Episode Details

The Supreme Court's latest ruling on tariffs has thrown existing trade agreements into uncertainty. Our Head of Public Policy Research Ariana Salvatore and Arunima Sinha, from the U.S and Global Economics teams break down the fallout.

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Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore, Head of Public Policy Research. 

Arunima Sinha: And I am Arunima Sinha on the U.S. and Global Economics teams. 

Ariana Salvatore: Today we'll be talking about the recent Supreme Court decision on tariffs, what it means for existing trade deals, and where trade policy is headed from here. 

It's Monday, February 23rd at 9am in New York. 

On Friday, the Supreme Court ruled that the president could not use the International Emergency Economic Powers Act, or IEEPA, to impose broad-based tariffs. 

The ruling didn't give a clear signal on what it could mean for potential refunds, but the Trump administration said it plans to replace the existing tariffs, which is something that we'd long expected – first leveraging Section 122 to impose 15 percent tariffs for 150 days. 

The president is simultaneously going to launch a few new Section 301 investigations to eventually replace those Section 122 tariffs, since they're only allowed to be in place temporarily. So Arunima, let's start by breaking down some of this tariff math. What does this mean for the headline and effective rate given where we are now versus before? 

Arunima Sinha: Before the decision, Ariana, we were at a headline tariff rate of about 13 percent. What this decision does is that with the move, especially to 15 percent, for other countries, we think that it takes about a percentage point off of the headline tariff rate. So, we would go to about 12 percent, and then we have another percentage point coming off just because of the shifts in trade patterns. And so instead of a headline tariff rate of about 13 percent, we think that we're going to be at a headline tariff of just about 11 percent. 

But that's really just related to the Section 122s. And as you noted, this is only going to apply for the next 150 days. So how should we be thinking about trade policy going forward? 

Ariana Salvatore: I think we should view the 15 percent as probably a likely ceiling for these rates in the medium term; in particular because this 150-day period expires some time around the summer, so even closer to the midterm elections. And as we've been saying politically speaking, it's unpopular to impose high levels of tariffs. 

We've also been saying that the president will continue to lean on trade policy as his real, only way to address the affordability issue for voters, which is something that we've actually seen on the policy side for the past few months with the imposition of exemptions, more trade framework agreements, et cetera.

So really, I think this is just another way for him to continue leaning on this policy avenue. But in that vein, let's talk about specific pockets of relief. What are we thinking about some of their findings on a sector level? 

Arunima Sinha: So, let's tie this into the affordability aspect that you mentioned, Ariana, and specifically using the consumer goods sector. What we think is that with, just in the near-term period, with the Section 122s applying, for different consumer goods categories, we could see tariff rate differentials go down. 

So, they could be anywhere between 1 to 4 percentage points lower across different categories. But what we also think could happen is that once we get beyond the 150-day period, and there are no additional sector t