From IEEPA Nullification to Sectoral Targeting: Policy Shock, Business Uncertainty, and Strategic Adaptation
February 2026 • Trade Policy & International Economics
Executive Summary
The invalidation of broad reciprocal tariffs under the International Emergency Economic Powers Act (IEEPA) by the US Supreme Court on February 20, 2026 — followed within 24 hours by the imposition of a 15% global tariff under Section 122 of the Trade Act of 1974 — constitutes a paradigmatic shift in US trade policy architecture. This case study examines the direct and structural implications for Singapore, the only Southeast Asian economy to face a net tariff increase under the new framework, and analyses the medium-term vulnerability arising from potential deployment of Section 232 sectoral tariffs against Singapore’s highest-value export categories.
The central analytical finding is that while the immediate macroeconomic impact on Singapore is manageable — owing to the exemption of semiconductors and pharmaceuticals from Section 122 — the structural risk profile has deteriorated significantly. The shift from broad-based to sectoral tariff instruments represents a transition from known, priceable costs to dynamic, politically contingent exposure in precisely those industries that underpin Singapore’s comparative advantage in US trade.
- Background: The Policy Architecture Shift
1.1 From IEEPA to Section 122
For much of 2025, the Trump administration’s tariff regime rested on the broad discretionary authority provided by IEEPA, which allowed the executive branch to impose emergency economic measures without explicit congressional authorisation. On February 20, 2026, the US Supreme Court struck down tariffs levied under this authority, ruling that the President had exceeded his constitutional mandate. The ruling immediately disrupted the existing tariff equilibrium.
The administration responded within hours by invoking Section 122 of the Trade Act of 1974, a provision designed to address balance-of-payments deficits that permits the President to impose import tariffs or quotas not exceeding 15% for a maximum of 150 days, extendable only with Congressional approval. A 10% global tariff was announced on February 20, followed by an increase to 15% via a Truth Social post on February 21 — a sequencing that itself signalled the improvised, high-velocity nature of current US trade policymaking.
Key Date Section 122 global tariffs take effect from 12:01 AM, February 24, 2026 — a 150-day clock that extends to approximately July 23, 2026, absent Congressional extension.
1.2 Singapore’s Position in the New Framework
Singapore is categorised among a small group of countries — and the sole representative from Southeast Asia — facing a tariff rate increase rather than a reduction under the new framework. Its effective US tariff rate rises from 10% to 15%, a 5 percentage-point increase that, while arithmetically modest, carries disproportionate signalling weight as the first upward revision Singapore has experienced under the current administration.
Category Previous Rate (IEEPA) Rate Under Section 122 Change
General goods (most sectors) 10% 15% +5 pp
Semiconductors Exempt (IEEPA) Exempt (Section 122) No change
Pharmaceuticals Exempt (IEEPA) Exempt (Section 122) No change
Vietnam-origin goods (Koda) 20% 15% (general) -5 pp
Kitchen cabinets / upholstered furniture (Vietnam) 25% 25% Unchanged
Source: Straits Times, February 24, 2026; US Federal Register; author compilation.
- Immediate Economic Impact Assessment
2.1 Aggregate Export Exposure
Singapore’s direct export exposure to the US is substantially buffered by sectoral exemptions. Semiconductors and pharmaceutical products — the two dominant categories in Singapore’s US-bound export portfolio — are specifically excluded from Section 122 tariffs. The rationale for this exemption is administrative rather than preferential: these sectors may be designated for future Section 232 tariffs (national security-based measures), and their inclusion under Section 122 would create regulatory overlap.
Consequently, the 15% tariff falls most heavily on manufactured goods, electronics peripherals, LED and display technology, and processed industrial products — sectors with meaningful but not dominant representation in Singapore’s US export mix.
2.2 SME Impact Dynamics
The Association of Small and Medium Enterprises (ASME) president Ang Yuit notes that the majority of SMEs — which constitute over 99% of registered companies in Singapore — are not direct US exporters and therefore face no immediate first-order tariff impact. The exposure is primarily indirect: cost pass-through from US importers, disruption to regional supply chains in which Singapore firms participate, and the dampening of investment appetite among larger trade-exposed enterprises.
