Tariffs: Impact of the recent US Supreme Court ruling on US trading partners
The US Supreme Court has ruled that the US President's tariff measures under the International Emergency Economic Powers Act (IEEPA) are unlawful. This invalidates a range of far-reaching tariff measures, including the "reciprocal tariff" regime that drove much of the recent US trade policy.
What you need to know
- Many countries, including the EU, made far-reaching concessions to avoid or reduce IEEPA tariffs. With those tariffs now invalidated, some US trading partners may push to renegotiate or withdraw from their commitments.
- For now, US trading partners are responding cautiously. The EU has paused ratification of its trade deal with the United States. India has deferred talks. China is assessing further countermeasures.
- Businesses should act now to manage risk. Review your tariff exposure, check the origin and classification for your goods, and revisit contracts for tariff allocation clauses. Trade volatility is not going away: building flexibility into your operations is essential.
Background
On 20 February 2026, the US Supreme Court issued a landmark judgment, ruling that the US President's tariff measures under the IEEPA are unlawful. For businesses engaged in cross-border trade, this decision carries significant commercial implications that extend well beyond US borders.
The ruling directly affects the major legal foundation of the current US administration's trade policy. It also raises serious questions about the viability of many of the bilateral "trade deals" that the United States negotiated with various of its partners during recent months. These agreements were shaped by the threat or actual imposition of IEEPA tariffs, that are now lacking a legal basis. Furthermore, the US President's authority to implement the tariff commitments embedded in these deals is uncertain.
US trading partners may respond in different ways. Some may seek to renegotiate terms now that the United States lacks a clear legal basis for its most far-reaching tariff measures. Others may step back from their commitments entirely, or impose retaliatory measures of their own if the administration cannot deliver on negotiated terms. Companies that have already adjusted their operations in response to earlier tariff announcements now face renewed uncertainty about the rules that will govern their cross-border activities.
This briefing explains the practical implications of the Supreme Court ruling for US trading partners and the businesses that rely on trade with the United States. It explores the effects of the ruling on trade deals between the United States and its trading partners and their initial or potential responses. We further outline the key factors that exporters and importers should monitor in the coming weeks.
The US Supreme Court ruling
On 28 May 2025, the US Court of International Trade (USCIT) struck down the administration's tariffs imposed under the IEEPA. This ruling invalidated both the "reciprocal tariff regime" and country-specific tariff rates. The administration appealed, but the US Court of Appeals for the Federal Circuit affirmed the decision on 29 August 2025, holding that the IEEPA does not grant the President authority to impose broad tariff measures.
The Supreme Court has now upheld the Federal Circuit's ruling. In its decision, the Court stated that the IEEPA does not authorise the President to impose tariffs. Instead, the power to impose tariffs is "very clear[ly] … a branch of the taxing power" reserved for Congress under Article I of the US Constitution. The ruling only affects those measures imposed on the basis of the IEEPA. Other measures, such as product-specific tariffs imposed on e.g. automobiles and parts or steel and aluminium, that are based on different statutes, remain in place. For a detailed overview of the Court's decision, the administration's response and its potential implications, see Perkins Coie's February 2026 update.
In response to the ruling, the US President imposed a 15% tariff on all countries under a different legal authority: Section 122 of the Trade Act of 1974. This rate is added on top of any existing measures, with few exceptions, including for critical minerals, pharmaceuticals, certain electronics and goods subject to Section 232 tariffs. However, this statute only permits such measures for 150 days, after which Congress must approve any extension.
As a result, US trading partners still face uncertainty about the long-term US tariff landscape and what this ruling means for trade deals already concluded or currently under negotiation.
Implications of trade deals with US trading partners
"Trade deals" in the light of the US reciprocal tariff framework based on the IEEPA
Since the second half of 2025, the United States has pursued a strategy of negotiating so-called “trade deals” or targeted sectoral arrangements rather than comprehensive free trade agreements. To date, such arrangements have been concluded with the UK, the EU, China, Japan, South Korea, Taiwan, Vietnam, the Philippines, Indonesia, Malaysia, Cambodia, Thailand, Bangladesh, Pakistan, Argentina and Guatemala, with negotiations ongoing with India, Ecuador and Switzerland.
Most of these agreements have been negotiated and/or concluded in the light of the far-reaching US tariff measures, particularly the reciprocal regime imposing country-specific rates based on the IEEPA. The US administration used these tariffs as starting point for negotiating the terms of such deals: US trading partners agreed to market-access concessions, investment commitments or purchasing pledges in exchange for reductions or caps on their exposure to those tariffs, rather than their full removal.
This dynamic is illustrated by the EU– US Framework on an Agreement on Reciprocal, Fair and Balanced Trade (EU–US Trade Deal), which has attracted criticism from political observers and affected EU industries for its perceived lack of balance and reciprocity.
Recap: EU–US Trade Deal
The EU– US Trade Deal was concluded on 27 July 2025, after tensions increased between the United States and the EU, following the announcement and partial implementation of reciprocal tariffs on EU imports in April 2025. While the initially announced rate of up to 20% was subsequently suspended for a limited period, the US administration made clear that the suspension was conditional and linked to progress toward a negotiated arrangement addressing perceived trade imbalances, including through market-access concessions and broader economic commitments by the EU.
