The US Supreme Court on February 20, 2026, ordered that the International Emergency Economic Powers Act (IEEPA) does not authorize President Trump to impose tariffs. This judgement will have massive implications and has sent shock waves not only in the US domestically, but also globally.

The immediate impact was the suspense and disbelief around the new deals that nations and blocs had renegotiated after high tariffs were originally imposed on them. President Trump imposed a 10% global tariff, which he subsequently changed to 15% the next day, further heightening the uncertainties and muddying an already chaotic global trade scene.

Domestically, the US has opened containers of chaos with many businesses filing lawsuits to recover the now ‘illegal’ tariffs they paid. It is estimated that $150 - $175 billion of tariffs have already been paid. Spreading more confusion, the Court did not offer guidance on how the refund process would work.

Many large companies like Costco, FedEx etc., as well as trade associations like National Retail Federation are seeking fast, automatic refunds through the courts. The administration’s response is awaited. Many more lawsuits are likely to follow and could overwhelm the legal and bureaucratic system. It is expected that the US will most likely see long drawn legal battles, negotiated settlements than outright settlements. This could lead to further policy paralysis.

There are obvious risks to the economy. The Federal Reserve Bank of St. Louis in its study has pointed out that these tariffs were adding 40 to 50 basis points to annualized personal consumption expenditure (PCE) inflation in mid-2025. There is further risk of Trump losing his political support base, given the higher prices, legal gridlock and uncertainty.

The ruling has certainly been a public setback for the President and could lead to further political polarization than before. Trump has criticized the judgement and the judges publicly, signaling that he is no mood to back down.

The impact of the ruling has even bigger ramifications on the global scene. The utter shock from 10% to 15% in 24 hours after invoking “policy stability’ will deeply damage not only President Trump’s image globally, but also dent US’s standing as a rule-of-law-nation.

For global governments that had negotiated trade frameworks with Washington, this is a severe system shock, albeit anticipated in many quarters. It will disproportionately enervate the US as a leader of a unipolar world and lead to isolation.

The European Union (EU) has recently renegotiated a trade deal with the US. It is now freezing that deal, seeking more clarity from the Trump administration. The EU Parliament which was set to ratify it is now claiming that the new tariffs violate the agreed deal.

Obviously, this will erode mutual trust and deepen the existing chasm across the Atlantic. It will be interesting to observe how the Trump administration reaches out to contain the fallout. Do not be surprised if Washington extends an olive branch to Brussels.

India’s position is more nuanced, and it has also frozen trade talks awaiting more clarity. There will be many more rounds of discussions before a new deal will be agreed upon. But India certainly has an upper hand at the negotiating table.

The Supreme Court ruling has come as a fillip to India at a time when it has successfully negotiated FTAs with other countries and blocs, giving it tremendous advantage at the negotiating table. This will force US to offer more concessions just to retain a ‘strategic partner’.

But the more serious fallout is the erosion of US credibility. As I have argued elsewhere, the tariffs have forced US to vacate strategic and global leadership space to the world’s influential nations. It has spawned a new regrouping to build mutually beneficial trade deals excluding the US. This is the single most unwelcome development for the US in decades.

As Canadian Prime minister Mark Carney prophetically argued, the Supreme Court ruling is another step towards the collapse of the world trade order we knew. As he heads to India to sign a new deal, it will be one more feather in the cap of nations trying to bury the unipolar authority of the US.

Much of this has been the result of the uncertainty, lack of a transparent logic and ad hoc nature in imposing tariffs. I have consistently maintained that while the US has every right to bring back manufacturing, the way it was executed by punitive tariffs to friend and foes alike has left much to be desired. It has permanently estranged its relations with the world and may take years if not decades of punishing diplomacy to bring back trust. That will take a complete revamp of the US’s worldview, not just perfunctory modifications in tariffs.