For the minority of SMEs that do directly export to the US, the picture is more acute. EP-Tec Solutions, a Singapore-based manufacturer of LED display screens, offers a representative case. Its group general manager Alex Lim has identified that a 5 percentage-point tariff increase materially affects pricing competitiveness, project budgets, and procurement timelines, particularly in tight-margin end-markets such as education and corporate environments. The firm is exploring market diversification and partial manufacturing relocation to the US as adaptive strategies.
Case Example EP-Tec Solutions (LED displays): A 5 pp tariff increase compresses already thin margins in US institutional procurement markets. Strategic response includes market diversification and exploring US manufacturing presence if the tariff persists beyond the 150-day window.
2.3 The Uncertainty Premium: A Structural Cost
The most analytically significant near-term impact is not the tariff rate per se, but the elevated uncertainty premium embedded in business planning. Singapore Business Federation CEO Kok Ping Soon articulates this with precision: businesses can price and plan around a known, stable cost increase, but they are structurally impaired when the policy target is moving continuously.
This finding is consistent with real options theory in investment economics. Under conditions of elevated policy uncertainty, the option value of waiting — deferring capital allocation, delaying routing decisions, postponing supplier commitments — increases substantially. Firms rationally defer investment even when the expected value of the investment remains positive, because the variance of outcomes has widened. The observable manifestation is the investment and routing deferral now being reported across Singapore’s trade-exposed corporate sector.
Analytical Note Real options theory predicts that policy volatility suppresses investment independently of the level of the tariff rate. Even a ‘manageable’ 15% rate generates significant investment deferral when its duration, scope, and successors are uncertain. This dynamic is now observable across Singapore’s trade sector.
- Structural Risk: The Section 232 Exposure
3.1 Mechanism: From Broad to Sectoral Instruments
The Supreme Court’s nullification of IEEPA authority does not eliminate the administration’s trade policy toolkit — it redirects it. With broad cross-country tariff authority curtailed, the most legally robust remaining instrument for the executive is Section 232 of the Trade Expansion Act of 1962, which permits the President to impose tariffs or quotas on imports found to threaten national security. Historically deployed against steel and aluminium, Section 232 investigations have been opened or signalled for semiconductors, pharmaceuticals, and critical technology components — precisely the sectors that constitute Singapore’s tariff-exempt export base.
Tariff Instrument Legal Basis Current Status Singapore Risk
Section 122 Trade Act 1974, balance-of-payments Active — 15% global tariff from Feb 24 Direct: 15% on general goods
Section 232 Trade Expansion Act 1962, national security Pending for semiconductors, pharma High: threatens exempt sectors
IEEPA International Emergency Economic Powers Act Struck down by Supreme Court Feb 20 Removed — for now
Section 301 Trade Act 1974, unfair trade practices Active on China; potential extension Indirect supply chain risk
Source: Author compilation based on US trade law and current administration actions.
3.2 Singapore’s Sectoral Vulnerability Profile
Singapore’s semiconductor exports to the US are substantial, primarily in the form of wafer fabrication, test and assembly operations, and advanced packaging — activities hosted by US multinationals (GlobalFoundries, Micron, others) operating within Singapore’s industrial ecosystem. These exports currently benefit from exemption status, but an active Section 232 investigation into semiconductor supply chains could rapidly convert this advantage into liability.
Pharmaceutical exports, similarly significant, flow through Singapore’s established cluster of multinational manufacturing facilities. Should Section 232 tariffs be imposed on pharmaceutical imports on national security grounds — a scenario already under discussion in US policy circles — Singapore’s pharmaceutical export revenue would face a structurally new cost environment with limited near-term mitigation options.
