CITIC Securities: Are U.S. Reciprocal Tariffs Illegal and Can "Equal Substitutes" Be Achieved?

Crypto Finance APP has learned that CITIC Securities released a research report stating that the U.S. Supreme Court ruled that Trump’s tariffs based on the IEEPA are illegal. The Trump administration’s attempt to “replace” these tariffs may cause global tariff expectations to fall back into a phase of confusion. For China, influenced by the stability of the “ceasefire period” and Trump’s visit to China, it is expected that overall U.S. tariffs on China may decrease, at least during the low tariff window, potentially benefiting China’s labor-intensive product exports. Looking ahead in the coming months, tariff negotiations between the U.S. and various economies may bring many expected disruptions, especially concerning the game before Trump’s potential visit to China.

The U.S. Supreme Court ruling that Trump’s tariffs based on IEEPA are illegal, and the administration’s attempt to “replace” these tariffs, may cause global tariff expectations to fall back into a phase of confusion.

According to Reuters, on February 21, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) does not authorize the president to impose large-scale tariffs. The ruling states that Congress generally makes explicit and strict provisions when authorizing the executive branch to exercise tariff powers, and such authorization is absent in the IEEPA. Chief Justice Roberts stated that the government interprets the IEEPA as granting the president unilateral authority to impose unlimited tariffs and adjust them at will, exceeding the scope of the law itself. In an opinion written jointly with Justices Gorsuch and Barrett, Roberts explicitly pointed out that Trump’s tariffs imposed under the IEEPA violated the “major questions doctrine.”

The “major questions doctrine” has become increasingly important in recent U.S. Supreme Court decisions. Its core principle is that if an administrative agency attempts to implement a policy with significant economic and political impact, and unprecedented in history, it must point to clear and unambiguous congressional authorization, rather than relying on vague or broad legal interpretations. Given that Trump had multiple alternative mechanisms to push his tariff policies, the global financial markets generally responded positively, but with limited enthusiasm. Since last year, as many trade agreements have gradually stabilized tariff expectations, there is a possibility of re-entering a phase of confusion. On the day of the ruling, the U.S. S&P 500 rose 0.69%, the dollar index fell 0.09% amid more complex rate cut expectations, and the 10-year U.S. Treasury yield rose 0.33% under fiscal pressure. European stocks also responded relatively positively.

Globally, it is expected that the Trump administration will attempt various tariff replacement mechanisms and maintain the stable implementation of trade agreements. After the 122 tariffs are implemented, the 301 investigations may become key. However, under rule restrictions, congressional constraints, and midterm election pressures, CITIC Securities believes that fully replicating the previous reciprocal tariff pattern will be challenging.

Specifically, Trump’s potential alternative tariffs can be divided into three categories.

First, the 122 tariffs, which are used to address balance of payments imbalances, have broad coverage and quick implementation but are limited to a 15% maximum rate, a 150-day duration, and cannot target specific economies. On February 20, Trump signed an executive order to impose a 10% 122 tariff on imported goods starting February 24, for 150 days, with exemptions for industries already covered by the Section 232 tariffs and certain goods under the US-Mexico-Canada Agreement (USMCA). On February 21, Trump announced an increase of this tariff to 15%. According to procedures, if the 150-day 122 tariff needs extension after July 24, it must be re-legislated by Congress (or supported by 60 Senate votes). CITIC Securities believes that after expiration, new alternative mechanisms may need to be sought.

Second, the 301 tariffs, which target unfair trade practices, can be directed at specific economies or industries. CITIC Securities believes these may become a focus of attention. According to Reuters, on February 20, the Office of the U.S. Trade Representative (USTR) announced a new round of 301 investigations covering most major trading partners. CITIC Securities suggests that for economies previously subject to 301 investigations (such as China, Brazil, Vietnam, India, the UK, and the EU), implementation may take several months, potentially allowing for coordination with the expiration of the 122 tariffs. However, before the 301 investigations are concluded, economies like China, Canada, Mexico, and ASEAN, which previously faced higher IEEPA tariffs, may enjoy a low-tariff window lasting several months. For other economies without prior 301 investigations, tariffs may take a year or longer to implement.

Third, the 232 tariffs, which are aimed at trade behaviors that threaten national security, mainly target specific industries rather than entire countries. The investigation process is lengthy. Currently, many announced 232 tariffs have been delayed or face significant resistance to implementation. Therefore, CITIC Securities expects that in this round of tariff replacement mechanisms, 232 tariffs may not be the primary tool. Additionally, the 201 and 338 tariffs require investigations by the International Trade Commission (ITC), which also takes time, so they are not considered priority options.

