Now what? The limits of tariff-driven economic statecraft after IEEPA | Brookings

Days after the Supreme Court invalidated President Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose broad tariffs, Brookings convened experts—Patrick Childress, partner at Holland and Knight; Elena Patel, senior fellow and co-director of the Urban-Brookings Tax Policy Center;  Emily Blanchard, professor at the Tuck School of Business at Dartmouth; and Mira Rapp-Hooper, Brookings visiting senior fellow and senior advisor, The Asia Group—to assess the legal, fiscal, economic, and strategic consequences.  This analysis reflects on what the ruling reveals about U.S. fiscal exposure, the instruments now carrying trade policy, and the limits of tariffs in a deeply integrated global economy.

The legal vehicle changed. The strategy did not.

The Supreme Court’s decision removed IEEPA as an open-ended authority for adjusting tariffs, pushing the administration back onto statutes with defined procedural constraints.  It did not alter the administration’s reliance on tariffs as a central policy instrument. The statutory authority changed—the underlying approach did not. The leverage derived from the credible threat of future tariff escalation remains intact. 

Within hours of the decision, the president announced a two-stage plan to maintain the tariff regime under different statutory authorities: invoking Section 122 of the Trade Act of 1974 to impose temporary tariffs of up to 15% for 150 days, while launching a series of investigations under Section 301 of the same statute that could support more sustained tariff actions. If those investigations result in formal findings, Section 301 allows tariffs to be reimposed with greater flexibility—adjusted over time, applied selectively by country, and grounded in a statutory framework that has previously withstood judicial scrutiny. As Childress observed during the recent Brookings event, that flexibility is precisely what the administration values.

Shifting tariff policy from emergency authority to Section 301 does not alter the administration’s strategy. It does, however, restore structure. Section 301 requires investigations, public notice and comment, consultation with trading partners, and formal findings—procedural steps largely absent under IEEPA. That process creates an opportunity for affected firms, workers, and other stakeholders to shape the record in ways that were largely unavailable under IEEPA.

Tariffs persist—and markets and allies are adjusting

The administration’s rapid pivot to alternative authorities clarified expectations. The critical development was not the invalidation of IEEPA itself but the confirmation that tariffs would remain a continuing feature of U.S. policy. Despite the Court’s ruling, the administration’s use of tariffs persists; it did not use the occasion of the ruling to retreat from them. On the Brookings panel, Blanchard emphasized the realization that tariffs were likely to endure may be more consequential than the Court’s ruling itself. Firms that delayed pricing or sourcing adjustments pending the decision now face a different calculation. Blanchard suggested that many importers had been holding back on price pass-through while waiting to see whether the tariffs would survive judicial review. If expectations shift toward persistence, firms are more likely to pass costs on to consumers and adjust sourcing decisions accordingly.

At the same time, the president retains substantial flexibility in how tariffs can be deployed—raised, lowered, or differentiated across partners. As Blanchard observed, strategic ambiguity in tariff negotiations may be useful in bilateral dealmaking, but it is “kryptonite for firms” trying to plan in a globally integrated production system. 

For U.S. trading partners, the shift away from emergency authority changes the process, not the trajectory. As Rapp-Hooper noted, allies were unsettled by the sweep of the 2025 tariffs, but they recognize the statutory paths now being used. Many are treating the ruling as a procedural recalibration rather than a strategic reversal, anticipating changes in degree rather than a return to the pre-2016 trade framework. As she noted, governments are making “no sudden movements.” Asian allies that negotiated tariff arrangements with the administration in response to IEEPA tariffs are now focused on preserving stability rather than reopening settled terms. Countries without firm agreements, such as India, may defer negotiations in hopes of securing more favorable terms under the evolving authorities. The throughline is strategic caution.

Trade statutes as tax policy

At the scale reached in 2025, tariffs function as tax policy. Roughly $130 billion has already been collected under the IEEPA tariffs, and the Congressional Budget Office projected that maintaining the tariff increases over the standard ten-year budget window would generate roughly $3 trillion in revenue—an amount large enough to offset a substantial portion of the federal revenue loss from last summer’s tax bill.

As Patel emphasized on the Brookings panel, the primary statutory tools now carrying U.S. tariff policy—including Section 301 of the Trade Act of 1974 and the national security-related authority in Section 232 of the Trade Expansion Act of 1962—are delegations of Congress’s authority to tax and regulate trade, enacted decades ago for episodic use. When used at this scale, tariffs operate in territory traditionally reserved for tax legislation. Congress retains the authority to clarify, narrow, or reclaim those delegations.

The fiscal implications are immediate. The IEEPA ruling suggests not only that future collections under that authority are unavailable but that past collections may ultimately have to be refunded. To the extent tariff levels cannot be sustained—or past collections must be repaid—the revenue outlook would necessarily change. Repaying sums of this magnitude would create a substantial fiscal hole and raise difficult questions about refund mechanics and who would ultimately bear—or benefit from—the reversal. At this scale, tariff litigation is not a technical trade dispute; it is a budgetary event.