3.3 The Bilateral Deal Gap
Asia Decoded’s Priyanka Kishore identifies the core strategic vulnerability: in an environment where competitor economies are pivoting toward bilateral tariff arrangements with Washington, the absence of a Singapore–US trade deal covering future Section 232 designations leaves Singapore exposed to incremental erosion of its tariff advantage. Countries that negotiate product-specific or sector-specific exemptions through bilateral channels could price themselves more competitively against Singapore in US markets, even where Singapore currently holds a structural cost advantage.
Singapore’s longstanding policy orientation — relying on multilateral frameworks and rule-based trade architecture rather than bilateral deal-making — is being tested by an administration that explicitly preferences bilateral transactional arrangements. The Deputy Prime Minister’s commitment to engage US counterparts on tariff clarity is a necessary but potentially insufficient response to a structurally altered negotiating environment.
- Firm-Level Adaptive Strategies
4.1 Market Diversification
For directly exposed exporters, the primary adaptive response is market diversification — reducing concentration in US-bound revenue and expanding into ASEAN, EU, and Middle Eastern markets. This strategy is well-aligned with Singapore’s existing international connectivity infrastructure but requires substantial lead time, particularly in sectors with established US customer relationships and procurement cycles.
4.2 Supply Chain Reconfiguration
Firms manufacturing elsewhere in the region — as in the case of Koda, which produces US-bound furniture in Vietnam — face a more nuanced calculus. Vietnam’s tariff rate has decreased under Section 122 (from 20% to 15% for general goods), providing a temporary cost advantage. However, as Koda’s executive director Ernie Koh notes, this advantage may prove short-lived if the administration pursues more targeted sectoral or country-specific measures. Supply chain decisions premised on temporary tariff differentials carry significant stranded-cost risk.
Case Example Koda (furniture manufacturing, Vietnam operations): Lower general tariff from 20% to 15% provides near-term relief, but the firm cautions against strategic reconfiguration on the basis of a temporary rate, given the likelihood of future targeted measures.
4.3 Cost Sharing with US Partners
A short-term mechanism widely employed by Singapore exporters during the 2025 tariff period was cost sharing with US importers — effectively absorbing a portion of tariff costs through pricing concessions to maintain market access. Koh notes that this approach has become less viable as new product cycles have allowed US buyers to price tariff costs into standard procurement, eliminating the basis for retroactive sharing. Going forward, tariff cost absorption by Singapore exporters will further compress already thin margins.
4.4 Manufacturing Presence in the US
For firms with sufficient scale, establishing or expanding US manufacturing operations eliminates import tariff exposure entirely and may qualify for preferential treatment under Buy American provisions. EP-Tec Solutions is actively exploring this option. However, this strategy is structurally accessible only to larger enterprises; most Singapore SMEs lack the capital base, operational bandwidth, or market scale to justify US manufacturing investment.
- Government Policy Response and Gaps
5.1 Current Measures
The Singapore government’s response has been measured and multi-track. Deputy Prime Minister Gan Kim Yong has confirmed engagement with US counterparts on tariff implementation clarity. The Ministry of Trade and Industry is seeking information on the mechanics of potential tariff refunds — though, as Singapore Manufacturing Federation president Lennon Tan notes, the legal incidence of tariffs on US importers means any refunds may not flow back to Singapore exporters, even where they have implicitly subsidised these costs through pricing concessions.
On the domestic support side, enhancements to the Market Readiness Assistance (MRA) grant — announced in Budget 2026 and effective from April 1, 2026 through March 31, 2029 — will provide higher-level support to SMEs pursuing internationalisation. The Singapore Manufacturing Federation has called for expanded flexibility in MRA grant coverage to accommodate tariff-related internationalisation expenses.
Policy Measure Status Applicability
US engagement on tariff clarity Active — DPM Gan confirmed All exporters
Market Readiness Assistance (MRA) grant enhancements Effective April 1, 2026 SMEs — internationalisation
Tariff refund process clarification Pending — MTI seeking details US importers (primary beneficiaries)
Bilateral deal negotiations with US Not confirmed — exploratory Semiconductor, pharma sectors
Source: Author compilation based on Singapore government statements, February 2026.
