US Trade Policy
US trade policy following the Supreme Court's IEEPA ruling (Feb 20, 2026) and the 15% Section 122 flat tariff. Analysis anchored to the 150-day authority expiration (~July 24), congressional action windows, and monthly trade data releases. Section 232 tariffs (steel, aluminum, autos) and Section 301 China tariffs remain in effect alongside the flat tariff.
US blanket tariffs (Section 122 or successor authority) of at least 10% remain in effect on July 24, 2026
All 5 markets below measure downstream outcomes conditioned on this event — comparing what happens IF TRUE vs IF FALSE.
Overall Assessment
Energy has overtaken tariffs as the dominant cost-push channel — ISM panelists attribute costs 2:1 to the Iran war over tariffs, WTI breached $104, and gasoline CPI has not yet reflected crude above $100 — meaning the inflation regime's resolution now depends more on Hormuz reopening (no timeline) than Section 122 expiration (July 24), fundamentally changing the risk composition from a trade policy question with a statutory endpoint to a geopolitical question with none.
The dominant structural shift since the March 28 analysis is the ascendance of energy as the primary cost-push channel, overtaking tariffs. The Iran war and Hormuz disruption have driven WTI to $104.69 (+17% in one week), Brent to $121.88, and ISM Prices Paid to 78.3 — the highest since June 2022 — with manufacturers attributing costs 2:1 to the Iran war over tariffs. This reorders the inflation regime: energy now accounts for an estimated 45-50% of cost-push pressure, tariffs 25-30%, and amplification effects 15-20%. Critically, gasoline CPI has not yet reflected crude above $100, embedding a further 15-20% retail gasoline increase in the pipeline. The February FT900 confirms the tariff pass-through is real — a $15.2B import surge that is entirely price-driven — but the headline overstates tariff-specific contribution because energy accounts for ~40% of the acceleration. Zero signals were reclassified, but all three updated lenses show material intensification: the ACCELERATING firewall narrowed from ~15% to 25-30% breach probability, SPILLOVER_RISK moved closer to the SYSTEMIC threshold, and global fragmentation expanded from one axis to three (trade + energy + semiconductor). The fundamental implication: even full removal of Section 122 tariffs — whether by CIT injunction, congressional action, or July 24 expiration — would eliminate only 25-30% of cost-push pressure. The inflation regime's resolution now depends more on geopolitical outcomes with no defined timeline than on trade policy with a statutory endpoint. April 10 presents a maximum information density day — simultaneous March CPI release and CIT oral arguments — that may force rapid reassessment of both trajectories.
Outcome Space
Each bar shows the probability range for a downstream outcome. Wider bars mean the outcome is more sensitive to the condition. The dot marks the current base-case estimate.
Key Findings
Energy has overtaken tariffs as the dominant cost-push channel: ISM panelists attribute costs 2:1 to the Iran war over tariffs (~40% vs ~20%), WTI surged to $104.69 (+17% in one week), and gasoline CPI has NOT yet reflected crude above $100 — embedding a further 15-20% gasoline price increase in the pipeline that could push retail prices to $4.50-4.80, fundamentally changing the inflation regime's resolution dependency from trade policy (Section 122 expiration) to geopolitical outcomes (Hormuz reopening).
The February FT900 reveals a $15.2B import surge that is ENTIRELY price-driven (real imports flat at 4,134) with approximately 60% attributable to tariff/composition effects and 40% to Iran/Hormuz energy shock — confirming tariff pass-through is real but headline numbers overstate the tariff-specific contribution, complicating policy attribution as CPI data arrives.
April 10 is a maximum information density day: simultaneous March CPI release and CIT oral arguments on Section 122 constitutionality — inflationary confirmation + binary legal catalyst on the same day could force rapid reassessment of both trade and monetary policy trajectories.
The ACCELERATING firewall is narrowing: ISM 78.3 historically predicts CPI goods inflation of 5%+ within 3-4 months, and four ACCELERATING trigger thresholds (core goods CPI, Michigan expectations, AHE, 5Y TIPS breakevens) are approaching simultaneously rather than sequentially — probability of firewall breach increased from ~15% to 25-30% over the May-July data cycle.