Overall, it is expected that the Trump administration will attempt various tariff replacement mechanisms and maintain stable trade agreement enforcement. After the 122 tariffs are implemented, the 301 investigations may become critical. However, all these tariff tools are subject to congressional constraints and require time to implement. As midterm elections approach and domestic pressures in the U.S. increase, CITIC Securities believes that fully replicating the previous reciprocal tariff pattern will be difficult. Monitoring the attitudes of Congress and voter expectations in the coming months is essential. According to a YouGov poll as of January 21, 69% of U.S. voters believe tariffs have increased prices, and 74% oppose further tariff hikes. The House of Representatives previously passed a resolution opposing Trump’s tariffs on Canada.

For China, influenced by the stability of the “ceasefire period” and Trump’s visit to China, CITIC Securities expects the overall U.S. tariffs on China to decrease, at least during the low tariff window. Chinese labor-intensive product exports may benefit relatively.

On one hand, China and the U.S. are still in a “ceasefire” phase of the tariff war. If the U.S. significantly escalates tariffs through other mechanisms in the short term, it could be seen as a renewal of the escalation. On the other hand, according to a White House source cited by Reuters on February 20, Trump plans to visit China from March 31 to April 2. Further escalation of the tariff war may not be conducive to achieving Trump’s objectives for this visit.

Therefore, for China, CITIC Securities expects that the above-mentioned alternative tariff mechanisms may appear to some extent, but overall tariff levels may decline, likely below the levels before the Supreme Court ruling took effect. Assuming the 15% 122 tariff is implemented, U.S. tariffs on China could decrease by about 5%, which would be positive for China’s overall exports this year. Additionally, given the timeframes of the 301 investigations and other mechanisms, CITIC Securities believes that before Trump’s visit to China, the probability of significant new tariffs on China is low. At least during the low tariff window, China’s labor-intensive product exports (toys, shoes, furniture, bags, clothing, etc.)—which have high overseas revenue shares and large exposure to the U.S.—may benefit in the short term from the tariff reduction. These products are expected to be significantly affected by China-U.S. trade friction by 2025, so the tariff decrease will help Chinese labor-intensive exports in the near term.

Regarding tariff refunds, the process still depends on lower courts’ rulings, which may take several years.

The Supreme Court has remanded Trump’s tariffs case to the U.S. International Trade Commission (ITC) to handle refund arrangements. Lower courts may need weeks or months to clarify the scope, procedures, and schedule of refunds.

Refunds will be directly paid to importers, as they are the taxpayers for IEEPA tariffs, not consumers.

The timing of refunds will only be clear after lower court rulings. Referring to the 1998 “US v. US Shoe Corp” case, it took about five months from the court ruling to start refunds, and the entire process lasted about three years. Given that the current IEEPA tariffs are much larger in scale, CITIC Securities estimates that refund initiation may occur around mid-2026 to 2027, with the overall process potentially lasting several years.

As of December 14, 2025, U.S. Customs and Border Protection data shows that a total of $133.5 billion in IEEPA tariffs have been collected. The Tax Foundation estimates that by February 20, 2026, related revenue could reach $160 billion. Historical experience indicates that such refunds do not necessarily cover the entire amount collected. For example, in the US v. US Shoe Corp case, the Supreme Court ruled that port maintenance taxes did not apply to exports, resulting in a refund of about $600 million, roughly 60% of the total collected. During the 2006 softwood lumber dispute between the U.S. and Canada, the U.S. negotiated a refund of about $4 billion out of a total of $5 billion, approximately 80%.

Looking ahead, in the coming months, tariff negotiations between the U.S. and various economies may bring many expected disruptions, especially concerning the game before Trump’s potential visit to China.

If Trump’s visit to China proceeds, CITIC Securities believes that U.S. manufacturing investment may become a key topic, but only if the U.S. reduces investment barriers and improves policy stability. Other potential issues include commodity procurement, trade balance, technology sanctions, and geopolitical hotspots. However, the Supreme Court ruling will significantly impact Trump’s bargaining chips. Attention should be paid to ongoing negotiations in February and March—whether Trump will choose to “actively create leverage” is crucial for market expectations.

Globally, current statements from various economies generally suggest that the tariff pattern may continue. On one hand, the U.S. may consolidate existing agreements and strengthen institutional arrangements to lock in gains. On the other hand, for economies without consensus or with political disagreements, the U.S. may still exert pressure through tariff replacement mechanisms, expanded investment reviews, export controls, or delayed market access via trade or non-trade means.