Reconstructing the tariff schedule after the February ruling

On 20 February the Supreme Court declared the tariffs imposed under the International Emergency Economic Powers Act unconstitutional. Since then we have had a steady stream of client questions that all reduce to the same one: by how much did my tariff go down. For most of them the honest answer is that the question is wrong, because they were never facing the average rate to begin with.

The average is a summary of a schedule nobody faces

The US average effective tariff rate reached 11.0 percent in early 2026, the highest level since 1943. That figure is duties collected divided by import value across everything the country imports. No individual firm imports the national basket.

What a firm faces is a stack. There is a most favoured nation base rate, set by product category and applied equally to WTO members regardless of origin. On top of that sit Section 232 rates, Section 301 rates and any global surcharge, each with its own legal basis, its own product scope and its own origin scope. A single shipment can face all of them at once.

Removing one layer does not scale the others down. It changes the relative cost of sourcing a specific product from a specific origin, which is a composition effect. Two firms importing the same headline category from different countries will have experienced this ruling completely differently.

The exemption channel is doing more work than the rates

A large fraction of US import value enters under preferential arrangements. Where a trade agreement provides a lower rate, and where the goods qualify on rules of origin, the headline rates are simply not the operative number. The claim rate under those arrangements is administratively contingent: it depends on documentation, on origin determination, and on the cost of compliance relative to the duty saved.

That means the effective rate can move without any policy change at all, purely through a change in how many shipments successfully claim preference. For planning purposes the exemption claim rate deserves to be modelled as a variable rather than assumed as a constant.

Why the removal will not simply reverse the drag

Firms did not respond to the tariff regime by paying the tariff. They responded by re-routing, re-sourcing, holding more inventory and in some cases relocating production. Those adjustments have sunk costs. A rate that falls does not un-sink them, and it does not make a firm that has just qualified a new supplier in a third country switch straight back.

There is also the variance point, which we think is underweighted. A regime that has been imposed, litigated and partly struck down is more uncertain than one that was simply high. Investment responds to the variance of policy as much as to its level, and a firm sizing an irreversible commitment now has to price the possibility that the schedule changes again, in either direction. The observable consequence is weaker foreign direct investment in exposed sectors, and that effect persists after the rate itself has moved.

Recommended modelling approach

1. The stack for the specific tariff codes and origins actually in the book, not a portfolio average.
2. The preference claim rate, with a sensitivity for administrative tightening.
3. The sunk cost of adjustments already made, which sets the switching threshold for going back.
4. A separate risk premium for policy variance, applied to any commitment with a payback longer than the political cycle.

Sources

• US tariff rates 2026, structure of the stacked schedule, citing Yale Budget Lab
• Penn Wharton Budget Model, effective tariff rates and revenues