Wall Street in-depth analysis of "Trump’s IEEPA tariffs rejected": Tariffs may be reduced in the second half of the year, tax rebates could become comprehensive stimulus, potential industry benefits

After the U.S. Supreme Court overturned tariffs imposed by Trump under the emergency economic powers law, major Wall Street investment banks believe the ruling’s actual impact on the economy and markets is limited. However, it creates space for softer tariff policy in the second half of the year and could also lead to a voter rebate plan up to $120 billion. Analysis by Goldman Sachs and Morgan Stanley shows the effective tariff rate will only drop slightly by about 1 percentage point, inflation transmission is mostly 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 the government’s large-scale tariff policy was an “overreach.” The court voted 6-3 to rule that the Trump administration’s tariffs under the International Emergency Economic Powers Act (IEEPA) were unconstitutional. According to CCTV, Trump announced on the 21st that he would raise the new “global import tariff” rate from 10% to 15%. These tariffs will remain until July 24, after which more lasting measures may be implemented via Section 301.

According to Goldman Sachs’ calculations, after policy adjustments, the increase in effective tariff rate since early 2025 will drop from slightly over 10 percentage points to about 9 percentage points, basically in line with previous market expectations. Morgan Stanley noted that if the current tariff structure is shifted to different legal authorizations and largely maintained, and rebate scale is limited (estimated midpoint of $85 billion), business investment or hiring intentions will not see significant changes.

There remains significant uncertainty around rebates. The Supreme Court did not specify if or when the government must refund the tariffs. Goldman Sachs estimates IEEPA tariffs have collected about $180 billion, most of which will be refunded in batches over about the next year. As U.S. consumers have borne about 90% of the tariff burden, this essentially gives Trump the chance to directly issue up to $120 billion in stimulus to the middle class ahead of the midterms.

Actual tariff rate drop is limited; inflation pressure has peaked

Although the Supreme Court overturned IEEPA tariffs, Wall Street believes the impacts on inflation and growth will be extremely limited. Goldman’s analysis shows the tariff cost has mostly been passed on to consumer prices.

Goldman estimates that as of January, tariff transmission raised the core Personal Consumption Expenditures Price Index (PCE) by about 0.7%, and for the rest of 2026 will only push prices up an extra 0.1%. For products with tariffs in place for 10 months, transmission rate exceeds 60%, and incremental transmission after the first five months is small, meaning most price transmission happened before the Supreme Court's ruling. Goldman assumes transmission rate will peak at 70%.

Alec Phillips, Goldman’s chief political economist, noted that although the effective tariff rate drops slightly, the firm expects no net deflation in the remainder of 2026 as companies cut prices in response to tariff relief much more slowly than they hiked prices when tariffs rose earlier. Still, future price increases for most goods facing tariff relief will be smaller than usual.

As for economic activity, the changes will most directly impact U.S. imports. Tariff rates for some countries will drop sharply, and their exports to the U.S. in Q1 and Q2 may rebound from depressed levels. But Goldman thinks the impact on GDP should be offset by increased inventory accumulation, reduced imports from other re-export countries, and minor drops in imports from tariff-hiked countries.

Goldman sets its 2026 Q1 GDP tracking estimate at 3.4%, including a 1.3 percentage point contribution from the end of the government shutdown in 2025 Q4; removing that special factor, the potential growth rate is a milder 2.1%. The firm maintains its prediction of 2.5% year-on-year growth in 2026 Q4, faster by 0.3 percentage points than 2025 Q4’s 2.2%, partly reflecting the positive policy impulse from fading tariff drag and increased tax relief.

Tariffs may ease after July; range of exemptions expected to expand

Section 122’s statutory limits provide Wall Street key clues for possible softer tariff policy. The clause sets the tariff cap at 15% and limits implementation to 150 days, “unless Congress passes a bill extending the period.” Trump’s Feb. 20 executive order specifies that current rates expire July 24.

Morgan Stanley believes that although Trump swiftly announced raising Section 122 tariffs to 15%, he is expected to pursue an overall softer tariff policy behind the scenes. This would mean more exceptions, exemptions, and extensions, consistent with recent measures taken by the government in recent months. This may benefit countries/products not ultimately included in new Section 232 or Section 301 probe scope.

Goldman analyzed tariff changes facing different trading partners. Some larger economies, notably the EU, Japan, and Switzerland, previously reached agreements with the Trump government to apply a maximum 15% rate (including existing U.S. tariffs, usually 0-2.5%). These partners may now face additional tariffs since the 15% rate will “stack” onto existing rates.

