The decision by the US Court of International Trade, which invalidates the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose broad tariffs, strikes down all of the country-specific tariff hikes implemented in 2025, which relied on IEEPA authority. This includes the 30% tariff increase on China and the 10% baseline increase imposed on all other countries.
Altogether, the average US tariff rate falls from about 18% to about 7% after the court’s decision. That’s still up significantly from the 2024 level of 2.4%, but is a much milder shock to the economy than the previous levels. All product-specific tariff hikes remain in place following the court’s decision; the largest ones are the 25% tariff hikes on autos, steel, and aluminum. The product-specific hikes cite Section 232 statutory authority rather than IEEPA, and Section 232 authority was unchallenged in the court’s decision.
More Product Tariffs Expected
However, we’re not out of the woods yet. The Trump administration could continue to rollout large tariff hikes on specific products. Indeed, Section 232 investigations on semiconductors and pharmaceuticals are in the works. Furthermore, Trump could switch to using Section 301 authority to impose broad-based tariffs on whole countries. Indeed, the large tariff hikes imposed on China in the first administration relied on Section 301 authority.
Use of these other forms of authority entails more procedure and paperwork, so it may be several months before we get large new tariff hikes under Section 232 or Section 301. However, Trump could use Section 122 authority to impose tariffs of up to 15% for up to 150 days (or a longer duration with Congressional authorization, although that seems extremely unlikely). This could fill the gap and keep tariffs elevated until Section 232 or Section 301 tariffs come in place.
On the other hand, it now looks more likely that further court decisions could also obstruct tariff hikes using these other forms of authority.
Our best guess is that Trump manages to push through some limited broad-based tariff hikes (10%-20%) on China using Section 301 authority along with a slew of product-specific tariff hikes via Section 232. That could take the average US tariff rate back into the 10%-15% range, perhaps by the end of 2025.
US Recession Risk Depends on Tariff Rates
Of course, there’s also the risk that appeals court or the Supreme Court strikes down the Court of International Trade’s ruling, putting all the tariffs back into play. Unless there’s an emergency stay of the lower court’s ruling, this process could take a year or more before tariffs would be reinstated. So, we expect the Trump administration’s main efforts to shift to the more limited strategy of Section 301/Section 232 tariffs.
If average tariff rates rebound up to 10%-15%, that’s still enough to cause appreciable harm to the US economy, for all the reasons we discussed after the tariff shock of early April. In our previous forecasts, we had already expected average tariff rates to fall to 18% by year-end 2025 and 15% by year-end 2026. So, we may not be talking about much long-run tariff relief relative to our prior forecast.
If average tariff rates were to stick at the reduced 7%, then we’d see a much milder negative hit to US real GDP and less upward impulse to inflation. The jump in recession risk would mostly dissipate. With US stock prices rebounding back nearly to their all-time highs in February 2025, markets seem to be pricing in a rosy scenario along these lines.
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