After SCOTUS strikes down Trump tariffs, The Yale Budget Lab sees uncertain 2026

After the decision by the Supreme Court of the United States (SCOTUS) that President Trump exceeded his authority to invoke the 1977 International Emergency Economic Powers Act (IEEPA) to impose reciprocal tariffs, the Yale University based The Budget Lab (TBL) said the US economy faces an uncertain 2026.

TBL, which analyzes federal policy impacts on the US economy, summarized its findings as follows: “The economic implications of the SCOTUS decision are complicated by two major factors. First, in the short-term, firms will be aggressively seeking refunds on tariffs paid in 2025, which has large revenue effects and uncertain distributional effects. Second, the current Administration has stated its intent to replace IEEPA tariffs with tariffs using other authorities, but there remain timing and other questions regarding these steps.”

Refund Chaos?

Meanwhile, at a Port of Los Angeles media briefing earlier this week, Economist Chad Bown, a leading authority on tariffs, US - China trade and a Senior Fellow at the Peterson Institute of Economics predicted that if the Supreme Court ruled that the tariffs were imposed illegally by the Trump administration, then billions of dollars will have to be refunded that will result in what he described as a chaotic process of repayments. Bown emphasized that this refunding must occur even if the Trump administration finds other alternative justifications for reimposing the tariffs.

Bown added that the Supreme Court might also anticipate the administration’s move to alternatives by signaling whether those alternatives are legally justified.

TBL estimates that “the temporary positive fiscal impulse from IEEPA refunds will approximately offset the negative growth impacts of the remaining tariffs for 2026. In the longer run, the US economy will be persistently 0.1% smaller, the equivalent of about $30 billion annually in 2025$. (If IEEPA tariffs had not been invalidated, the long-run hit to output would have been 0.3%.)”

The Budget Lab Plots Impacts

The Budget Lab also projected the following:

• Consumers stand to benefit from the SCOTUS decision: Without IEEPA tariffs, “consumers will face an overall average effective tariff rate of 9.1%, which remains the highest since 1946, excluding 2025. (If IEEPA tariffs had been allowed to stay in effect, this figure would have been 16.9%.)”
• Inflation impact: The price level will still “rise by 0.6% in the short run, representing a loss of about $800 for the average US household and $400 for households at the bottom of the income distribution. (With IEEPA, the price level impact would instead be 1.2%.)”
• Commodity Prices: After the SCOTUS case, “the remaining set of tariff policies in effect at the start of February 2026 fall most heavily on metals, vehicles, and electronics. (If IEEPA tariffs had not been invalidated, the burden would have also fallen more heavily on apparel and food products.)”
• Unemployment will rise in 2026: “The unemployment rate is estimated to be about 0.3 percentage points higher by the end of 2026 due to remaining tariffs. (If IEEPA tariffs had not been invalidated, the 2026 hit to employment would be about twice as large.)”
• Construction and agriculture will decline: “In the long run, tariffs present a trade-off. US manufacturing output expands by 1.2% but these gains are more than crowded out by other sectors: construction output contracts by 2.4% and agriculture declines by more than 1%. (These relative patterns are similar with or without IEEPA tariffs.)”