Are reciprocal tariffs illegal, and can "alternatives" be realized?

The U.S. Supreme Court ruled that Trump's tariffs based on the IEEPA are illegal, and the Trump administration's attempts to find "alternatives" may lead to a phase of confusion in global tariff expectations. Globally, it is expected that the Trump administration will attempt various tariff alternative mechanisms and maintain stable execution of trade agreements. After the implementation of the 122 tariffs, the 301 investigation may be key. However, under the constraints of rules, congressional restrictions, and midterm election pressures, we believe it will be somewhat difficult to fully replicate the previous equivalent tariff structure. For China, influenced by the stability of the "ceasefire period" and Trump's demands for a visit to China, we expect that the overall U.S. tariff level on China may decrease, and at least during the low tariff window period, China's labor-intensive product exports may benefit relatively. Looking ahead to the coming months, tariff negotiations between the U.S. and various economies may bring many expected disturbances, particularly with attention needed on the potential game before Trump's visit to China. ▍ The U.S. Supreme Court ruled that Trump's tariffs based on the IEEPA are illegal, and the Trump administration's attempts to find "alternatives" may lead to a phase of confusion in global tariff expectations. According to Reuters, on February 21, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) does not authorize the president to impose large-scale tariffs. The ruling stated that Congress typically makes clear and strict provisions when authorizing the executive branch to exercise tariff powers, and such authorization does not exist in the IEEPA; Chief Justice Roberts of the U.S. Supreme Court stated that the government's interpretation of the IEEPA as granting the president unilateral power to impose unlimited tariffs and adjust them at will exceeds the authorization of the law itself; in an opinion co-written with Justices Gorsuch and Barrett, Roberts explicitly pointed out that Trump's imposition of tariffs based on the IEEPA violated the "major questions doctrine." The "major questions doctrine" is a principle that the U.S. Supreme Court has increasingly emphasized in recent years. The core of this principle is that if the executive branch attempts to implement a policy with significant economic and political impacts that is unprecedented in history, it must point to clear and unmistakable authorization from Congress, rather than relying on vague and broad interpretations of legal texts. Given that Trump has many alternative mechanisms to promote his tariff policy, global financial markets generally reacted positively, but the level of excitement was limited. Since last year, as tariff expectations have gradually stabilized with many trade agreements, there may be a return to phase confusion in the future. On the day the ruling was announced, the U.S. S&P 500 index rose by 0.69%, the dollar index fell by 0.09% under more complex interest rate cut expectations, and the 10Y U.S. Treasury yield rose by 0.33% under fiscal pressure; European stocks also reacted relatively positively. ▍For the global context, it is expected that the Trump administration will attempt various tariff alternative mechanisms and maintain stable execution of trade agreements. After the implementation of the 122 tariffs, the 301 investigation may be key. However, under the constraints of rules, congressional restrictions, and midterm election pressures, we believe it will be somewhat difficult to fully replicate the previous equivalent tariff structure. Specifically, Trump's potential alternative tariffs can be divided into three categories. First, the 122 tariffs are applicable to address international balance of payments imbalances, have a wide coverage, and can be implemented quickly, but the maximum tariff rate is 15%, the duration is only 150 days, and they cannot target specific economies On February 20, Trump signed an executive order imposing a 10% tariff on imported goods under Section 122, effective from February 24 for a period of 150 days, but exempting industries already covered by Section 232 tariffs and certain goods under the US-Mexico-Canada Agreement. On February 21, Trump announced an increase of this tariff to 15%. According to the process, if the 150-day Section 122 tariff needs to be extended after it expires on July 24, it must be re-legislated by Congress (or require 60 votes in the Senate). We believe that a new alternative mechanism may need to be sought after the expiration. Secondly, Section 301 tariffs apply to so-called unfair trade practices and can target specific economies or specific industries within those economies, which we believe may become a focus of attention moving forward. According to a Reuters report, on February 20, the Office of the United States Trade Representative (USTR) announced the initiation of a new round of Section 301 investigations covering most major trading partners. We believe that if economies that have previously undergone Section 301 investigations (such as China, Brazil, Vietnam, India, the UK, and the EU) are targeted, implementation may take months, theoretically allowing for a connection with the expiration of the Section 122 tariffs; however, before the results of the Section 301 investigations are implemented, economies such as China, Canada, Mexico, and ASEAN, which previously faced higher IEEPA tariffs, may experience a low tariff window for several months. For other economies that have not undergone Section 301 investigations, the implementation of tariffs may take a year or longer. Thirdly, Section 232 tariffs apply to trade practices that threaten national security, primarily targeting specific industries rather than countries, and the investigation period is relatively long. Many of the Section 232 tariffs announced by the US have been postponed, indicating significant resistance to implementation; therefore, we expect that Section 232 tariffs may not be a primary tool in this round of alternative tariff mechanisms. Additionally, Section 201 tariffs and Section 338 tariffs require investigations by