Global fragmentation expanded from single-axis (trade policy) to three-axis (trade + energy + semiconductor): Hormuz 90-95% collapse splits the world into energy-secure and energy-vulnerable blocs, Taiwan's $21.1B deficit deepens semiconductor chokepoint, and EU retaliation is paradoxically delayed by energy security cooperation needs — creating compounding rather than additive fragmentation risk.
Signal Dashboard (10 signals)
Pass-through ratio widened from 0.15-0.20 to 0.15-0.25; February $15.2B import surge entirely price-driven (real imports flat at 4,134); however, Iran/Hormuz energy shock accounts for ~35-40% of headline import cost acceleration, complicating clean attribution. ISM Prices Paid 78.3 confirms broad manufacturing cost pressure with dual tariff (~20% panelist citation) + energy (~40% citation) attribution.
Supply chains structurally static despite dramatic bilateral reshuffling — Taiwan overtook Vietnam as #1 deficit partner ($21.1B) driven by semiconductor dependence, not tariff arbitrage. Manufacturing employment flat at 12,591K; capital goods surge ($7.8B) consistent with front-loading rather than reshoring; Section 122's remaining ~110 days continues to suppress long-term investment.
Dual cost-push regime with energy now dominant (~45-50% of pressure) over tariffs (~25-30%), with amplification effects (~15-20%). ISM Prices Paid 78.3 with panelists attributing costs 2:1 to Iran war over tariffs. WTI breached $100 to $104.69 but gasoline CPI has NOT yet reflected this surge. No demand-pull component despite March NFP +178K (3-month average +68K remains below breakeven).
Confirmed PERSISTENT with evolving character: pipeline lags from tariff pass-through compounded by energy shock with no defined resolution timeline and gasoline CPI that has not yet reflected crude above $100. ISM 78.3 historically predicts CPI goods inflation of 5%+ within 3-4 months. ACCELERATING firewall intact but narrowing — probability of threshold breach in May-July data cycle increased to 25-30% (was ~15%).
Confirmed from previous assessment. March NFP +178K breaks weak trend but 3-month average remains +68K (below ~100K breakeven). Orderly loosening through reduced hiring; claims benign; manufacturing employment ticked up marginally to 12,591K but structural decline thesis intact.
Confirmed from previous assessment. AHE 3.5% YoY within STABLE range (3.0-4.0%); slight uptick from 3.4% but no acceleration or spiral dynamics. Real wage squeeze building as pipeline CPI of 3.5-4.0% would produce approximately zero real wage growth by mid-2026.
Confirmed from previous assessment. NFCI tightened further to -0.434 (from -0.475) but remains accommodative. Mixed signals: VIX eased to 24.5 (from 27.4), HY spreads eased to 317bp (from 321bp), but NFCI continued tightening trend. Aggregate stance remains LOOSE but directional tightening is persistent.
Confirmed from previous assessment with mixed signals. HY eased slightly to 317bp (from 321bp) and VIX retreated to 24.5 (from 27.4), relieving some pressure. However, the underlying dual cost-push regime (ISM 78.3, WTI $104.69) may drive re-tightening. Assessment increasingly stale — lens last run February 21.
Fragmentation expanded from single-axis (trade policy tiers) to three-axis: trade policy architecture (USMCA 0%, Section 122 15%, China ~34%), energy geopolitics (Hormuz 90-95% collapse splitting energy-secure/vulnerable blocs, Brent-WTI spread $17+), and semiconductor concentration (Taiwan #1 deficit at $21.1B, deepening TSMC dependency). EU retaliation paradoxically delayed by energy security cooperation needs.
Holds ELEVATED but moved materially closer to SYSTEMIC threshold. All four financial firewalls intact (dollar funding unstressed, EM stable, Treasury functioning, China managing transition), but dual cost-push now dominant with WTI at $104.69. Pathway to SYSTEMIC runs through energy duration — extended Hormuz blockade pushing WTI above $120 would trigger EM energy-importer stress.
