After nearly a year of uncertainty surrounding trade policy, the Supreme Court’s decision that recent tariffs are unconstitutional has fundamentally altered the policy environment. Yet, as is frequently the case in Washington, the closing of one door 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 shift means for trade policy, corporate earnings, consumer spending, and investment portfolios.
For investors, the most significant takeaway is not the legal decision itself, but rather what the events of the past year reveal about the value of staying invested. While markets may experience volatility during periods of policy uncertainty, they are also capable of stabilizing and recovering when investors least anticipate it. Tariffs will likely remain a prominent topic in the news cycle, and developing a clear understanding of the past year’s developments can help long-term investors maintain perspective as the next chapter begins.
A year marked by tariff-driven volatility
To fully grasp the implications for investors, it is helpful to understand what this ruling actually means. Presidents have access to several legal mechanisms for imposing tariffs, each carrying distinct rules regarding rates, duration, and scope.
The reciprocal tariffs unveiled on “Liberation Day” last April were justified under the International Emergency Economic Powers Act, commonly referred to as IEEPA. This 1977 law grants the president expansive authority to regulate commerce in response to a declared national emergency. In this instance, the stated emergency encompassed the country’s persistent trade deficits with numerous nations, illegal drug trafficking, and immigration concerns.
Here 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. The immediate market reaction was sharp, triggering a correction across major indices. Perhaps more notably, investors feared that tariffs would contribute to “stagflation,” since tariffs had the potential to push inflation higher while weighing on economic growth. This scenario has historically been damaging to both stocks and bonds.
• Then, on April 9, 2025, the administration announced a 90-day pause on the country-specific rate increases, leaving only the baseline tariff in place. Markets began rebounding almost immediately, eventually rising to 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. The decision reaffirmed Congress’s central role in shaping trade policy.
Tariffs are unlikely to disappear
The administration had anticipated the possibility of this ruling, and considerable attention had been given to how tariffs might be implemented through alternative legal channels. In the wake of the Supreme Court decision, the administration swiftly moved to impose tariffs under a different statute, Section 122 of the Trade Act of 1974. This law was selected 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.
Specifically, Section 122 allows the president to impose tariffs of up to 15% for a period of 150 days, without requiring Congressional approval. The intent of this law was to enable presidents to respond to trade imbalances and threats without entirely bypassing Congress. Historically, during the era when the dollar was still backed by the gold standard, there were periods when this authority was needed to protect the dollar’s value.
This means that while some of the higher tariff rates introduced in 2025 may be rolled back and the new tariffs may not persist beyond several months, tariffs are likely to remain an active component of trade policy. Businesses and investors should anticipate continued uncertainty around tariff levels and ongoing negotiations with individual countries.
Additional areas of uncertainty remain, including whether and how refunds will be issued. Courts must still determine whether businesses that paid tariffs under the IEEPA framework are entitled to reimbursements, and whether individual Americans would be included in any such repayments. In the most challenging scenario, clarity could be years away. Nevertheless, for businesses and consumers alike, the prospect of refunds represents a potential uplift for corporate earnings, capital investment, and disposable income.
Economic reality does not always follow textbook predictions
Economics is sometimes called the “dismal science” given its limited track record in predicting responses to major policy shocks. When tariffs were raised to their highest levels since the Great Depression, many anticipated demand destruction, rising inflation, a strengthening dollar, and struggling markets.
Why did this not fully come to pass? First, tariff levels changed quickly and repeatedly. The 90-day pause announced just one week after Liberation Day dramatically reduced the effective tariff burden on most trading partners, and the highest announced rates never truly went into effect except with a handful of trading partners.
Second, companies responded by stockpiling imported goods well ahead of the April deadlines. This was clearly reflected in trade data, which showed a significant spike in imports during the first quarter of 2025 as businesses front-loaded purchases. As a result, the immediate inflationary impact was cushioned, at least temporarily.
Third, and perhaps most consequential 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 grew at a modest but healthy 2.2% pace for all of 2025, according to the latest report from the Bureau of Economic Analysis. Corporate earnings also remained strong, supporting valuations and long-run growth prospects.
This is not to suggest that tariffs had no effect. The federal government collected hundreds of billions of dollars in tariffs, costs that were shared by both consumers and businesses. However, the experience of the past year serves as a reminder that economic outcomes are rarely as straightforward as the headlines imply—and this is precisely why it is important for investors to avoid reacting to worst-case scenarios.
The clearest lesson from the past year of tariff-driven market volatility is one that applies to virtually every period of market and policy uncertainty: by far the best course of action investors could have taken was to remain invested. Attempting to predict the precise effect of tariffs on the economy and markets is not only difficult, but counterproductive. As the accompanying chart illustrates, years featuring 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.