The parties eventually agreed on a framework addressing both tariff concessions and non-tariff measures.
From a tariffs perspective, the United States committed to a 15% cap (comprised of the MFN tariff and a reciprocal tariff) on tariffs applicable to most imports originating in the EU. In addition, the United States agreed to apply MFN rates only (i.e., without any reciprocal tariff component) to specific categories of EU goods considered strategically sensitive or supply-constrained, including unavailable natural resources (such as cork), aircraft and aircraft parts, generic pharmaceuticals and their ingredients, and certain chemical precursors.
On the EU side, the framework provided for targeted reductions of EU tariffs to 0% for defined categories of US-origin goods. Beyond tariffs, the EU committed to significant economic undertakings, including the purchase of USD 750 billion of US energy, an additional USD 600 billion in investments into the United States, and the procurement of substantial quantities of US military equipment. At the same time, the framework largely preserved existing US trade-defence instruments: tariffs imposed under Section 232 continue to apply, with only limited and tailored arrangements for certain products such as pharmaceuticals, semiconductors and lumber, automobiles and automotive parts, where rates generally may not exceed 15%.
Against this background, the recent ruling of the Supreme Court finding that the broad reciprocal tariffs imposed under the IEEPA lack a valid legal basis introduces a new layer of uncertainty. As many of the negotiated concessions were explicitly framed as the price for relief from, or mitigation of, IEEPA-based tariff exposure, the invalidation of those tariffs raises questions as to whether the underlying equilibrium of such arrangements (including the EU– US Trade Deal) can be sustained in their current form, or whether trading partners will seek reassessment of commitments made in reliance on now-unlawful measures.
International reactions to the recent US Supreme Court ruling
International responses to the US Supreme Court’s decision have been significant and multifaceted.
In Brussels, the European Parliament immediately moved to pause ratification of the EU-US trade agreement to assess the implications of the ruling as well as the announced tariff measures and stressed the need to reassess the legal basis of commitments negotiated under now-invalidated tariff assumptions. Members of the European Parliament pointed out that with the new measures of a blanket 15% tariff rate on all countries, staking on most existing measures, a "whole range of products which are now much higher than the 15% in the old agreement". EU officials also publicly urged Washington that "a deal is a deal" calling on the United States to honour the terms agreed in last year’s trade framework despite the legal disruption. The vote on the implementation of the deal remains on hold.
The UK government indicated that it is working with the United States to assess the implications of the decision for bilateral trade relations, while emphasising that it expects “our privileged trading position with the United States to continue”.
India has deferred trade talks with the United States in response to the recent Supreme Court judgment. Indian government officials described the ruling as an important development and said they were “studying all developments” to understand how it affects trade ties, noting that the invalidation of reciprocal tariffs will effectively free a large share of Indian exports from the recently imposed 50% duties, even as uncertainty persists over future US tariff policy.
China’s commerce ministry announced it was conducting a “full assessment” of the court decision and urged the United States to lift unilateral tariff measures on trading partners. Chinese officials also signalled that China is assessing potential countermeasures to react to the newly introduced measures.
In general, we do not expect US trading partners to walk away immediately from already concluded trade deals; however, implementation may be delayed, and some jurisdictions may explore unilateral responses of their own. This is particularly likely where the United States is unable to implement agreed commitments or continues to apply unilateral measures outside the scope of those deals.
Potential countermeasures: the EU's trade bazooka (the Anti-Coercion Instrument)
While concrete retaliatory steps by US trading partners have yet to materialise, the ruling has triggered an internal reassessment of available response options across several jurisdictions.
In the EU, this has brought renewed attention to the EU’s trade-defence toolbox and, in particular, to the Anti-Coercion Instrument (ACI), which is increasingly viewed, albeit cautiously, as a potential point of reference should unilateral tariff pressure re-emerge in a different legal or political form.
The ACI was introduced in 2023, in response to increasing geopolitical tensions. The instrument aims to ensure effective protection of the interests of the EU and its Member States by providing for deterrence and desistence measures such as dialogue with the third country concerned, whilst legitimising countermeasures as a last resort.
Under the ACI, economic coercion is defined as the imposition of pressure on EU or a Member State by a third country to achieve a specific course of action through applying, or threatening to apply, measures affecting trade or investment.
Procedure
The procedure envisaged in the regulation consists of a series of steps aimed at determining whether there is economic coercion and inducing the third country concerned to comply with its international obligations, to cease the action and, where appropriate, to provide reparation for any injury caused.
The European Commission may initiate an examination on its own initiative or following a substantiated request from a Member State, the European Parliament or affected stakeholders. This examination must normally be completed within four months. Where the European Commission concludes that the conditions for economic coercion are met, it submits a proposal to the Council, which must decide by implementing act within eight to ten weeks.
