Tariff Tensions Will Follow Investors Into the New Year. Here’s Why.

Trade concerns will continue to exist in 2026. (Justin Sullivan/Getty Images)

Key Points

• The Supreme Court is expected to rule in early 2026 on the legality of tariffs imposed by President Trump, with Polymarket indicating over 70% odds of them being struck down.
• Cracks are emerging in trade deals with countries including Indonesia and the European Union, potentially leading to new trade challenges and tariffs.
• The U.S. is reviewing the USMCA trade agreement, with potential for volatility and threats of withdrawal.

This year may go into the books as one marked by trade volatility, but 2026 may not be as calm as some investors hope.

Trade concerns will linger in the new year, with the Supreme Court expected to rule in early 2026 on the legality of a swath of tariffs imposed by President Donald Trump in 2025.

Cracks are also forming in some of the initial trade pacts that were announced in recent months with foreign countries.

Here’s what investors need to know.

The Supreme Court

The nation’s highest court will decide whether Trump’s use of the International Emergency Economic Powers Act, or IEEPA, to impose tariffs was lawful.

The Trump administration has argued that the president had the authority to impose sweeping tariffs because he declared an emergency, while a group of small businesses have argued Trump overstepped his authority in imposing the levies. Lower courts ruled that the tariffs illegal.

Polymarket puts the odds of the Supreme Court striking down Trump’s IEEPA tariffs north of 70%. Such a ruling could spark a range of questions about refunds and how the Trump administration could replace lost tariff revenue through other legal channels.

A decision that strikes down IEEPA tariffs could also raise questions about the administration earlier this year suspending the de minimis exemption, which had allowed shipments under $800 into the country duty-free. The suspension hurt sales of fast-fashion giants like Shein and Temu, and created supply chain challenges for the likes of Lululemon.

Though de minimis didn’t come up in oral arguments before the Supreme Court and isn’t expected to be directly mentioned in a ruling, the Trump administration referenced IEEPA when the exemption was removed.

“If the court were to invalidate IEEPA tariffs, the decision could be used as a basis for other lawsuits to challenge de minimis,” says Ryan Majerus, King & Spalding partner and former U.S. trade official.

Such a challenge, if successful, could give retailers a short reprieve until legislation kicks in next year to remove the exemption.

The Trump administration, amid mounting concerns from voters about the cost of living, could prompt officials to take time to rebuild tariff revenue and possibly lean on Section 301 of the Trade Act of 1974 for unfair trade practices and sectoral tariffs under Section 232 of the Trade Expansion Act of 1962. Such a move could allow importers to build up their inventories. That could create a repeat of the buying spree earlier this year, as companies rushed to stockpile inventory ahead of tariffs.

A new levies strategy from the U.S. government may create a new set of challenges for companies—and spur more costly legal bills as businesses strategize around new tariff authorities.

“Companies have this comfort about trade policy, but it could be like Liberation Day 2.0—not in terms of rates but the mass uncertainty and confusion. There won’t be a single answer,” says Treyz.

Crumbling deals

Trade experts see cracks in some of the deals the U.S. has struck with trading partners, such as initial pacts with Indonesia, the European Union, and the United Kingdom.

“Everyone is coming back at the second bite of the apple,” says William Reinsch, former Commerce Department official and currently a senior advisor at the Center for Strategic and International Studies, a bipartisan policy think tank.

For example, Indonesia has been pushing back on some of the elements of its deal, Reinsch says. Press reports have noted disagreement between U.S. and Indonesian officials over Indonesia’s commitments to remove non-tariff barriers and digital trade issues. When asked about the situation recently, U.S. Trade Representative Jamieson Greer declined to comment. Indonesian officials have said negotiations are ongoing.

The European Union, meanwhile, is looking for lower tariffs for its steel and aluminum export—and analysts say that both the U.S. and the EU have hit hurdles on issues around digital services and agriculture.

Greer recently threatened tariff hikes or other measures if the EU didn’t ease up on “discriminatory and harassing lawsuits, taxes, fines, and directives” against U.S. technology. The EU has said its rules apply equally and fairly to all companies operating in the union.

Veda’s Treyz says the EU could be a target of a Section 301 investigation into unfair trade practices which could pave the way for tariffs. Other probes are already in the works against Brazil and India, and Treyz says there could be others against Southeast Asian countries that would target rerouting of Chinese exports through their markets.

The U.S. is also embarking on a review of the U.S.-Mexico-Canada agreement, or USMCA, which impacts $1.8 trillion in goods and services trade. Earlier this month, Greer said that all options —including an exit of the USMCA—are under consideration.

Analysts expect USMCA negotiations to become a focus in the second quarter, with likely volatility around the discussions. “Trump is going to regularly threaten to withdraw and try to leverage that to negotiate bilateral agreements,” Reinsch says.

China

Trump and Chinese leader Xi Jinping reached a detente in late October that included an agreement to hold off on expanded trade restrictions on the U.S. and China—fueling investor optimism that tensions between the two countries could be put on the back burner until Trump’s expected visit to China in April.

But potential spoilers abound, including possible backlash to the U.S. approving an $11 billion arms package to Taiwan. China condemned the move on Friday.

Both sides have been prepping measures if the relationship goes awry, analysts say.

“Between now and April, one side will do something other doesn’t like and the other will retaliate so [the relationship] will spiral again,” Reinsch says. “Then, there will be a rescue mission so that the April meeting can create another cease fire. It’s the same scenario over and over again.”

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