On the other hand, Goldman expects several other partners accounting for just over half of U.S. imports in 2025 have reached agreements with the U.S. and are unlikely to face Section 301 investigation as a priority. These include Argentina, Australia, Bangladesh, Cambodia, Ecuador, El Salvador, EU, Guatemala, India, Indonesia, Japan, South Korea, Malaysia, Switzerland, Thailand, UK, and Vietnam.

Goldman expects countries accounting for about 10% of U.S. imports face the highest risk of a Section 301 probe soon, including Brazil and South Africa. Overall, Goldman expects the newly announced 15% rate to last till year-end, with exemption scope same as IEEPA tariffs, but by early 2027 the government will use Section 301 and other authorizations to restore tariffs to near pre-court levels.

Morgan Stanley noted that risks point in different directions at different times. After July, risks tilt toward lower tariffs, as the government may struggle to fully replace soon-expiring Section 122 tariffs with other authorities. But after the midterm election and by early 2027, risks tilt toward higher tariffs.

Rebate process in question; may become midterm election stimulus tool

The rebate issue could turn into the biggest fiscal policy variable of 2026. The Supreme Court did not specify if Trump’s government must refund tariffs or in any specific time frame. Justice Kavanaugh emphasized in his dissent that the rebate process “could be messy.”

Still, tariff collection may immediately cease. Since the Supreme Court broadly overturned the IEEPA tariff authorization, continued collection lacks legal basis. This may lead to long-term uncertainty, as the rebate issue will be left to lower courts.

Goldman estimates IEEPA tariffs so far have collected about $180 billion, most of which will be refunded in batches over about the next year. Historically, rebates were initially limited to companies that actively filed complaints or lawsuits through Customs and Border Protection (CBP) or the Treasury, which could limit rebate scope.

However, analysis shows that, as various politicized media have calculated, U.S. consumers have borne 90% of tariff impact, which effectively enables Trump to hand out stimulus to the U.S. middle class before the midterms, at some point directly depositing up to $120 billion (90% of ~$133 billion IEEPA tariff rebates). This could be called the “2026 Trump Tariff Rebate Stimulus Plan.”

Morgan Stanley believes that if importers receive rebates but must repay them in the form of additional future import tariffs, the result is close to status quo. But if the government allows the effective tariff rate to drop during new Section 232 and Section 301 probes (most likely later this year or in 2027), this would lead to temporary downward inflation pressure and delay the burden of new import tariffs for companies until 2027, thus holding a more constructive view of economic activity growth.

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

Wall Street is divided on the market impacts of the ruling, with significant differences between short- and mid-term arguments.

In U.S. Treasuries, Morgan Stanley believes that as the government will use other authorizations to reimpose tariffs, investors’ expectations for the short-term fiscal deficit path are unlikely to change. On rebates, the court’s ruling “said nothing today about whether or how the government will refund billions collected from importers” (quoting Justice Kavanaugh’s dissent).

Before investors understand the specifics of the Supreme Court’s ruling, they may view risks as favoring higher rather than lower Treasury yields. As expected, the first round of market reaction saw investors sell Treasuries thinking this will force Treasury to increase bond issuance faster.

But Morgan Stanley expects this reaction won’t last, as most investors will eventually realize the potential extra supply will be limited to short-term T-bills. Another key factor is that the Treasury doesn’t have to wait for rebate timing to start building its general account (TGA) balance. Thus, Morgan Stanley believes the second and more lasting reaction will see investors “buy the fact” and push yields lower, as their focus returns to inflation downside risk.

In the dollar market, Morgan Stanley expects the U.S. government’s scope for immediate tariff authorizations as a diplomatic tool will shrink, which may marginally reduce the dollar’s negative risk premium associated with investor caution on dollar exposure.

But offsetting factors may maintain (or even expand) this negative dollar risk premium, including geopolitical uncertainty and questions about U.S. monetary policy. Meanwhile, the mechanical positive impact on global growth (since tariffs using different authorization require time to implement and may be set at lower levels) could boost global growth expectations and further drag the dollar. Thus, Morgan Stanley continues to expect the dollar to drop.

Goldman emphasizes that for some countries, tariff rates will drop sharply and their exports to the U.S. in Q1 and Q2 may rebound from depressed levels, although the GDP impact should be offset by other factors. Changes in trade flows will also generate differentiated impacts on different countries' currencies.

Overall, Wall Street believes that while the Supreme Court’s ruling is legally significant, its actual economic and market impacts are relatively mild. The true uncertainty is in tariff path choices after July and how rebates translate into actual fiscal stimulus—both factors could bring unexpectedly positive impacts to markets in the second half.

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