After nearly a year of uncertainty surrounding trade policy, the Supreme Court’s determination that recent tariffs are unconstitutional has fundamentally shifted the policy environment. Yet, as is frequently the case in Washington, the closing of one chapter signals the opening of another. President Trump has already indicated a pivot to an alternative legal basis for tariffs, and markets continue to assess what this development means for trade policy, corporate earnings, consumer spending, and investment portfolios.
For investors, the most significant lesson is not the legal decision itself, but rather what the events of the past year reveal about the value of remaining invested. While markets can experience volatility during periods of policy uncertainty, they are also capable of stabilizing and recovering in ways that investors may not anticipate. Tariffs will likely remain a fixture in the headlines, and developing a solid understanding of what has transpired over the past year can help long-term investors keep perspective as the story continues to evolve.
A year of tariff-driven market volatility
To appreciate the investment implications, it is helpful to understand what this ruling actually means. Presidents have access to several legal instruments for imposing tariffs, each carrying distinct rules regarding rates, duration, and scope.
The reciprocal tariffs unveiled on “Liberation Day” last April were enacted under the International Emergency Economic Powers Act, commonly known as IEEPA. This 1977 legislation grants the president expansive authority to regulate commerce in response to a declared national emergency. In this instance, the stated emergency centered on the country’s persistent trade deficits with numerous nations, illegal drug trafficking, and immigration concerns.
Below is a summary of the key events:
- On April 2, 2025, the initial announcement established a baseline 10% tariff on virtually all trading partners, with higher country-specific rates applied on top. Markets reacted sharply, resulting in a correction across major indices. Of particular concern to investors was the prospect of “stagflation,” as tariffs could simultaneously push inflation higher while suppressing economic growth — a scenario that has historically weighed on both stocks and bonds.
- On April 9, 2025, the administration announced a 90-day pause on the country-specific rate increases, retaining only the baseline tariff. Markets began to rebound almost immediately and went on to reach new all-time highs within just a few months. Trade agreements were subsequently reached with individual countries and regions.
- On February 20, 2026, the Supreme Court ruled that the administration lacked the authority to impose sweeping global tariffs under IEEPA, reaffirming Congress’s central role in shaping trade policy.
Tariffs are likely here to stay
The administration had been aware of the potential for this ruling, and alternative legal pathways for implementing tariffs had been widely explored. In the wake of the Supreme Court’s decision, the administration moved swiftly to impose tariffs under a different statute — Section 122 of the Trade Act of 1974. This law was favored over other options because it can be applied to multiple countries simultaneously and does not require lengthy investigations or reports that could take months to complete.
In particular, Section 122 authorizes the president to impose tariffs of up to 15% for a period of 150 days without requiring Congressional approval. The intent of the law was to give presidents a mechanism for addressing trade imbalances and threats without fully bypassing Congress. Historically, during the era when the dollar was tied to the gold standard, this provision was used to help protect the dollar during periods of strain.
This means that while some of the higher tariff rates introduced in 2025 may be rolled back, and newly implemented tariffs may not remain in place beyond several months, tariffs are likely to continue serving as an active policy tool. Businesses and investors should anticipate continued uncertainty around tariff levels and ongoing negotiations with individual trading partners.
Additional uncertainty remains on other fronts, including whether and how refunds will be administered. Courts must still determine whether businesses that paid tariffs under the IEEPA framework are entitled to reimbursement, and whether individual Americans would be eligible for any refunds. In a worst-case scenario, clarity on this matter could take years to emerge. Nevertheless, the possibility of refunds represents a potential positive for corporate earnings, capital investment, and disposable consumer income.
Economic outcomes rarely follow the textbook
Economics is sometimes referred to as the “dismal science” in part because of its limited track record in forecasting responses to major policy shocks. When tariffs climbed to their highest levels since the Great Depression, many anticipated demand destruction, rising inflation, a strengthening dollar, and struggling equity markets.
Why did these fears not fully come to pass? First, tariff levels shifted quickly and repeatedly. The 90-day pause announced just one week after Liberation Day dramatically reduced the effective tariff burden on most trading partners. The highest announced rates never truly took effect except with a small number of trading partners.
Second, companies responded by stockpiling imported goods well in advance of the April deadlines. This behavior was clearly reflected in trade data, which showed a notable spike in imports during the first quarter of 2025 as businesses front-loaded their purchases. As a result, the immediate inflationary impact was cushioned, at least in the near term.
Third, and perhaps most consequentially for markets, the underlying fundamentals of the economy remained solid. Inflation continued to moderate, with the Consumer Price Index rising just 2.4% year-over-year in January 2026. Real GDP expanded at a modest but healthy 2.2% pace for all of 2025, according to the latest data from the Bureau of Economic Analysis. Corporate earnings also remained strong, supporting valuations and long-run growth expectations.
This is not to suggest that tariffs had no impact. The federal government collected hundreds of billions of dollars in tariff revenue, costs that were absorbed by both businesses and consumers. But the experience of the past year serves as a reminder that economic outcomes are rarely as clear-cut as the headlines imply — which is precisely why investors should be cautious about reacting to worst-case scenarios.
The most important lesson from this period of tariff-driven volatility is one that holds true across virtually every episode of market and policy uncertainty: by far the most effective course of action for investors was to stay invested. Attempting to predict the precise impact of tariffs on the economy and markets is not only difficult but often counterproductive. As the accompanying chart illustrates, years marked by significant intra-year pullbacks have very often still concluded with positive returns.
The bottom line? It’s important to separate political views from portfolios and financial plans. Trade policy, legal battles, and political debates are important for taxpayers and voters, but they often lead to the wrong investment decisions. The history of markets shows that economic fundamentals, corporate earnings, and investment principles matter far more to achieving financial goals.
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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.