Once a formal determination is adopted, the European Commission is required to engage with the third country to seek cessation of the measure and, where appropriate, reparation. Only if these efforts fail, and the EU economic operators have been consulted, the European Commission can adopt EU response measures.
Countermeasures
The European Commission has the power to deploy a wide range of countermeasures, including
- suspension of tariff concessions and imposition of duties and new charges on goods;
- import or export restrictions;
- restrictions on trade in goods, including measures on transit in goods or other internal measures applying to goods;
- suspension of rights to participate in tender procedures, including exclusions or introduction of a mandatory price evaluation weighing penalty;
- restrictions on the export of goods falling under the EU export control framework;
- measures affecting trade in services; restrictions on foreign direct investment; constraints on intellectual property rights;
- restrictions on financial services, including access of banking and insurance firms to EU capital markets;
- imposition of restrictions on registrations and authorisations under the EU chemicals legislation and the EU sanitary and phytosanitary legislation; and
- exclusion or limited access to EU-funded research programmes.
However, the European Commission may also decide to adopt non-listed measures, provided it is proportionate and temporary.
The adoption, amendment, suspension, or termination of countermeasures is rendered effective through an implementing act adopted by the European Commission, subject to the examination procedure under the EU comitology procedure.
What this means for businesses
While the ACI remains a measure of last resort, its existence strengthens the EU’s leverage in responding to renewed unilateral trade measures. To date, the EU has preferred dialogue and traditional trade-retaliation tools.
However, recent geopolitical developments illustrate the growing practical relevance of that instrument as part of the EU’s broader economic security toolbox. The instrument has already been publicly discussed as a potential response to economic pressure from major trading partners. For example, it was raised in the context of comments by the US President linking the potential imposition of tariffs or other economic pressure to political demands concerning Greenland and more recently in the context of comments regarding a potential economic embargo on Spain in response to political disagreements on the conflict with Iran. These comments further highlight the type of coercive economic pressure scenarios that the ACI was designed to address. While the European Commission has emphasised that the instrument is intended as a measure of last resort, these developments demonstrate the increasing practical relevance of the ACI as a potential framework for responding to politically motivated economic pressure against EU Member States.
In practice, the European Commission is expected to apply the ACI selectively and proportionately and targeting measures narrowly where possible. For businesses, this means that exposure will be highly fact-specific.
- EU-based businesses affected by foreign tariff pressure may see the ACI as a channel to flag coercive practices to the European Commission and influence the design of any response measures, albeit with residual risks of escalation and retaliation.
- EU operations of companies linked to third-country governments should be alert to the possibility of becoming direct targets of EU response measures if their activities are viewed as instruments of economic coercion.
- Businesses with complex supply chains should prepare for indirect impacts, as even targeted ACI measures (such as tariffs, procurement exclusions or transit restrictions) may have broader knock-on effects across industries.
Overall, while immediate EU countermeasures are not expected, the post-ruling environment points to a more assertive and legally structured EU response capacity, reinforcing the need for ongoing monitoring of trade policy risk alongside traditional customs and sanctions compliance.
How to prepare
Trade volatility is the new baseline
Recent developments, including the US Supreme Court’s decision striking down the IEEPA tariffs and the resulting uncertainty around the legal basis and durability of US trade measures, have reinforced volatility as a structural feature of global trade. For businesses, this translates into persistent supply-chain disruption, pricing pressure, and investment risk. Even where individual measures are successfully challenged, the broader trajectory points away from comprehensive trade liberalisation and toward continued fragmentation.
Get the customs basics right: origin, classification, valuation
In this rapidly evolving environment, control of customs fundamentals is a key mitigation tool. Rules of origin, tariff classification and customs valuation directly shape tariff exposure, particularly under US law. The US “substantial transformation” test remains highly fact-specific and precedent-driven, requiring careful legal and operational assessment.
As duty rates rise and measures shift, valuation strategies have also become more important. Companies should reassess customs value methodologies, including the treatment of non-dutiable costs and the potential use of US-specific mechanisms such as the “first sale for export” rule in multi-tiered transactions.
Assessing whether any preferential treatment under existing free trade agreements applies remains relevant, even where additional tariffs are layered on top. A lower base rate can still meaningfully reduce overall exposure given the cumulative nature of duties.
Revisit contracts to allocate tariff risk
Tariff volatility has direct contractual consequences. Existing commercial agreements should be reviewed for provisions on tariff allocation, price adjustments, force majeure, and hardship. Increasingly, parties are building in explicit mechanisms to address sudden cost increases, suspension rights, or renegotiation triggers linked to trade measures. Clear and enforceable risk-allocation clauses are becoming essential for new contracts.
A more uncertain trade landscape is here to stay
The combination of higher tariffs, legal uncertainty around their validity, and an unstable patchwork of bilateral and sectoral arrangements marks a lasting shift in the global trade environment. Businesses will need to invest in customs expertise, actively manage tariff exposure, and build contractual and supply-chain resilience to remain competitive.
Our international and EU trade and regulatory practice at Ashurst supports clients across the full spectrum of trade law and policy issues, helping them navigate evolving tariff regimes and wider trade-policy uncertainty with clarity and confidence.
