Trade Policy Whiplash – Clarity Improves, Uncertainty Remains

Last week’s Supreme Court decision striking down the administration’s broad tariffs under the International Emergency Economic Powers Act (IEEPA) initially sparked a modest market rally. The 6-3 ruling was viewed as a potential cooling of trade tensions. However, that optimism was short-lived.

Within hours, the U.S. administration pivoted to Section 122 of the 1974 Trade Act, implementing an initial 10% global tariff for 150 days, with signals it could rise to 15%. Importantly, this reinforces a theme we’ve highlighted: while the legal pathway may change, the broader trade agenda remains intact.

That said, this is not a uniform escalation. For some countries, a defined 10-15% rate is actually lower than prior effective rates. USMCA partners remain exempt from the new structure, with Canada and Mexico facing effective rates closer to 4%. In that respect, the clearer framework may reduce uncertainty, and markets often respond as much to clarity as to the policy itself.

One key unresolved issue is the roughly $130 billion in tariffs already collected under IEEPA. The Court did not rule on whether those funds must be repaid, leaving the matter to ongoing litigation. Should refunds be required, the fiscal implications could be meaningful, potentially affecting deficit projections and Treasury issuance. For now, bond markets have reacted calmly, with long-term yields rising just 2–3 basis points and equities advancing modestly.

In Canada, while the removal of IEEPA tariffs provides some near-term relief, trade challenges persist. Exports to the U.S. are down $30.9 billion through 2025, partially offset by gains elsewhere. However, much of that strength reflects gold and oil. Excluding those commodities, the diversification story is less robust, an issue that may linger as the CUSMA review approaches.

All told, the U.S. economy entered 2026 with solid momentum. Yet tariff uncertainty appears poised to remain a defining theme, likely keeping the Federal Reserve on hold as it waits for greater policy clarity. While volatility may persist, markets have demonstrated resilience in navigating shifting headlines. We remain constructive but selective, focused on high-quality assets positioned to weather policy noise while participating in longer-term growth.

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