Prepare for More Tariffs in 2026

 

“A year ago, as the dust settled from President Trump's re-election, Wall Street was confident that he wouldn't follow through on his campaign promises about tariffs. By spring, reality had set in. The world's largest economy had the highest effective tariff rates in nearly a century, and Mr. Trump was committed to resetting the global trade system. "The magnitude was much worse than expected," Morgan Stanley wrote in April, after "Liberation Day."

 

Fast forward to today, and markets are at risk of making the same mistake. Read the end-of-year notes from many of the world's largest banks. Deutsche Bank, in its 2026 world outlook, stated this month that "lower tariff rates should help disinflation." JPMorgan commented that "future trade deals may reduce tariff rates." In November, at a roundtable of the chief economists from 20 major international banks, the conclusion was unanimous about what was to come in 2026: "Tariff effects are expected to fade into the background."

 

If only wishing made it so. The second year of the second Trump administration is likely to look much like the first in trade policy. Here's why:

 

-- The Supreme Court. If the justices rule in January that the president's use of the International Emergency Economic Powers Act was unlawful, most of Mr. Trump's tariffs would be wiped off the board. My team at the Atlantic Council estimates more than $100 billion in annual revenue would potentially be open to refund claims. While equity markets may cheer such a decision, bond markets are likely to pull an inverse of Liberation Day and raise alarms about the potential revenue shortfall they'd been banking on since the deficit-expanding One Big Beautiful Bill Act passed this summer.

 

That's why Mr. Trump and his trade team are ready. Backup plans are being made, and in the immediate aftermath of such a decision from the court, expect to see a range of new Section 232 and 301 investigations and the leveraging of existing investigations. The administration will also try to use Section 122 of the 1974 Trade Act to re-create the IEEPA tariffs. But Section 122 has never been used for tariffs, has a time limit of 150 days unless Congress extends it, and may not allow Mr. Trump to create different tariff rates for different countries (sorry, U.K.).

 

The result: Companies will ask for refunds they may not get, countries will unsuccessfully try to change their framework agreements, and the president will launch new tariff processes as he tries to rebuild his trade regime brick by brick. That doesn't sound like tariff relief but more uncertainty for businesses trying to plan inventories throughout the year.

 

-- The U.S.-Mexico-Canada Agreement. USMCA, the world's largest free-trade zone as measured by economic output, is at risk of unraveling. U.S. Trade Representative Jamieson Greer said recently that it's possible a deal doesn't happen, or that bilateral deals on smaller areas of the trading relationship are all that get accomplished. Canada's Prime Minister Mark Carney immediately disagreed, observing that, in his country's talks with the U.S., "that's not what they're saying." But the first half of 2026 is going to look eerily similar to the first half of 2025, with the president threatening both Canada and Mexico with new tariffs -- especially if negotiations seem to be going off track.

 

-- The European Union. Perhaps the most tenuous of the existing frameworks is the one the president is proudest of: the so-called Turnberry deal. But if you take stock of the past few weeks -- the imposition of sanctions against former European Commissioner Thierry Breton, the European Commission's 120 million euro fine against Elon Musk and X, Secretary of State Marco Rubio's response that it was an "attack on all American tech platforms," the alarming statements about Europe in the National Security Strategy, and Mr. Trump's threat to pursue tariffs on products from Spain and France -- it's reasonable to think that the deal may not exist in its current form come this time next year.

 

-- The Federal Reserve. This summer, Mr. Trump's senior trade adviser Peter Navarro claimed the Fed is a major obstacle to implementing the president's trade strategy. Mr. Trump may not have that problem come spring. With a new Fed chairman in place and lower interest rates possibly on the way, the president will feel even more emboldened to pursue tariffs -- assuming that Jerome Powell's successor won't worry about potential inflationary effects.

 

The Fed, however, doesn't operate solely on the chairman's prerogative. That, combined with a likely temporary trade detente with China, may be all the markets need to assume any new tariff storms can be weathered in the year ahead.

 

Overconfidence, however, is a risky strategy in the Trump era. At the Atlantic Council this month, Mr. Greer was asked if next year would be calmer than the previous one when it comes to trade.

 

"That's a question for President Trump," he replied. By now we should know what that means.

 

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Mr. Lipsky is chair of international economics at the Atlantic Council and a former adviser to the International Monetary Fund.” [1]

 

1. Prepare for More Tariffs in 2026. Lipsky, Josh.  Wall Street Journal, Eastern edition; New York, N.Y.. 30 Dec 2025: A17.