The IEEPA Tariff Ruling: Here’s what E-commerce sellers need to know.
The Supreme Court struck down the backbone of Trump’s tariff regime five days ago, and the ground is still shifting. On February 20, 2026, the Court ruled 6-3 that the International Emergency Economic Powers Act (IEEPA) does not give the president authority to impose tariffs — invalidating the “reciprocal tariffs,” “fentanyl tariffs,” and virtually every new tariff imposed since February 2025. Within hours, the administration pivoted to a replacement tariff under different legal authority, and e-commerce sellers are once again scrambling to understand what they owe, what they’ll owe next month, and how to protect their margins.
This article breaks down what’s actually happening right now, what tariff rates are in effect today, and the concrete steps you can take to navigate the chaos. If you need help modeling how these changes affect your profitability, visit our Services page.
The stakes are enormous. The U.S. effective tariff rate remains the highest since 1946, the $800 de minimis exemption is gone for all countries, and sellers sourcing from China still face cumulative rates that can exceed 50% on many products. But the SCOTUS ruling also created real opportunities — including refunds on the tariffs collected over the past year and a temporary reduction in rates for many countries.
The Supreme Court just gutted IEEPA tariffs, but don’t celebrate yet
The legal saga started in May 2025, when the Court of International Trade unanimously ruled that IEEPA — a 1977 law designed for national security emergencies — was never meant to authorize tariffs. A three-judge panel (including judges appointed by presidents of both parties) found that IEEPA’s power to “regulate importation” simply does not include the power to tax imports.
The case, V.O.S. Selections, Inc. v. United States, was brought by five small businesses represented by the Liberty Justice Center, alongside 12 state attorneys general.
The Federal Circuit affirmed 7-4 in August 2025, and the Supreme Court took the case on an expedited schedule. Chief Justice Roberts wrote the majority opinion.
The core holding is categorical: IEEPA does not authorize the president to impose tariffs, period. The Court reasoned that the tariff power belongs to Congress under Article I, that no president had used IEEPA for tariffs in its nearly 50-year history, and that interpreting “regulate” to mean “tax” would create constitutional problems since IEEPA also covers exports — and the Constitution flatly bars export taxes.
Here’s what matters practically: despite winning at every court level, tariffs were collected the entire time. Courts granted stays at each stage, meaning the government kept collecting IEEPA duties from February 2025 through February 24, 2026. An estimated $160–179 billion in IEEPA tariffs was collected during this period.
The refund process has not yet been established, and the administration has signaled it will fight refund claims in court.
The day of the ruling, Trump signed three executive actions: one terminating IEEPA tariffs, one imposing a new 10% global “temporary import surcharge” under Section 122 of the Trade Act of 1974 (effective February 24), and one continuing the suspension of the de minimis exemption. He announced the rate would rise to 15% — the statutory maximum under Section 122 — though as of February 25, CBP guidance confirms the tariff took effect at 10%. The 15% increase is expected imminently.
Section 122 has a hard ceiling: 15% maximum for 150 days (expiring July 24, 2026), extendable only by Congress. This is a fundamentally different legal tool — much more constrained than the open-ended IEEPA authority the Court just eliminated. What happens after July 24 remains an open question the administration is racing to answer through new Section 301 and Section 232 investigations.
What tariff rates are actually in effect right now
The tariff picture as of late February 2026 involves multiple overlapping layers of authority. Here’s the simplified breakdown by country and product:
China remains the most heavily tariffed. The IEEPA tariffs are gone, but Section 301 tariffs from the first Trump administration (continued and expanded under Biden) remain fully intact. These range from 7.5% to 100% depending on the product. Electric vehicles face 100%. Solar cells and semiconductors face 50%. Steel and aluminum face 25% under Section 301, plus 50% under Section 232. The new Section 122 surcharge of 10% (soon 15%) stacks on top for goods not already covered by Section 232. The trade-weighted average tariff on Chinese imports has dropped from roughly 37% to approximately 30–35%, depending on product mix — still extraordinarily high by historical standards.
Canada and Mexico got significant relief. USMCA-compliant goods — roughly 88% of imports from these countries — are exempt from both the old IEEPA tariffs and the new Section 122 surcharge, meaning 0% additional tariff. Non-USMCA goods now face 10% (down from 35% for Canada and 25% for Mexico under IEEPA). Section 232 tariffs on steel, aluminum, copper, and autos still apply.
The EU, Japan, South Korea, and other allies face a mixed picture. Many of these countries had negotiated bilateral deals in 2025 that set IEEPA tariff rates at 10–15%. Those deals are now in legal limbo since their legal basis was IEEPA. The flat Section 122 rate of 10–15% replaces them, which actually increases rates for countries like the UK (which had a 10% deal) while decreasing them for countries like Brazil (which faced 50% under IEEPA). Section 232 tariffs on steel (50%), aluminum (50%), copper (50%), and autos (25%) remain fully in effect regardless.
