Tariffs: the authority changes, the rate barely does

Every tariff in force rests on a specific statutory power, and the powers differ in what they permit, how fast they can be used and how easily they can be challenged. Emergency economic powers allow rapid, broad action and are legally exposed. National-security provisions cover named product categories after an investigation and are procedurally slow but robust. Unfair-trade provisions target a country after a finding. A balance-of-payments provision permits a temporary across-the-board rate. Same economic effect at the border, entirely different legal lives.

That distinction stopped being academic on 20 February 2026, when the Supreme Court held in Learning Resources Inc. v. Trump that the emergency-powers statute does not authorise sweeping, open-ended tariffs. It struck down the legal foundation of the central pillar of the administration's trade strategy - and within days those tariffs had been repealed and replaced with a ten per cent global rate under a different provision.

The rest of the structure never moved. The national-security duties of twenty-five to fifty per cent on steel, aluminium, copper, autos, semiconductors and lumber, and the China-specific duties, rest on separate authorities and remained fully intact throughout. A trader who read the ruling as the end of tariffs was reading the case correctly and the policy incorrectly.

Its first-order use is revenue and protection, and its second-order use is leverage. A tariff that is never collected because a trading partner concedes has done its job as a negotiating instrument, which is the same logic described in the drug-pricing entry, where a hundred per cent duty produced concessions rather than receipts. Reading tariffs purely as a tax misses most of what they are used for.

For macro purposes the aggregate rate is an input to inflation and growth forecasts. A tariff raises the price of imported goods and of domestic substitutes, and the pass-through into consumer prices is partial, lagged and disputed. That makes the effective rate a genuine input to the inflation questions covered elsewhere in this domain rather than a separate topic.

For markets, the tradeable object is unusually well defined: contracts on whether the total US effective tariff rate for a quarter is at least seven, eight, nine or ten per cent. That is a threshold ladder on a published series - the same structure as the case-count ladder in the health domain - and it can be read across as a distribution rather than as four separate bets.

The effective average rate is not a government statistic. It is computed by independent modellers who divide duties collected, or duties implied by current schedules, by the value of imports - and the choice between those two produces different numbers for the same month. The best-known series are updated regularly and dated, which makes them usable, but a contract must name which one it means.

That is the single most important settlement detail in this subject. A contract on the effective tariff rate resolving against a model that computes duties as scheduled will diverge from one resolving against duties actually collected, because exemptions, exclusions and the lag between shipment and payment sit between the two. Both are honest measures of different things.

The underlying legal changes, by contrast, are published cleanly. Rate schedules, proclamations and investigations appear in the Federal Register with effective dates, and court rulings appear on the docket. A contract on whether a specific duty is in force on a date is far more tractable than one on what the average rate turns out to be.