The limits of tariffs in a value-chain economy

The deeper question is not which statute replaces IEEPA—it is what tariffs are being asked to do. Over the past decade, across administrations, tariff increases have expanded well beyond targeted trade remedies. They are used as a catch-all instrument for manufacturing revival, leverage in foreign policy, and now revenue generation.

The tension is clearest between revenue and reshoring. If tariffs succeed in reducing imports and reshoring manufacturing to the U.S., the revenue base from tariffs necessarily shrinks. If tariffs are relied upon as a meaningful source of federal revenue, imports must persist at significant levels. The two objectives cannot be pursued simultaneously: Tariffs cannot both reduce import dependence and depend on imports for revenue.

Beyond the revenue question, tariffs are a blunt tool for rebuilding manufacturing capacity in a globally integrated economy. U.S. manufacturers rely heavily on imported intermediates—components and raw materials from trading partners around the world.  Most of these transactions reflect the normal functioning of modern value chains rather than the presence of strategic vulnerability through adversarial dependence. Broad border tariffs therefore tend to raise costs for domestic producers embedded in global value chains more reliably than they exert sustained pressure on foreign suppliers. Rather than enhancing competitiveness, they risk eroding it. 

If the primary goal is to build sectoral capacity, more direct industrial policy tools may be better aligned with that goal. Targeted subsidies, tax credits, procurement policies, workforce development, and regulatory design can be calibrated to specific production outcomes in ways tariffs cannot. As Patel cautioned during the panel, industrial policy itself is not simple: It can be designed well or poorly, and it raises difficult questions about delivery mechanisms and the risks of picking winners. But, as Blanchard emphasized, placing those decisions in Congress’s hands forces a transparent reckoning with costs, tradeoffs, and priorities. Tariffs, by contrast, can create the illusion of costlessness because they do not appear as line items in a federal budget, even though their costs are borne domestically.

Panelists agreed that a change in administration is unlikely to resolve this debate. Concerns about supply chain vulnerability and industrial resilience are widely shared across the political spectrum. But if the objective is to reduce reliance on strategic adversaries, the more coherent strategy may lie in coordinated action with allies. As Rapp-Hooper suggested, high tariffs are politically difficult to unwind, but they have also created a substantial stock of negotiating leverage. Rather than allowing that leverage to calcify, it could be converted into a supply chain initiative with trusted allies, potentially transforming this administration’s trade framework agreements into vehicles for resilience, security, and economic gain.

Designing economic statecraft for the world we have

Trade authorities enacted in the 1960s and 1970s for episodic use now anchor not only trade policy, but elements of fiscal and industrial policy. That evolution occurred through the cumulative use of existing authorities to pursue objectives that might otherwise have required new legislation. It did not follow from a deliberate reassessment of how trade, fiscal, and industrial policy should interact in an era of technological change and geopolitical competition. Whatever one thinks of the underlying goals, institutional design has lagged policy ambition even as it has failed to constrain it.

Over the past decade, presidents of both parties have insisted that the U.S. needs more domestic manufacturing capacity and more manufacturing employment. Fiscal pressures, supply chain vulnerabilities, and geoeconomic competition are real. The turn toward economic statecraft is neither accidental nor illegitimate. But it demands clarity about which instruments are suited to which goals.

Revenue generation belongs properly to tax legislation. Sectoral capacity and industrial development are often more directly addressed through appropriations, targeted subsidies, procurement policy, workforce development, and regulatory design. Supply chain resilience and strategic competition may require coordinated action with allies as much as unilateral trade measures. Trade policy is one instrument within that broader toolkit. When it becomes the primary vehicle for pursuing all of these aims—because it is available, delegated, and comparatively easier to deploy—strain follows.

That strain appears in multiple forms: administrative burden, litigation risk, volatility for firms and trading partners, and policy effects that are less precise than intended. Using a blunt border instrument to pursue complex industrial and fiscal objectives generates consequences that extend beyond those objectives.

Meanwhile, U.S. allies are adjusting—economically and strategically. Many are deepening economic ties with one another while recalibrating to a more protectionist and less predictable United States. Few are retaliating loudly; few are waiting for Washington to resolve its internal debate. There is little sign of a rally to reform the multilateral system to accommodate U.S. concerns. Instead, partners are diversifying partnerships, reducing exposure to U.S. volatility, and hedging against uncertainty. This quiet reshuffling of economic relationships may outlast any single administration.

The Court narrowed one statutory authority. It did not resolve how the United States intends to design economic statecraft for a deeply integrated global economy. That requires clarity of purpose, alignment between instruments and objectives, and institutional guardrails commensurate with the scale of the ambitions now being pursued.