Vietnam, India, Cambodia, and other sourcing alternatives now face the flat 10–15% Section 122 rate, down from 18–20% under IEEPA reciprocal tariffs. This makes diversification away from China even more attractive in the short term.
Tariff layers in effect
| Tariff layer | Authority | Status | Rate range |
|---|---|---|---|
| Reciprocal/fentanyl tariffs | IEEPA | Struck down Feb 20, 2026 | 0% (was 10–50%) |
| Temporary import surcharge | Section 122 | Active since Feb 24, 2026 | 10% (15% pending) |
| China product tariffs | Section 301 | Active, unaffected by ruling | 7.5–100% |
| Steel, aluminum, copper | Section 232 | Active, unaffected | 25–50% |
| Autos and auto parts | Section 232 | Active, unaffected | 25% |
| Lumber and furniture | Section 232 | Active, unaffected | 10–50% |
The $800 de minimis exemption is dead — and it’s not coming back
If you’re still operating under the assumption that small shipments under $800 enter duty-free, stop. The de minimis exemption has been eliminated for all countries since August 29, 2025. Every single commercial shipment into the United States now requires customs entry in CBP’s Automated Commercial Environment (ACE) with full HTS classification, valuation, and duty payment — regardless of value.
The elimination happened in stages. China and Hong Kong lost de minimis treatment on May 2, 2025. All remaining countries lost it on August 29, 2025. The One Big Beautiful Bill Act, signed July 4, 2025, permanently repeals the statutory basis for de minimis effective July 1, 2027, making legislative reinstatement virtually impossible.
The Supreme Court’s IEEPA ruling created a brief legal question about whether the executive suspension of de minimis survived, since the original orders relied on IEEPA authority. The administration immediately addressed this with a new executive order explicitly continuing the suspension under separate claimed authority. Even if that executive order were challenged, the statutory repeal in the One Big Beautiful Bill Act provides a permanent backstop.
The impact on direct-from-China e-commerce has been devastating. Temu’s U.S. daily active users dropped 52% between March and May 2025. Shein’s dropped 25%. Parcels entering the U.S. worth less than $800 fell by 54% according to the Universal Postal Union. The dropshipping-direct-from-China business model — where individual packages shipped to U.S. consumers avoided all duties — is effectively dead.
For e-commerce sellers, this means every import now requires proper customs documentation. If you’re sourcing products from overseas at any scale, you need HTS codes for every SKU, a customs bond, and either a customs broker or a very solid understanding of CBP filing requirements. Carriers like FedEx, UPS, and DHL have adapted their systems but have also added demand surcharges. Shipping times from China have increased by 7–21 days compared to pre-change speeds.
Seven practical strategies to protect your margins right now
The tariff environment is volatile, but it’s not ungovernable. Here are the highest-impact actions e-commerce sellers can take, roughly in order of how quickly they can generate results.
1. Audit your HTS classifications immediately.
This is the single fastest way to potentially reduce your duty burden. Many sellers are using incorrect or suboptimal Harmonized Tariff Schedule codes — and the difference between codes can mean tens of percentage points in duty rates. A garbage can classified as a steel article might face 50% duties; add a motion sensor and it may qualify as a mechanical device at a fraction of the rate. A zinc alloy component misclassified as stainless steel bumped one brand’s rate by 30%.
Work with a licensed customs broker to review every SKU against current HTS interpretations and request CBP Binding Rulings for your most important products. Automated classification tools are accurate less than 50% of the time according to experienced brokers — this is not a DIY job.
2. Calculate your true landed cost — most sellers are getting it wrong.
82% of e-commerce businesses underestimate their actual product costs, leading to 8–15% hidden profit erosion per product. Your landed cost formula must include product price, international freight, customs duties and tariffs, Merchandise Processing Fees, Harbor Maintenance Fees, insurance, customs brokerage fees, port handling, domestic freight, and currency conversion. Tools like Zonos, Avalara, and Shopify Managed Markets can automate much of this calculation. Update your numbers quarterly as rates shift, and model “what-if” scenarios for different sourcing origins and tariff levels.
Your selling price should be:
Total Landed Cost ÷ (1 – Desired Margin).
If your margin modeling isn’t dialed in, this is where strategic tax planning and proper monthly accounting become critical.
3. Investigate duty drawback if you sell internationally.
If you import goods into the U.S. and then ship any of them to international customers, you may be able to reclaim up to 99% of duties paid through the duty drawback program. This includes Section 301 duties, Merchandise Processing Fees, and Harbor Maintenance Fees. An estimated $3–13 billion goes unclaimed every year, and over 85% of eligible businesses never file a single claim. You can file retroactively for imports going back five years. Modern providers offer contingency-based services — no upfront cost, payment only on successful refunds. If you sell on Amazon’s international marketplaces, fulfill orders to Canada or Europe, or process global returns, you likely qualify.
