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Tariffs Could Inch Lower in 2026. But Another Ticking Time Bomb for Trade Is Looming.

Nov 25, 2025 15:40:00 -0500 by Reshma Kapadia | #Trade

(Carlos Moreno/Bloomberg)

Key Points

Consumer angst about rising prices could open the door for tariffs to inch down further in coming months. But analysts say trade volatility will persist as the U.S. tackles its relationship with its two biggest trading partners: Canada and Mexico.

The Trump administration has already been dialing the needle back elsewhere. Earlier this month, the administration rolled back tariffs on coffee, bananas, beef, and other food items, including many of the 50% punitive tariffs it had put on Brazil for the treatment of Trump ally and former President Jair Bolsonaro.

The Yale Budget Lab estimates the effective tariff rate to be a bit less than 16.8%, higher than the roughly 2% tariffs began 2025 at but a sharp drop from April’s effective rate of 28% after President Donald Trump unveiled broad-based “reciprocal” tariffs.

Politics could shape the near-term tariff playbook, with Veda Partners’ Henrietta Treyz telling clients in a recent note that U.S. voters whose top concerns are inflation and the economy now prefer a generic Democrat for Congress by 13 points over a Republican candidate. At a minimum, Treyz says this suggests tariffs aren’t going to rise further.

The Trump administration could do more on the margins to help its affordability messaging. Likely targets for lowered tariffs include other food items, textiles, or home goods where the U.S. is highly reliant on imports that have minimal strategic value, says Owen Tedford, an analyst at Beacon Policy Advisors. However, he stresses that tariffs aren’t going away—especially on strategic sectors like aluminum and steel or autos.

But another catalyst for the effective tariff rate to fall could come as soon as early December—the earliest analysts expect to hear f rom the Supreme Court on whether a swath of Trump’s tariffs imposed under the International Emergency Economic Powers Act are valid. Tariffs have typically been the realm of Congress, and lower courts decided Trump overstepped his authority in using IEEPA. The administration has said the tariffs are vital to revive U.S. manufacturing and that the president’s ability to regulate foreign financial transactions in an emergency allows tariffs.

The Trump administration has been preparing various other authorities to rebuild the tariffs if the Supreme Court strikes down the IEEPA tariffs, either through sector-oriented tariffs under Section 232 of the Trade Expansion Act of 1962, imposing more levies under Section 301 investigations already open targeting Brazil and China, or using untested legal authorities—such as Section 338 of the Tariff Act of 1930, which allows for tariffs up to 50%, or Section 122 of the Trade Act of 1974, which limits tariffs of 15% for just 150 days.

The IEEPA tariffs account for about half the tariff revenue the U.S. has brought in, according to the Yale Budget Lab.

But the administration may not be able to replace them entirely. The concerns about affordability could mean the administration waits until after midterm elections next year to do so, according to Kurt Reiman, head of fixed income at UBS Wealth Management said in a recent press briefing.

Veda’s Treyz also thinks a Supreme Court loss could give the Trump administration a backdoor way to pause its trade agenda and let tariffs lapse on hundreds of thousands of product lines and billions of dollars of imports, which would result in a stimulus Trump can claim without getting Congress on board.

That could be easier than the $2,000 tariff rebate checks that Trump has been floating sending to individuals. Tedford is skeptical: Congress would need to signoff on the payments, and he thinks it is far-fetched that even a majority of Republicans would support it. Among the issues: It would be costly to process such checks, and generating them would draw on the tariff revenue that was intended to help chip away at the increase the tax bill has on the fiscal deficit, he adds.

Another reason tariffs could stay in check for now: Monday’s call between Trump and Chinese leader Xi Jinping reinforced their efforts in keeping the fragile detente between the two countries on track. Trump formally accepted Xi’s invitation to visit Beijing in April, which could mean the U.S. holds off on sectoral tariffs related to semiconductors that could rattle that relationship.

While it may not raise the overall tariff rate, review of the United States—Mexico—Canada Agreement, or USMCA, next year is likely to inject some volatility into a critical trading relationship. In its comments to the Office of the U.S. Trade Representative (USTR) as part of the review process, the Chamber of Commerce said USMCA accounts for 13 million U.S. jobs and is the destination for more manufactured exports from the U.S. than the next 12 export markets combined.

USTR will hold hearings starting on Dec. 3 as part of its review. On analysts’ watchlist: Signs the Trump administration is leaning toward tweaking the pact or looking to upend it and seek bilateral agreements. The latter would spark another round of trade-related ripples, especially for autos and industrials.

Write to Reshma Kapadia at reshma.kapadia@barrons.com