What Happened
- The US Supreme Court ruled 6-3 on February 20, 2026, in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act (IEEPA) does not authorise the President to impose tariffs, striking down the core of the Trump administration's second-term tariff regime.
- The ruling invalidated tariffs imposed under IEEPA — including those agreed to by the EU under a prior trade framework where the EU had accepted a 15% tariff rate.
- Rather than accepting the ruling, President Trump immediately announced a new 10% "global tariff" under Section 122 of the Trade Act of 1974, which allows tariffs of up to 15% for up to 150 days to address balance-of-payments deficits, and subsequently raised it to 15%.
- The EU expressed uncertainty about the validity of its trade framework with the US, with officials questioning whether tariff levels established under an IEEPA-based agreement remain legally valid following the Supreme Court ruling.
- US trading partners — including the EU, Japan, and Canada — reacted with cautious optimism to the Supreme Court ruling, while bracing for Trump's new tariff instruments.
Static Topic Bridges
The IEEPA: Scope, History, and Constitutional Limits
The International Emergency Economic Powers Act (IEEPA), enacted by the US Congress in 1977 under President Jimmy Carter, grants the President broad authority to regulate economic transactions during a declared national emergency when the threat originates outside the United States. It was enacted to clarify and restrict the broader emergency powers previously available under the Trading with the Enemy Act of 1917.
- IEEPA was signed into law on December 28, 1977 (Public Law 95-223).
- The Act authorises the President to "regulate" imports and exports during a national emergency, but does not explicitly mention "tariffs."
- Historically, IEEPA was used primarily to freeze foreign assets and restrict financial transactions (e.g., against Iran, Russia, and terrorist organisations), not to impose broad tariff regimes.
- The Trump administration (second term) invoked IEEPA to impose "Liberation Day" tariffs in 2025, declaring the US trade deficit itself an extraordinary national emergency — a novel and legally contested interpretation.
- The Supreme Court's 2026 ruling in Learning Resources, Inc. v. Trump held that IEEPA's authorisation to "regulate" commerce does not extend to setting tariff rates — a legislative function historically vested in Congress under Article I, Section 8 of the US Constitution.
Connection to this news: The ruling reaffirms the constitutional doctrine of separation of powers in US trade law — tariff-setting is a congressional prerogative, and executive emergency powers cannot serve as a permanent substitute for legislative trade authority. This has direct implications for any country that had agreed to tariff levels set under IEEPA, including the EU.
US Trade Law Architecture: Section 232, Section 301, and Section 122
The striking down of IEEPA tariffs does not eliminate all presidential tariff authority; it merely removes one legal avenue. The US trade law framework includes several other statutes that grant the executive branch tariff-imposing powers.
- Section 232 (Trade Expansion Act, 1962): Allows tariffs on imports that threaten national security. Used by Trump in both terms for steel (25%) and aluminium (10%) tariffs. Upheld by courts as a legitimate national security measure.
- Section 301 (Trade Act, 1974): Allows tariffs in response to unfair trade practices by foreign countries. Used extensively against China (Section 301 tariffs on $300+ billion of Chinese goods). These tariffs were NOT invalidated by the 2026 ruling.
- Section 122 (Trade Act, 1974): Allows the President to impose a temporary tariff of up to 15% for up to 150 days to address balance-of-payments deficits. This is the provision Trump invoked immediately after the IEEPA ruling to impose the new 10-15% global tariff.
- Article I, Section 8 of the US Constitution vests the power to "lay and collect Taxes, Duties, Imposts and Excises" with Congress, making tariff policy constitutionally a legislative function delegated (within limits) to the executive.
Connection to this news: The EU's uncertainty stems from the legal ambiguity created when the tariff instrument (IEEPA) used to establish the agreed tariff rate (15%) was invalidated. Trump's pivot to Section 122 provides a new — though time-limited — legal basis for tariffs, maintaining pressure even after the IEEPA defeat.
WTO Framework and Trade Disputes
The World Trade Organization (WTO) provides the multilateral framework for global trade rules, including most-favoured-nation (MFN) tariff bindings, dispute settlement mechanisms, and agreements on subsidies, intellectual property, and services. Unilateral tariff actions by major economies, particularly the US, have increasingly strained the WTO system.
- Under WTO rules, member countries must apply their MFN tariff rates uniformly to all trading partners; preferential rates require formal Free Trade Agreements or customs unions.
- The WTO's Appellate Body — the apex body for dispute settlement — has been non-functional since 2019, when the US blocked new appointments to the seven-member bench, leaving the dispute resolution system paralysed.
- Countries affected by US tariffs have filed disputes under the WTO dispute settlement mechanism, but with the Appellate Body non-functional, appeals remain unresolved.
- The EU and other US trading partners have also used "rebalancing measures" (retaliatory tariffs) authorised under WTO rules in response to US Section 232 tariffs.
- The US-EU tariff dispute under Trump's second term escalated after the "Liberation Day" IEEPA tariffs were imposed; the EU had agreed to a 15% tariff framework under political negotiation, not a formal WTO-compliant FTA.
Connection to this news: The US Supreme Court ruling creates legal uncertainty about the US-EU trade framework precisely because it was built on an IEEPA foundation. The absence of a fully ratified WTO-compliant FTA between the US and EU means there is no durable legal architecture to anchor the agreed tariff rates.
Balance of Payments and Trade Deficits: Concepts for Mains
A trade deficit occurs when a country's imports of goods exceed its exports. While trade deficits are not inherently harmful (they can reflect strong domestic demand and capital inflows), they have been cited by the Trump administration as the primary justification for tariff imposition.
- The US goods trade deficit reached approximately $1.2 trillion in 2024, driven largely by imports from China, the EU, Mexico, and Vietnam.
- Section 122 of the Trade Act of 1974 specifically links tariff authority to "large and serious" US balance-of-payments deficits, providing a statutory basis for temporary tariffs (up to 15%, for up to 150 days).
- The IMF Article IV consultation process is the standard multilateral mechanism for assessing exchange rate and balance-of-payments issues — not unilateral tariff imposition.
- Trade deficits in goods can be offset by surpluses in services trade; the US runs a significant services surplus globally.
Connection to this news: Trump's invocation of Section 122 after the IEEPA defeat signals that the administration views the US trade deficit as an enduring emergency requiring continuous executive tariff authority — a position that will continue to generate legal challenges and trading partner responses.
Key Facts & Data
- Case: Learning Resources, Inc. v. Trump (24-1287) — Supreme Court ruled 6-3, February 20, 2026.
- IEEPA enacted: December 28, 1977 (Carter administration).
- Ruling: IEEPA does NOT authorise the President to impose tariffs.
- Trump's post-ruling response: 10% global tariff under Section 122 of the Trade Act of 1974, later raised to 15%.
- Section 122 limits: Maximum 15% tariff, for up to 150 days, to address balance-of-payments deficits.
- EU-US tariff framework: EU had agreed to 15% tariff rate under IEEPA-based negotiation — now legally uncertain.
- US goods trade deficit (2024): Approximately $1.2 trillion.
- WTO Appellate Body: Non-functional since 2019 due to US blocking of appointments.
- Section 232 and Section 301 tariffs were NOT invalidated by the IEEPA ruling — remain in force.
- US Constitution, Article I, Section 8: Vests tariff-setting authority with Congress.