Instead of immediately passing tariff costs to consumers, US corporations are initially absorbing the shock. They are mitigating the impact by reducing labor costs and accepting lower profitability, which explains the lag between tariff implementation and broad consumer inflation.

The immediate macroeconomic impact of the recent tariff ruling is negligible. However, a potential economic boost could occur in Q3 and Q4 if the temporary 150-day tariffs expire and investigations for new tariffs are delayed, leading to increased consumer demand and goods disinflation.

While the base case is that the President would replace tariffs struck down by the Supreme Court, there's a growing possibility he won't. The administration could use the ruling as a politically convenient way to reduce tariffs and address voter concerns about affordability without appearing to back down on trade policy.

Despite fears from announced tariffs, the actual implemented tariff rate on U.S. imports is only 10.1%, not the computed 17-18%. This is due to exemptions, trade deals, and behavioral changes by companies. This gap between rhetoric and reality explains the unexpectedly strong 2025 performance of emerging markets.

Because U.S. tariff levels are likely to remain stable regardless of legal challenges, the more critical factor for the long-term outlook is how companies adapt. Investors should focus on corporate responses in capital spending and supply chain adjustments rather than the tariff levels themselves.

Because tariff-driven inflation on everyday consumer goods has a greater financial impact on middle and lower-income households, any subsequent price relief from a change in tariff policy would provide a more significant economic benefit to these specific demographic groups.

If tariffs are reduced following a court ruling, companies will experience immediate cost relief. However, these savings are passed to consumers slowly, over two to three quarters. This delay creates a temporary tailwind for corporate profit margins before prices on the shelf fall.

The temporary 15% tariffs under Section 122 expire near the midterm elections. Given the political unpopularity of high tariffs, it is unlikely the administration will raise them further in the medium term, effectively capping rates at this level to appeal to voters concerned about affordability.

A potential Supreme Court ruling curbing the President's AIPAA tariff authority will not impact all consumer goods equally. The effects are highly concentrated in specific categories where these tariffs dominate, such as toys (over 90% AIPAA-related), furniture (over 70%), and apparel (about 60%).