Trump has already hit peak tariff, Morgan Stanley says. His new 15% levy might not even be legal

Fortune

by Nick Lichtenberg

February 23, 2026

AI-Generated Deep Dive Summary

Morgan Stanley has concluded that peak tariffs under President Trump's administration have likely already occurred, with little room for further revenue generation from tariffs. The recent Supreme Court ruling invalidating the use of the International Emergency Economic Powers Act (IEEPA) has left the administration's trade policies in legal jeopardy. While Trump has turned to Section 122 of the Trade Act of 1974 as a workaround, allowing up to 15% tariffs for 150 days, Morgan Stanley economists argue this approach is legally vulnerable and less impactful than previous measures. The bank estimates that replacing IEEPA with Section 122 would reduce baseline tariffs from around 13% to 11%, and if Congress fails to extend these by August, tariffs could drop to the mid-single digits. The legal challenges surrounding Section 122 stem from its basis in "balance of payments disequilibrium," a concept more relevant during the fixed exchange rate era of the 1970s. In today's floating exchange rate environment, a trade deficit does not constitute a balance of payments crisis, making the statute outdated and open to legal disputes. Additionally, Section 122 lacks formal investigative processes, further complicating its implementation. The financial implications for businesses and consumers are significant. The Supreme Court ruling has raised questions about whether the billions in tariff revenue collected under IEEPA must be refunded. While the ruling does not explicitly require refunds, Morgan Stanley predicts that this issue will face extensive litigation, potentially delaying any refunds for years. The bank forecasts a midpoint scenario of $84 billion to $85 billion in partial and delayed refunds, though some scenarios predict even lower returns. For businesses, particularly those in industries reliant on global trade, the uncertainty surrounding tariffs creates challenges in planning and operations. The potential decline in tariff levels could provide some relief, but the legal battles over refunds add another layer of complexity. Consumers may also see modest benefits from lower tariffs, though any financial relief is expected to be slow in materializing. This situation highlights the broader implications of U.S. trade policy under Trump, which has been marked by aggressive and often legally contested measures. The shift to Section 122 signals a scaling back of tariff ambitions, but the ongoing legal battles and potential refunds add further unpredictability to an already volatile trade environment. For businesses and consumers alike, this underscores the importance of staying informed about evolving trade policies and their impacts on global markets.

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Originally published on Fortune on 2/23/2026