the International Trade Commission (ITC), which also take a long time, and we judge them to be non-priority options. In summary, we expect the Trump administration to attempt various alternative tariff mechanisms while maintaining stable execution of trade agreements. After the implementation of Section 122 tariffs, Section 301 investigations may be key. However, all of the aforementioned tariff tools are constrained by Congress, and implementation will still take time. As the midterm elections approach and domestic pressure in the US rises, we expect it will be somewhat difficult for Trump to fully replicate the previous reciprocal tariff structure. Moving forward, we recommend closely monitoring changes in the attitudes of the US Congress and voter expectations. According to a YouGov poll as of January 21, 69% of American voters believe that tariffs have driven up prices, and 74% oppose further tariff increases. Previously, the House of Representatives passed a resolution opposing Trump's tariffs on Canada. ▍For China, influenced by the stability of the "truce period" and Trump's desire to visit China, we expect that the overall level of US tariffs on China may decrease, at least during the low tariff window period, and we believe that China's labor-intensive product exports may benefit relatively. On one hand, China and the US are still in a "truce period" of the tariff war. In the context of the legal foundation of US policies becoming shaky, if there is a significant increase through other alternative mechanisms in the short term, it may be seen as an escalation of the tariff war. On the other hand, according to a Reuters report on February 20 citing White House sources, Trump plans to visit China from March 31 to April 2 The escalation of the tariff war may not be beneficial in achieving the demands of Trump's visit this time. Therefore, for China, we expect that the aforementioned alternative tariff mechanisms may emerge to some extent, but the overall tariff level may decrease, possibly falling below the level before the Supreme Court ruling takes effect. Assuming a 15% tariff on 122 items is implemented, the U.S. tariff rate on China will also decrease by about 5%, which is favorable for China's overall exports this year. Moreover, given the timeline of mechanisms like the 301 investigation, we judge that the probability of the U.S. imposing a significant amount of new tariffs on China before Trump's visit is relatively low. At least during the low tariff window, we believe that China's labor-intensive product exports may benefit relatively. China's labor-intensive products (toys, footwear, furniture, luggage, clothing, etc.) have a high proportion of overseas revenue and a significant exposure to the U.S. market. The export of related goods will be greatly affected by Sino-U.S. trade frictions in 2025, and the recent decrease in tariffs on China will also provide short-term benefits to China's labor-intensive product exports. ▍Regarding tariff refunds, we still need to wait for the lower court to make a ruling, and the entire process is expected to last several years. The Supreme Court has sent the Trump tariff case back to the U.S. International Trade Court to handle the refund arrangements. The lower court may take several weeks to months to clarify the scope, procedures, and timeline for refunds. In terms of refund recipients, the taxpayer subject to IEEPA tariffs is the importer, so refunds will be paid directly to the importers, not consumers. As for the timing of refunds, it can only be officially initiated after the lower court's ruling. Referring to the 1998 case "US v. US Shoe Corp," it took about five months from the court's ruling to initiate refunds, and the entire refund process lasted about three years. Given that the scale of this IEEPA tariff far exceeds historical cases, it is expected that the refund initiation time may be in mid-2026 to after 2027, with the overall execution cycle possibly lasting several years. Regarding the scale of refunds, according to data from U.S. Customs and Border Protection, as of December 14, 2025, the U.S. has collected a total of $133.5 billion in IEEPA tariffs. The Tax Foundation estimates that by February 20, 2026, related revenue may reach $160 billion. Historical experience shows that such refunds do not necessarily cover the entire amount collected. For example, in the case of US v. US Shoe Corp, the Supreme Court ruled that the harbor maintenance tax does not apply to exports, ultimately refunding about $600 million, which accounted for about 60% of the total collected; in the 2006 U.S.-Canada softwood lumber tariff dispute, the U.S. negotiated a refund of about $4 billion, which accounted for about 80% of the total of $5 billion. ▍Looking ahead to the coming months, tariff negotiations between the U.S. and various economies may bring many expected disturbances, particularly focusing on the potential game before Trump's visit to China. For China, if Trump's visit to China takes place, we judge that U.S. manufacturing investment may become a focal topic, but it is expected to require the U.S. to reduce investment barriers and improve policy stability as a driving premise; in addition, issues such as commodity procurement and trade balance, technology sanctions, and geopolitical hotspots may also become focal topics. However, the recent ruling by the U.S. Supreme Court will severely impact Trump's negotiating leverage, and attention should be paid to the ongoing game in the 2-3 months ahead, as whether Trump chooses to "actively create leverage" will be key to influencing market expectations For the global economy, current statements from various economies generally suggest that the tariff structure may continue. On one hand, the United States may consolidate existing agreements and strengthen institutional arrangements to lock in results; on the other hand, for economies that have not reached consensus or have political disagreements, the United States may still exert pressure through trade or non-trade methods such as tariff substitutes, expanding investment reviews, export controls, or delaying market access. Risk Warning and Disclaimer The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk