Dr Yifei Zhang
15 April 2026
On 20 February 2026, the US Supreme Court, in a 6–3 decision, issued a landmark ruling in Learning Resources, Inc. v. Trump: The President is not authorized under the International Emergency Economic Powers Act (IEEPA) to unilaterally impose tariffs. As Chief Justice John Roberts points out in the ruling, the IEEPA, which authorizes the US President to “regulate…importation”, separated by 16 other words, cannot bear the weight to justify an independent power to impose tariffs on imports from any country, of any product, at any rate, for any amount of time.
This ruling has not only drawn a legal red line but has also triggered a chain reaction across the economy and financial markets, affecting places from Washington to Hong Kong’s Central district.
Taxing power prerogative of Congress
This ruling has far-reaching implications because Article 1 of the US Constitution clearly grants Congress the “power to lay and collect taxes, duties, imposts, and excises”. Applying the principle of separation of powers, the Supreme Court ruled that tariff powers with significant economic and political implications must be explicitly authorized by Congress. As public choice theory in economics suggests, when the power of formulating policies is overly concentrated in the executive branch, policies are liable to be twisted by short-term political considerations. The past year has seen companies under pressure to make hiring, pricing, and investment decisions against the backdrop of fast-changing trade policies and constantly fluctuating tariff rates. To a certain extent, the economic damage caused by such uncertainty is even greater than that caused by the tariffs.
The astronomical tariff-refund impasse
The direct consequence of the ruling is a tariff-refund challenge of unprecedented scale. According to a statement submitted by the US Customs and Border Protection to the Court of International Trade, under the IEEPA tariffs, more than 330,000 importers have paid a total of US$166 billion in tariffs, involving approximately 53 million customs entries. The path to refunds is fraught with obstacles: the automated systems of US customs are not designed to readily isolate IEEPA tariffs. If the amounts were to be calculated manually, the process is estimated to require 4.4 million labour hours. What underlies this is an important financial concept: the time value of money. Suppose a company has paid US$10 million in IEEPA tariffs. At current US interest rates, each one-year delay in receiving a refund would impose an opportunity cost as high as approximately US$500,000. Hence, nearly 2,000 importers have already filed lawsuits to secure their right to tariff refunds.
From plan B back to plan A
The White House did not just sit idly by. On the day the ruling was made, Trump signed three executive orders in a row within a few hours: to terminate IEEPA tariffs, to impose a global temporary import surcharge under Section 122 of the Trade Act of 1974, and to continue suspending duty-free treatment for low-value imports. The following day saw him raise the surcharge to the statutory maximum of 15% under Section 122. This provision is, figuratively speaking, a time-locked gun which allows the US president to impose an import surcharge of up to 15% for no more than 150 days, after which any extension must be approved by a vote in Congress, with the deadline falling on 24 July this year.
Even more noteworthy is the long game plan. In March this year, US trade representative Jamieson Greer launched Section 301 investigations against 16 economies on the grounds of “overcapacity”, and also initiated Section 301 investigations related to “forced labour” against approximately 60 economies, altogether covering 80% to over 90% of imports. Deborah Elms, Head of Trade Policy at the Hinrich Foundation in Singapore, hit the nail on the head when she said, “We may well be back to square one. This is not plan C. This is back to plan A”.
Who is paying for the tariffs
Economics textbooks tell us that the cost of tariffs is shared between producers and consumers, but the reality is grimmer than the theory. Research by the Federal Reserve Bank of New York finds that close to 90% of tariff costs are borne by American companies and consumers. Tracking data of the Yale Budget Lab shows that the pass-through rate of tariffs to the prices of imported core consumer goods is between 40% and 76%, while estimates by Goldman Sachs are even more alarming: the share shouldered by consumers, which has already reached 55%, is expected to climb to 70% in 2026.
For example, the ex-factory price of a children’s toy imported from China is US$20. With the addition of transportation and distribution costs, its retail price in America is US$30. With the imposition of a tariff of 20%, the import cost rises by US$4. Nevertheless, retail prices will not rise by only that amount since they also include non-import components such as domestic transportation, marketing, and retail markups. Particularly worrying is the fact that the average price increase of about 5% for cheaper goods is twice that of high-end goods. Given that low-income families tend to buy cheaper goods, tariffs are in fact a regressive tax, placing a disproportionate burden on the underprivileged.
Shock waves spreading to Hong Kong
Not even Hong Kong is immune to this storm. The US is Hong Kong’s second-largest export market, with goods exports amounting to US$37.9 billion in 2024. Although Hong Kong retains its status as a separate customs territory under the Basic Law, US tariffs imposed on China are still directly applicable to Hong Kong.
The SAR Government has long upheld a free-port policy, and does not impose retaliatory tariffs, reflecting its strategy of safeguarding the city’s appeal as an international commercial hub. However, for cross-border e-commerce platforms focused chiefly on the North American market, eliminating de minimis duty-free treatment and imposing surcharges will directly affect the cost structure of each order. Steve Chuang, former Chairman of the Federation of Hong Kong Industries, once made it plain—amid US tariff flip-flops, no one can do business anymore.
From the perspective of asset allocation, the uncertainty of trade policy has become a crucial risk-premium factor affecting Hong Kong stock valuations. In times of escalating trade friction, the price-to-earnings ratios of export-oriented companies in the Hang Seng Index generally come under pressure. When valuating relevant stocks, investors should add a “policy uncertainty premium” to the discount rate.
Future developments and countermeasures
Looking ahead, two key issues deserve careful attention. The first is the expiry of temporary tariffs under Section 122 on 24 July this year. Whether the US Congress votes to extend them will be an important bellwether for the trade positions of the two major parties. The second is the progress of the Section 301 investigations. If US trade partners are found to be involved in unfair practices, a new round of country-specific tariffs may be launched in late summer to early autumn this year.
In view of the current situation, I would like to propose the following three policy recommendations. First, Hong Kong should expedite the diversification of its export markets and strengthen efforts to tap markets in ASEAN, the Middle East, and Latin America. Second, it should reinforce its role as a “super-connector”. By leveraging the advantages of its independent judiciary system, free flow of capital, and its international arbitration centre, the city can become a key node for multinational companies in the course of reconfiguring their supply chains. Third, Hong Kong should capitalize on financial instruments to offset trade risks. Its derivatives market, together with insurance and reinsurance services, can provide tailor-made risk management solutions for companies facing tariff risks.
The US Supreme Court’s ruling discussed above reminds us that, in a society governed by the rule of law, even the strongest executive power has its limits. As Chief Justice John Roberts noted, citing an 1899 precedent, the power to tax is “the one great power upon which the whole national fabric is based”. This power should be subject to institutional checks and balances, so that the market can form stable expectations and the economy can operate robustly within a rules-based framework. Long grounded in rule of law and institutional transparency, Hong Kong is likewise committed to this principle.
