Why a Tariff Ruling Could Mean Consumer Relief

19 snips

Feb 13, 2026

A Supreme Court ruling could change how tariffs on everyday goods are applied. The legal role of IEEPA and how it drives higher consumer-goods tariff rates is explained. Which product categories are most exposed, and what other trade tools would stay in place, are discussed. Possible impacts on retailer margins and the timeline for prices to adjust are highlighted.

Ask episode

AI Snips

Chapters

Transcript

Episode notes

INSIGHT

IEEPA Ruling Could Cut Consumer Tariffs

The Supreme Court is weighing limits on the International Emergency Economic Powers Act (IEEPA) that underpin many consumer tariffs.
Curtailing IEEPA could quickly reduce effective consumer-goods tariff rates from ~15% toward the mid-11% range.

INSIGHT

Tariff Cuts Would Be Category Concentrated

IEEPA exposure is concentrated in categories like apparel, furniture, and toys where applied IEEPA-related tariffs are very large.
If IEEPA authority is curtailed, category-level tariff reductions would be especially meaningful for those sectors.

ADVICE

Watch For Alternative Tariff Authorities

Expect policymakers to consider alternative tariff authorities like Section 122 that can reimpose across-the-board duties temporarily.
Monitor near-term policy moves because tariffs could reappear under different legal tools even if IEEPA is limited.

Get the Snipd Podcast app to discover more snips from this episode

Get the app

Arunima Sinha, from the U.S. and Global Economics team, discusses how an upcoming Supreme Court decision could reshape consumer prices, retail margins and the inflation outlook in 2026.

Read more insights from Morgan Stanley.

----- Transcript -----

Arunima Sinha: Welcome to Thoughts on the Market. I'm Arunima Sinha from Morgan Stanley's U.S. and Global Economics Teams.

Today: How a single Supreme Court ruling could change the tariff math for U.S. consumers.

It's Friday, February 13th at 10am in New York.

The U.S. Supreme Court is deciding whether the U.S. president has legal authority to impose sweeping tariffs under IEEPA. That decision could come as soon as next Friday. IEEPA, or the International Emergency Economic Powers Act, is the legal backbone for a significant share of today's consumer goods tariffs. If the Supreme Court limits how it can be used, tariffs on many everyday items could fall quickly – affecting prices on the shelf, margins for retailers, and the broader inflation outlook.

As of now, effective tariff rates on consumer goods are running about 15 percent, and that's based on late 2025 November data. And that's quite a bit higher than the roughly 10 percent average, which we're seeing as tariffs on all goods. In a post IEEPA scenario, we think that the effective tariff rate on consumer goods could fall to the mid-11 percent range.

It's not zero, but it is meaningfully lower.

An important caveat is that this is not going to be eliminating all tariffs. Other trade tools – like Section 232s, which are the national security tariffs, Section 301s, the tariffs that are related to unfair trade practices – would remain in place. Autos and metals, for example, are largely outside the IEEPA discussion.

The main pressure point we think is consumer goods. IEEPA has been used for two major sets of tariffs. The fentanyl-related tariffs on Mexico, Canada, and China, and the so-called reciprocal tariffs applied broadly across trading partners. And these often stack on top of the existing tariffs, such as the MFN, the Most Favored Nation rates, and the section 301 duties on China that were already existing before 2025.

The exposure is really concentrated in certain categories of consumer goods. So, for example, in apparel and footwear, about 60 percent of the applied tariffs are IEEPA related. For furniture and home improvement, it's over 70 percent. For toys, games, and sporting equipment, it's more than 90 percent. So, if the IEEPA authority is curtailed, the category level effects would be meaningful.

There are caveats, of course. The court's decision may not be all or nothing. And policymakers could turn to alternative authorities. One example is Section 122, which allows across the board tariffs for up to 15 percent for 150 days. So, tariffs could just reappear under different tools. But in the near term, fully replacing IEEPA-based tariffs on consumer goods may not be straightforward, especially given ongoing affordability concerns.

So, how does that matter for the real economy? There are two key channels, prices and margins. On prices we estimate that about 60 percent of the tariff costs are typically passed on to the consumers over two to three quarters, but it’s not instant. Margins though could respond faster. If companies get cost relief before they adjust prices downwards, that creates a temporary margin tailwind. That could influence hiring, investment and earnings across retail and consumer supply chains.

Over time, lower tariffs could also reinforce that broader return to core goods disinflation starting in the second quarter of this year. And because tariff driven inflation has weighed more heavily on the middle- and lower-income households, any eventual price relief could disproportionately benefit those groups.

At the end of the day, this isn't just a legal story. It is a timing story. If IEEPA authority is curtailed, the arithmetic shifts pretty quickly. Margins move first, prices follow later, and the path back to goods disinflation could accelerate. That's why this is one ruling worth watching before the gavel drops.

Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share thoughts on the market with a friend or colleague today.