The Supreme Court struck down Trump’s tariffs. Now what?

Does the Supreme Court ruling meaningfully reduce trade tensions, or could new measures emerge through other channels?

Market recap

• Equity markets rose this week alongside a raft of economic data and a long-awaited Supreme Court ruling on the use of IEEPA tariffs.
• The S&P 500 rose 1.1%, led by communication services, banks and industrials, while consumer staples and utilities lagged.
• The mild underperformance of the latter two sectors comes after weeks of heavy rotation into those areas.

Tariffs

Last Friday, the U.S. Supreme Court struck down the sweeping global tariffs imposed by President Trump in 2025, ruling 6–3 that the use of emergency powers in this case exceeded presidential authority.¹ The outcome itself was not surprising in our view, although the timing took longer than many expected. The ruling removes several measures, including all country-specific tariffs, fentanyl-related tariffs affecting Canada, Mexico and China, as well as geopolitical tariffs targeting India and Brazil. As a result, the effective global tariff rate has declined to roughly 7%, down from approximately 16% prior to the decision. For Canada, the effective rate drops to about 3.1% from 3.7%. (These figures are prior to any new measures introduced by the Trump administration.) Markets reacted largely as anticipated: equities moved modestly higher, bond yields rose, and the U.S. dollar weakened slightly. While the development is broadly positive for markets, we believe it is premature to draw firm conclusions until there is greater clarity on how the Trump administration chooses to respond and what replacement measures ultimately take shape. In fact, we expect the administration to pursue alternative mechanisms, including tariffs implemented under Sections 122 of the Trade Act of 1974 or 232 of the Trade Expansion Act of 1962, which could allow a significant portion of existing measures to remain in place. In practical terms, we believe roughly 75–85% of tariffs could still be implemented through other avenues. And with Trump announcing a 15% global tariff on Saturday (up from the 10% tariff announced immediately after the ruling),² it signals that the next phase is already in motion.

Bottom line: The Supreme Court ruling reduces tariff pressure in the near term, but policy uncertainty remains high as the Trump administration explores alternative paths to maintain trade restrictions.

Macroeconomics

When we look at our economic surprise indicators, both in the United States and globally, they continue to trend higher after a brief soft patch, reinforcing our expectation of a reacceleration in growth. From a macroeconomic perspective, we remain constructive on where the economy is headed, which should continue to provide support for equities. The more relevant question now is not whether growth persists, but which parts of the market benefit most from it. Investors appear to be shifting away from some traditional high-growth companies toward businesses that are more mature, generate consistent cash flow, and offer steadier, more predictable revenue streams. In an environment where uncertainty remains elevated, that type of visibility has become increasingly attractive. Underlying economic fundamentals also remain supportive. Consumer spending continues, capital expenditures are holding up, and importantly, we are not seeing a meaningful rise in job losses. That distinction matters for confidence. As long as employment remains stable, spending tends to follow. The K-shaped nature of the economy also persists, with higher-income households continuing to spend more actively while lower-income consumers face greater pressure. Even so, this dynamic does not point to a sharply deteriorating economy or a significant market pullback. From a growth standpoint, the range matters. GDP growth below 1% would begin to raise concerns about economic momentum, while growth above roughly 3% to 3.5% could signal an economy running too hot. For now, conditions appear to sit within a more balanced range, one that supports continued expansion without reigniting inflation pressures. That environment should allow the U.S. Federal Reserve (Fed) flexibility to continue easing policy while consumers remain confident enough to keep spending.

Bottom line: Growth remains in a constructive middle ground, strong enough to support markets and spending, but not so strong as to reignite inflation or disrupt the Fed’s easing path.

Canada

Globally, trade relationships continue to evolve, with new agreements emerging across regions, including deals involving the United States, Europe, India and China. This reflects a broader shift as countries seek to diversify partnerships and reduce reliance on any single trading relationship. Canada is part of this trend, and recent comments from Prime Minister Mark Carney suggest policymakers are increasingly focused on expanding economic ties beyond traditional channels, especially now as trade policy remains uncertain despite the recent Supreme Court ruling. In line with this diversification strategy, closer engagement with Europe and Asia‑Pacific partners could serve as an important hedge if upcoming United States-Mexico-Canada Agreement (USMCA) negotiations become challenging. Still, maintaining a constructive relationship with the United States remains critical, particularly as negotiations approach. Recent U.S. support in holding back certain tariffs suggests that cooperation persists within parts of the political landscape, even if tensions remain at the leadership level.

Bottom line: As global alliances evolve, Canada’s growth outlook will depend on balancing its U.S. relationship with expanding international partnerships.

Oil

Oil prices have recently spiked amid fears of a potential conflict between the United States and Iran. From an allocation standpoint, this does not alter how we are positioned for the rest of the year. In fact, we view these developments as temporary geopolitical shocks that markets typically absorb before reverting to underlying supply-and-demand fundamentals. More broadly, oil had been coming off a relatively low base, which left room for a near-term rebound. But with Brent crude now pushing above $70 per barrel,³ we do not see significant upside unless the demand picture changes meaningfully. That catalyst could come from China, the primary wildcard, if economic activity strengthens. Absent that, supply cuts alone are unlikely to drive a sustained move higher, leaving oil prices range bound and largely influenced by the Organization of the Petroleum Exporting Countries (OPEC).

Bottom line: Recent geopolitical tensions may drive short-term volatility, but without stronger demand, oil prices are likely to remain range bound and driven by fundamentals.

Positioning

For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Strapping in—not tapping out: Markets grind higher despite volatility .

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Originally Posted February 23, 2026 – The Supreme Court struck down Trump’s tariffs. Now what?