries for “unjustifiable, unreasonable, or discriminatory” trade practices (famously used against China). The Process: The U.S. Trade Representative (USTR) launches an investigation;  The USTR is legally required to request consultations with the targeted foreign government to try to negotiate a settlement; The USTR must gather public comments and usually holds formal hearings where domestic businesses can testify; By law, the USTR typically has 12 to 18 months to conclude the investigation, If unfair practices are found, the USTR issues a final list of products subject to the retaliatory tariffs. Important – It is a lengthy, bureaucratic process. The administration has stated they will run these on an “accelerated timeframe,” but they cannot legally skip the public comment and consultation phases.

Section 338 (Tariff Act of 1930) allows imposing up to 50% additional duties on countries that financially discriminate against U.S. commerce. The Process: this law does not require a lengthy, multi-agency investigation. The legal trigger is simply that the President must “find as a fact” that a foreign country is taxing or restricting U.S. goods more harshly than goods from other nations. The President can unilaterally issue a proclamation adding up to a 50% tariff on the offending country’s goods. If the country retaliates further, the President can ban their imports entirely. Important – This law hasn’t been used since the 1940s. Invoking it today would trigger challenges at the World Trade Organization (WTO) and in domestic courts. In particular challengers will argue that Section 338 suffers from the exact same constitutional flaw as IEEPA, by giving the President a blank check to tax a country up to 50% simply by claiming they are “discriminating” against the U.S. 

So while it is more challenging for the administration to replicate the IEEPA framework through the different legal mechanisms, it is likely that it will try to stretch its authority, resulting in legal challenges and more uncertainty over US tariff framework.

Impact on trade partners

Over the last year, the Trump administration signed dozens of  trade deals. In these deals, countries typically agreed to major concessions in exchange for their tariff rate being lowered. But, since the court ruled the President didn’t have the power to set those rates under IEEPA, the “Lower Rate” part of the deal no longer exists. In effect those deals are in legal limbo, adding to uncertainty over US trade policy.

Category	BEFORE (IEEPA / Reciprocal)	NOW (Section 122 Flat 15%)
China	45% – 145% (Stacked rates)	15% (Baseline)
Mexico & Canada	0% – 25% (USMCA protected)	15% (Uniform rate)
UK / Japan / EU	10% – 12% (Negotiated “Deals”)	15%
Emerging Mkts.	30% – 50% (Brazil, Cambodia, Laos)	15%
Average HH Cost	$1,000 / year	$600 – $800 / year
Legal Duration	Indefinite	150 Days (Temporary)

Impact on specific sectors

For American companies, the financial impact largely hinges on a simple divide: net importers benefit from lower overall rates and the prospect of massive refunds, while domestic producers have suddenly lost a high protective barrier against foreign competition.

MSCI Sector	Net Impact	Net Impact
Consumer Discretionary	Positive	U.S. retailers, apparel brands, and consumer durables are the biggest winners. They faced some of the highest “stacked” IEEPA tariffs (often 25%+) on Asian imports. The drop to a flat 15% significantly lowers their cost of goods sold. Furthermore, these U.S. companies hold the largest potential “refund receivable” assets for the duties they paid over the last year.
Information Technology	Positive	U.S. hardware manufacturers and electronic equipment makers benefit as the punitive, country-specific surcharges on Chinese-manufactured components drop to the 15% baseline. Additionally, the new Section 122 proclamation explicitly exempts certain electronics and critical minerals, safeguarding vital U.S. tech supply chains.
Consumer Staples	Positive	U.S. food retailers and household product companies benefit from lower import costs on packaging materials and foreign-sourced goods.
Health Care	Neutral	The impact on U.S. pharmaceuticals and life sciences tools is minimal. Most medical goods, pharmaceuticals, and active pharmaceutical ingredients (APIs) were shielded from the most aggressive IEEPA tariffs and remain explicitly exempted under the new Section 122 annexes.
Industrials	Mixed	U.S. logistics, rail, and shipping companies stand to gain as lower overall tariffs generally stimulate import volumes. However, domestic heavy machinery and electrical equipment manufacturers lose the broad “protectionist wall” of the IEEPA tariffs, exposing them to cheaper foreign competition.
Materials	Negative	U.S. chemical, mining, and metal producers lose a significant competitive shield. While domestic steel and aluminum retain their separate 50% Section 232 protections, the broader materials sector is now more vulnerable to foreign imports that previously faced steep IEEPA penalties.
Financials	Indirectly Positive	U.S. consumer finance and banking entities benefit from the overall disinflationary nature of lower effective tariff rates.