Cross-Lens Themes (5)
Energy Overtakes Tariffs as Dominant Cost-Push Channel
The most significant structural shift since the previous analysis: the Iran war and Hormuz disruption have elevated energy from a supplementary cost-push channel to the dominant one. ISM panelists attribute costs 2:1 to Iran over tariffs. WTI surged from $89.33 to $104.69 (+17%) in one week, Brent reached $121.88. Critically, gasoline CPI has NOT yet reflected crude above $100, embedding further pipeline pressure. This fundamentally changes the regime's resolution dependency — even a full CIT injunction removing Section 122 tariffs would NOT resolve the inflation regime, because the energy channel alone sustains COST_PUSH classification and PERSISTENT risk. The economy's inflationary fate now depends more on Hormuz reopening than on Section 122 expiration.
The July 2026 Cliff Remains Critical — But No Longer Sufficient
All five lenses continue to identify Section 122's July 24 expiration (~110 days) as a critical variable. CIT oral arguments on April 10 create a near-term binary catalyst. However, the cliff's significance has diminished relative to the March 28 assessment: removing tariffs would eliminate only ~25-30% of cost-push pressure, with energy (~45-50%) and amplification effects (~15-20%) persisting. The cliff matters for trade architecture (multi-tier system, Section 301 replacement) and financial market signaling, but it is no longer the dominant determinant of the inflation trajectory. The parallel question — when does Hormuz reopen? — has no policy endpoint and no statutory timeline.
The Attribution Problem Arrives in Q2
As tariff and energy cost-push channels converge in Q2 CPI data, policymakers, markets, and the Fed face an attribution problem: distinguishing tariff inflation (transitory if Section 122 expires) from energy inflation (geopolitical duration uncertain) from amplification effects (interaction of both). The February FT900 already shows this: the $15.2B import surge is ~60% tariff and ~40% energy, but downstream CPI will not carry clean attribution labels. This complicates Fed response (cut rates for energy shock vs. hold for tariff persistence), CIT judicial reasoning (are economic harms from tariffs or from external shock?), and market pricing of the Section 122 expiration.
Three-Axis Global Fragmentation
Global fragmentation has expanded from a single trade-policy axis to three simultaneous axes: (1) trade architecture tiers (USMCA 0%, Section 122 15%, China ~34%, Section 301 investigations), (2) energy geopolitics (Hormuz 90-95% collapse creating energy-secure vs. energy-vulnerable blocs, Brent-WTI spread $17+), and (3) semiconductor concentration (Taiwan at $21.1B deficit, deepening TSMC dependency). These axes interact: EU retaliation is paradoxically delayed by energy security cooperation needs; Taiwan semiconductor dependency cannot be addressed by tariffs; energy-vulnerable EMs face compounding trade + energy pressure. The fragmentation is compounding rather than additive.
ACCELERATING Firewall Under Multi-Threshold Convergence
The PERSISTENT inflation assessment's firewall against upgrade to ACCELERATING remains intact (Michigan 1Y 3.40%, AHE 3.5%, 5Y TIPS 2.56%) but faces unprecedented pressure. ISM 78.3 historically predicts CPI goods inflation of 5%+ within 3-4 months. Four ACCELERATING trigger thresholds — core goods CPI, consumer expectations, average hourly earnings, and 5Y TIPS breakevens — are approaching their respective trigger levels simultaneously rather than sequentially. The probability of a multi-threshold breach in the May-July data cycle has increased from ~15% to 25-30%. The March CPI release on April 10 is the first concrete test.
Analytical Lenses
How are trade barriers transmitting through supply chains and prices to the real economy?
What is driving current inflation — demand, supply, or expectations?
How are international dynamics feeding back into US monetary conditions?
Are financial conditions tightening or easing beyond what policy rates suggest?
What is the labor market signaling about inflation pressure and growth sustainability?