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BONUS ARTICLE |
The Tariff Shock No One Modeled: SCOTUS, Refunds, and the Quiet Winners |
The Supreme Court didn't just drop a legal opinion today. |
It dropped a pricing error. |
Because markets weren't only trading "tariffs" as a policy headline—they were trading tariffs as a macro variable: inflation, margins, demand, Fed path, and supply-chain friction. |
And now the Court just told the market: that particular tariff lever (IEEPA) isn't a lever. |
That means two things can be true at the same time: |
Near-term relief (less tariff-driven price pressure, fewer margin headwinds) Longer-term uncertainty (because the administration can still reach for other tariff tools)
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Let's unpack what actually happened, what the market is really saying, and where the hidden value plays are quietly sitting. |
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Scoreboard: What Happened |
The decision (the clean version) |
On February 20, 2026, SCOTUS ruled 6–3 that the International Emergency Economic Powers Act (IEEPA) does not give the President authority to impose tariffs—meaning the broad IEEPA-based tariff regime must be vacated. |
What tariffs were in the blast radius |
Per the Court's case summary, the challenged IEEPA tariffs included: |
25% on many imports from Canada and Mexico 10% on many imports from China (drug-trafficking rationale) A "reciprocal" regime of at least 10% on essentially all imports, with higher rates (up to ~50%) for dozens of countries (trade-deficit rationale)
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The macro number most people will miss: "effective tariff rate" |
Yale Budget Lab estimates that after removing IEEPA tariffs, the remaining tariff suite implies: |
~9.1% overall US effective tariff rate (pre-substitution) ~8.0% overall US effective tariff rate (post-substitution) If IEEPA had been upheld: ~16.9% (pre) and ~14.3% (post)
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That's not a rounding error. That's the difference between "annoying headwind" and "macro regime shift." |
The "refund" elephant |
Yale notes CBP estimates imply ~$142B collected from IEEPA tariffs over 2025, and that a substantial portion could be returned to firms. Penn Wharton Budget Model projects up to ~$175B in refunds if reversed, and notes future tariff revenue could fall sharply if not replaced.
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Refund timing and mechanics are still messy—but the market will front-run who benefits if cash comes back. |
What this means in household terms (translation) |
Yale Budget Lab estimates the remaining tariffs imply: |
~0.6% short-run consumer price level increase (pre-substitution), ~$800 per household (2025$) ~0.5% long-run increase (post-substitution), ~$600 per household And importantly: if IEEPA had been upheld, price impacts would have been about twice as large
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So yes—this ruling matters for inflation expectations, even if it doesn't magically reverse every price tag tomorrow. |
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The Real Reason Markets Care |
This isn't about whether tariffs are "good" or "bad." |
This is about how quickly tariffs can be implemented, how broadly, and how they feed into: |
Inflation path (goods prices, pass-through, expectations) Margins (COGS for import-heavy businesses vs pricing power) Demand (real income compression vs relief) Policy volatility (uncertainty tax → higher risk premium)
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Yale's modeling also flags labor/growth drag from the remaining tariff environment: it projects (all else equal) +0.3 pp unemployment and ~550,000 fewer payroll jobs by end of 2026 from tariffs still in place. |
And then there's the plot twist: |
Yale estimates the positive fiscal impulse from refunds could approximately offset negative growth impacts for 2026, depending on how refunds are administered. |
That's a weird cocktail: |
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What the Market Is Really Saying |
The immediate "tape logic" |
When tariff pressure eases (or is expected to ease), the market tends to bid up: |
Import-heavy consumer names (less COGS pressure) Rate-sensitive equities (if inflation risk fades) Smaller companies (less supply-chain shock, less "uncertainty tax")
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You can see the instinctive positioning in sector behavior today: |
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And for context on the broad tape, SPY ended higher on the day. |
State Street SPDR S&P 500 ETF Trust (SPY) |
$689.43 |
+$4.85(+0.71%)Today |
$689.48+$0.05(+0.01%)After Hours |
1D5D1M6MYTD1Y5Ymax |
Open682.33 |
Volume100M |
Day Low681.80 |
Day High689.83 |
Year Low69.01 |
Year High697.84 |
But don't get cute: "tariff relief" is not the same as "tariff peace" |
CFR's key point: even after SCOTUS shut the IEEPA door, the administration still has other statutory authorities it can use to pursue tariffs—so the trade-war impulse can survive, just via different plumbing. |
Translation: the ruling reduces the "one-person switch-flip" risk, but it doesn't remove trade policy as a volatility source. |
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Theme Deep Dive: Where the Money Actually Moves |
Think in three buckets: |
Bucket A: Margin Relief Winners (import-heavy, price-sensitive categories) |
These companies are often stuck in a bad spot during tariffs: |
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Yale's commodity analysis says electronics, vehicles, and metal products rank among the largest price-increase categories from the tariff set through Feb 2026. |
So the most direct "relief" is where imported content is high and consumers notice. |
Examples to watch (liquid, high-signal tickers): |
Big-box / broadline retail: WMT, TGT, COST Off-price: TJX, ROST, BURL Apparel/footwear with global sourcing: NKE, VFC Consumer electronics ecosystem: AAPL (watch the narrative, not just the multiple)
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Cheap Investor framing: you're not hunting "tariff headlines." You're hunting gross margin deltas and inventory normalization. |
Bucket B: Refund Optionality Winners (the under-the-radar angle) |
This is the sneaky one. |
If refunds materialize (even partially), the beneficiaries are primarily importers of record—often large retailers, wholesalers, and industrial distributors. |
Penn Wharton suggests refunds could reach up to ~$175B.