4. Evaluate First Sale valuation for immediate savings.
If you buy from a trading company or middleman who purchases from the manufacturer, you may be able to base your customs duties on the manufacturer’s price (the “first sale”) rather than the middleman’s marked-up price. The ITC found First Sale was used for only 2.4% of total U.S. imports despite being available to far more — suggesting massive underutilization. Requirements include two bona fide sales in the chain, goods destined for U.S. export at the time of the first sale, and arm’s-length transactions with thorough documentation. The savings can be substantial, particularly in apparel, footwear, and consumer goods.
5. Explore Foreign Trade Zone options through your 3PL.
Foreign Trade Zones allow you to store imported goods in designated areas within the U.S. without paying duties until goods enter domestic commerce. If products are re-exported, no duty is paid at all. FTZs also reduce Merchandise Processing Fees by consolidating entries into weekly filings. There are 260+ FTZ projects across all 50 states, and many third-party logistics providers already operate within them. For small and medium e-commerce businesses, partnering with an FTZ-enabled 3PL is far more practical than establishing your own zone. The benefit is especially significant if you carry inventory that may be re-exported or destroyed.
6. Start supply chain diversification now — but be realistic about timelines.
Moving production from China to Vietnam, India, Mexico, or Cambodia takes 12–24 months for a stable transition, including tooling, sampling, quality validation, and logistics setup. Vietnam has become the primary alternative for electronics and textiles. Mexico offers USMCA benefits (0% additional tariff on qualifying goods) and proximity advantages. India is growing fast in electronics and pharmaceuticals. The current tariff differential is significant: Chinese goods face 30–50%+ cumulative tariffs while most alternative countries face only the 10–15% Section 122 rate plus normal MFN duties. Even partial diversification — sourcing some components or product lines from non-China origins — can meaningfully reduce your blended tariff rate. Two-thirds of companies plan to maintain some China sourcing, so this is about reducing concentration, not eliminating it entirely.
7. Adopt a hybrid pricing strategy with transparent communication.
Seven in eight brands are raising prices to offset tariff costs. The most effective approach is a hybrid strategy: absorb tariffs on high-margin and price-sensitive products while passing costs through on premium or less elastic items. Some brands have successfully implemented explicit “tariff surcharges” at checkout — Honeywell applied a 6.4% surcharge with a promise to remove it when tariffs end. Others, like Allbirds, published open letters explaining price increases, which actually boosted customer loyalty. Avoid sudden, large price jumps; gradual increases are better tolerated. Use this moment to rationalize your SKU catalog — eliminate low-margin products that can’t absorb the tariff hit, and double down on winners.
Inventory decisions require a scalpel, not a sledgehammer
The impulse to stockpile before tariff increases is understandable — U.S. companies saw a 228% increase in Days of Inventory on Hand between February and April 2025 as businesses rushed to front-load purchases. But indiscriminate stockpiling creates its own risks. Dead stock has increased across the board, with 46% of businesses reporting 5% or more of inventory sitting unsold.
Tariff uncertainty cuts both ways: if rates drop (as they just did for many countries after the SCOTUS ruling), stockpiled inventory purchased at higher tariff rates becomes a liability. The smarter approach is targeted: stockpile only high-margin, non-perishable, non-seasonal staples where demand is predictable. Use demand-driven inventory models rather than gut instinct.
If you’re going to build buffer stock, consider storing it in a Foreign Trade Zone or bonded warehouse to defer duty payment until you actually need the goods. Set a clear ceiling on stockpiling spend relative to your working capital — tying up cash in speculative inventory purchases can be just as damaging as paying higher tariffs.
What to watch in the next 90 days
The tariff landscape will continue to shift rapidly. The Section 122 tariff expires July 24, 2026 unless Congress extends it, creating a potential cliff. The administration is racing to build replacement tariff authority through new Section 301 and Section 232 investigations — expect announcements on pharmaceuticals, commercial aircraft, drones, and critical minerals.
Trump travels to China March 31–April 2 for trade negotiations where the U.S. has arguably less leverage after losing IEEPA authority. And the question of refunds on the $160+ billion in IEEPA tariffs collected will play out in the courts for months or years, though importers who filed protective lawsuits at the Court of International Trade are best positioned.
For e-commerce sellers, the actionable takeaway is this: don’t wait for certainty. Engage a licensed customs broker if you haven’t already. Audit your HTS codes. Calculate real landed costs. Explore duty drawback and First Sale. Start conversations with suppliers outside China.
You can find more operational and compliance insights in our Knowledge Hub.
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