About this episode
Arunima Sinha, from the U.S. and Global Economics team, discusses how an upcoming Supreme Court decision could reshape consumer prices, retail margins and the inflation outlook in 2026.Read more insights from Morgan Stanley.----- Transcript -----Arunima Sinha: Welcome to Thoughts on the Market. I'm Arunima Sinha from Morgan Stanley's U.S. and Global Economics Teams.Today: How a single Supreme Court ruling could change the tariff math for U.S. consumers.It's Friday, February 13th at 10am in New York.The U.S. Supreme Court is deciding whether the U.S. president has legal authority to impose sweeping tariffs under IEEPA. That decision could come as soon as next Friday. IEEPA, or the International Emergency Economic Powers Act, is the legal backbone for a significant share of today's consumer goods tariffs. If the Supreme Court limits how it can be used, tariffs on many everyday items could fall quickly – affecting prices on the shelf, margins for retailers, and the broader inflation outlook.As of now, effective tariff rates on consumer goods are running about 15 percent, and that's based on late 2025 November data. And that's quite a bit higher than the roughly 10 percent average, which we're seeing as tariffs on all goods. In a post IEEPA scenario, we think that the effective tariff rate on consumer goods could fall to the mid-11 percent range.It's not zero, but it is meaningfully lower.An important caveat is that this is not going to be eliminating all tariffs. Other trade tools – like Section 232s, which are the national security tariffs, Section 301s, the tariffs that are related to unfair trade practices – would remain in place. Autos and metals, for example, are largely outside the IEEPA discussion.The main pressure point we think is consumer goods. IEEPA has been used for two major sets of tariffs. The fentanyl-related tariffs on Mexico, Canada, and China, and the so-called reciprocal tariffs applied broadly across trading partners. And these often stack on top of the existing tariffs, such as the MFN, the Most Favored Nation rates, and the section 301 duties on China that were already existing before 2025.The exposure is really concentrated in certain categories of consumer goods. So, for example, in apparel and footwear, about 60 percent of the applied tariffs are IEEPA related. For furniture and home improvement, it's over 70 percent. For toys, games, and sporting equipment, it's more than 90 percent. So, if the IEEPA authority is curtailed, the category level effects would be meaningful.There are caveats, of course. The court's decision may not be all or nothing. And policymakers could turn to alternative authorities. One example is Section 122, which allows across the board tariffs for up to