Yale references ~$142B collected under IEEPA authority in 2025. |
That's real money, and it doesn't show up as "sales growth." It shows up as: |
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Hidden value plays here aren't always the obvious retailers. They're often "boring" supply-chain middlemen that import a ton of physical product: |
Under-the-radar watchlist candidates: |
FAST (industrial supplies distribution; many SKUs, global sourcing exposure) GWW (industrial MRO distributor; pricing power + scale) POOL (heavy goods, inventory-sensitive category) LKQ (auto parts distribution; watch input costs and replacement demand)
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You're looking for a simple asymmetry: |
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Bucket C: Uncertainty Premium Losers (who "should" be up, but won't be) |
Even though SCOTUS clipped IEEPA, the policy fight continues. |
Expect: |
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That keeps a risk premium on global manufacturers with fragile supply chains. |
Names to treat carefully (not because they're bad, but because the discount rate can stay high): |
Complex cross-border autos & components: GM, F, APTV, BWA Global industrials with long supply chains: HON, ETN Semiconductor hardware supply chain sensitivity can reprice quickly if trade policy whipsaws (even if this ruling isn't directly about export controls)
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"Is It Cheap?" — A Practical Valuation Lens for Tariff Regimes |
Don't use a single P/E multiple here. Use a two-variable cheap test: |
1) Is the market pricing a permanent margin hit? |
If a company's margins compressed during tariff escalation, ask: |
Did gross margin fall because of COGS or demand? If COGS-driven, does this ruling reduce that pressure?
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If the answer is yes, the cheap setup is: |
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2) Is the market pricing "policy chaos" as permanent? |
This ruling reduces one kind of chaos (IEEPA), but not the chaos premium overall. |
So cheap opportunities are often: |
"boring operators" with strong balance sheets categories where demand is stable companies that can flex sourcing
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That's why industrial distributors and off-price retailers pop up again and again. |
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Bull / Base / Bear Scenarios (Tariffs After SCOTUS) |
Bull case (risk-on, relief sticks) |
IEEPA tariffs unwind cleanly Refunds begin to flow (even slowly) Replacement tariffs are narrower, slower, and more predictable Goods inflation cools → rates don't need to stay restrictive as long
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Winners: |
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Base case (messy but manageable) |
Tariffs unwind, but replacement tools are attempted Refunds are delayed and uneven Companies hedge with sourcing shifts; some costs stay "sticky"
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Winners: |
Off-price retail (can manage price points) Strong balance-sheet operators with flexible sourcing Select industrial distributors
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Bear case (tariffs come back through another door) |
CFR's warning matters: other authorities exist. |
Administration replaces IEEPA tariffs with different statutory paths Policy volatility stays high Supply chains stay cautious, capex delayed, "uncertainty tax" persists
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Winners in bear: |
Staples relative to discretionary Domestic niche producers with protected pricing power (selective) Higher-quality balance sheets
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Action Plan for Tomorrow (and the Next Few Weeks) |
This is not a "back up the truck" moment. |
This is a scale-in, headline-sensitive setup. |
1) Build a "Tariff Relief" basket (tight and boring) |
Pick 3–5 names that fit: |
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Examples: |
Off-price: TJX / ROST Big-box: COST / WMT Distributor: FAST or GWW
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2) Use a 1/3 – 1/3 – 1/3 scale plan |
Starter tranche on the first pullback after the headline pop Add if the market confirms with higher lows (no need to time the exact bottom) Add only if policy headlines calm or the company specifically guides to margin improvement
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3) Hedge the uncertainty (cheap insurance beats hero trades) |
If you trade options: |
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(You don't need perfect—just survivable.) |
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Cheap Investor Checklist / Scorecard (Track This Like a Hawk) |
Refund guidance: any official signals on timing/mechanics (this can move "refund optionality" names fast) Replacement tariff chatter: which statutory authority is being discussed (IEEPA is out; others remain) Goods CPI / inflation expectations: do goods categories cool in the next prints (electronics/vehicles are key) Retail gross margin commentary: watch earnings calls for "source diversification" + "COGS relief" language Inventory turns in discretionary retail: relief only matters if inventory isn't bloated Freight/lead times: easing + refunds can pull forward orders (watch for a restock pulse) Small-cap relative strength (IWM vs SPY): uncertainty tax easing often shows here first Consumer discretionary leadership (XLY vs SPY): confirms whether the market believes the relief is real Dollar and yields: if the market starts pricing less inflation pressure, rate-sensitive names tend to breathe Company-specific exposure: who is the importer of record (refund eligibility isn't evenly distributed)
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Bottom Line |
If tariffs unwind without immediate replacement, import-heavy "boring" businesses quietly get a margin and cash-flow tailwind. |
If tariffs are rebuilt through other authorities, the real trade becomes "who can flex sourcing and protect margins without killing demand." |
Either way, the cheap setup isn't chasing the headline—it's buying the mispriced second-order effects: distributors, off-price retail, and high-volume importers where cash-flow optionality is under-modeled. |
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investing involves risk, including the potential loss of principal. Always do your own research before making investment decisions. |
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