Whalesbook
IEEPA Tariffs Invalidated, New Surcharge Implemented
The US Supreme Court's February 20, 2026, decision in Learning Resources Inc. v. Trump has invalidated a key tool for imposing tariffs, ruling that the International Emergency Economic Powers Act (IEEPA) does not grant the President authority to levy such duties. All IEEPA-based tariffs implemented since January 2025 have been deemed invalid, with collection ceasing on February 24, 2026. This ruling potentially opens pathways for billions of dollars in refunds for companies that paid these tariffs, though obtaining them will likely require action through the Court of International Trade.
In response, the administration has turned to other legal tools. Section 122 of the Trade Act of 1974 has been invoked, introducing a temporary import surcharge. Initially set at 10%, it was raised to 15% effective February 24, 2026, for a 150-day period. This measure is intended to address balance-of-payments issues while the administration reassesses its strategy. Established authorities such as Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974 remain available.
Existing Trade Tools Remain, New Investigations Launched
Section 232 is considered a durable tool due to its established investigative processes and judicial deference on national security findings. The U.S. Trade Representative (USTR) has already initiated new investigations under Section 301. These investigations target structural excess capacity in manufacturing sectors across 16 economies, including India, signaling a proactive approach to trade enforcement. The shift in legal basis for certain tariffs does not alter the underlying policy direction of enforcing trade measures.
CFIUS Review Intensifies for Foreign Investment
Beyond tariffs, the Committee on Foreign Investment in the United States (CFIUS) remains a critical gatekeeper for foreign investment, aligning economic security with national security. CFIUS reviews are country-sensitive and jurisdictionally broad, applying to any non-US investor whose transaction involves governance rights and sensitive US businesses, particularly in sectors like semiconductors, artificial intelligence, and critical infrastructure. The "America First Investment Policy" framework prioritizes protecting US companies in critical sectors and ensuring supply chain resilience.
While the US generally maintains an open investment environment, with investors from allied countries like India routinely clearing reviews, national security considerations are now deeply embedded in dealmaking. Although the number of CFIUS filings saw a slight decrease in 2024, with 325 transactions reviewed compared to 2023, the rate of clearance reached a record high. Enforcement activity has intensified, with a significant increase in penalties for violations of mitigation agreements. Foreign buyers are advised to seek expert counsel to navigate these risks and structure transactions appropriately.
Evolving Trade Landscape: Security Meets Commerce
The Supreme Court's decision and the administration's swift response signify a significant shift in US trade policy. The US is increasingly integrating trade policy with industrial policy, supply chain resilience, and geopolitical competition. This approach, often termed 'security-conditioned trade,' suggests the US is actively reshaping its global commerce participation rather than withdrawing.
Navigating Policy Shifts and Market Impact
The reliance on existing, but complex, legal frameworks like Section 232 and Section 301, alongside the temporary Section 122 surcharge, creates an environment of ongoing uncertainty. These authorities often require formal investigations and can face complex legal challenges, potentially leading to prolonged periods of ambiguity for affected industries. Historically, trade friction has directly impacted stock market valuations, with significant downturns observed during trade disputes. For instance, the US-China trade war saw major market drops, and broad tariff announcements in April 2025 led to substantial stock market declines and trillions in lost value.
While replacing IEEPA tariffs with Section 122 surcharges might alter cost impacts across industries, with some sectors like apparel seeing less dramatic changes, others like automobiles and primary metals may experience different effects. The administration's proactive use of Section 301 investigations highlights the continued strategic use of trade tools. The lack of clear guidance on tariff refunds and potential for evolving interpretations of trade statutes mean businesses must remain vigilant.
International Business Adjusts to New Realities
The US trade policy environment has moved from broad, executive-driven tariff imposition under IEEPA to a more fragmented approach utilizing existing statutory authorities and enhanced investment screening. The initiation of Section 301 investigations into excess manufacturing capacity across numerous economies indicates an ongoing effort to address perceived unfair trade practices and support domestic industries. While Section 122 tariffs are temporary, the durability of Sections 232 and 301 suggests trade barriers will remain a feature of US economic policy.
For international businesses, particularly those from countries like India, adapting to these evolving regulatory frameworks is crucial. This includes rigorous CFIUS compliance to ensure continued access to the US market. Businesses are advised to focus on agility and proactive risk management to navigate these complex policy shifts.