5.2 Strategic Gaps
Three strategic gaps remain inadequately addressed. First, there is no confirmed pathway to a bilateral sectoral deal with the US covering semiconductors and pharmaceuticals under potential Section 232 proceedings — the most material medium-term risk. Second, the 150-day duration of Section 122 tariffs creates a structural planning horizon problem: firms cannot commit to medium-term investment or routing decisions when the policy environment will materially change (or expire) within five months. Third, the asymmetry in tariff refund recovery — where US importers hold the legal claim to any refund — leaves Singapore exporters exposed to sunk concession costs with limited recourse.
- Scenario Analysis
Scenario A — Section 122 Expires Without Extension (Baseline Positive)
If Congress declines to extend Section 122 authority beyond the 150-day window and no successor mechanism is immediately deployed, Singapore’s effective US tariff rate reverts to approximately 10% under existing MFN schedules. This represents a return to the pre-February 2026 status quo, with modest disruption costs absorbed by trade-exposed firms. Probability: moderate, conditional on continued congressional-executive tension over trade authority.
Scenario B — Section 122 Extended or Replaced by Bilateral Framework
If the administration negotiates bilateral tariff frameworks with major economies during the 150-day window, Singapore faces pressure to enter its own arrangement or risk being disadvantaged relative to countries that do. A bilateral Singapore–US deal could lock in favourable rates for semiconductors and pharmaceuticals, but would require Singapore to offer concessions in areas such as pharmaceutical pricing, digital trade rules, or financial services market access. Probability: moderate-to-high, given administration’s stated preference for bilateral arrangements.
Scenario C — Section 232 Imposed on Semiconductors and/or Pharmaceuticals (Tail Risk)
If the administration imposes Section 232 tariffs on semiconductors or pharmaceutical imports, Singapore’s currently exempt export categories face a materially higher cost structure. Given Singapore’s manufacturing concentration in both sectors and the limited short-term substitutability of production location for established multinational operations, this scenario would represent a significant structural adverse shock. Probability: lower in a 6-month horizon, but non-trivial over a 12–24 month horizon given existing Section 232 investigation signals.
- Conclusions
The February 2026 US tariff realignment represents a more significant structural development for Singapore than the headline 15% rate implies. The Supreme Court’s curtailment of IEEPA authority has not reduced US tariff pressure — it has redirected it toward instruments that are more precisely targeted, legally more durable, and more threatening to Singapore’s specific export strengths.
The immediate impact on Singapore is manageable, cushioned by sectoral exemptions for the highest-value export categories. The medium-term risk, however, is structurally elevated. Singapore’s tariff advantage in the US market — historically underpinned by its manufacturing excellence, rule-of-law premium, and multilateral trade orientation — is now subject to bilateral deal-making dynamics in which it has limited leverage relative to larger economies capable of offering more substantial trade concessions.
The central policy imperative is to close the bilateral deal gap on sectors vulnerable to Section 232 designation, before those investigations materialise into tariff impositions. The current window — during which Singapore retains the credible threat of redirecting investment and routing decisions — provides negotiating leverage that will diminish once Section 232 proceedings advance.
For business, the prescriptive conclusion mirrors the Singapore Manufacturing Federation’s assessment: long-term strategic plans premised on a stable US tariff environment should be treated as provisional until the Section 232 exposure is resolved. Adaptation strategies — market diversification, supply chain optionality, and where feasible, US manufacturing presence — represent rational responses to a structurally uncertain medium-term environment.
References
Liang, A. (2026, February 24). “US tariff moves spark renewed anxiety among Singapore firms.” The Straits Times. Singapore Press Holdings.
US Supreme Court (2026, February 20). Ruling on IEEPA-based reciprocal tariffs. Washington, D.C.
US Trade Act of 1974, Section 122 — Balance of Payments Authority. 19 U.S.C. § 2132.
US Trade Expansion Act of 1962, Section 232 — Imports and National Security. 19 U.S.C. § 1862.
Kishore, P. (2026). Quoted in The Straits Times. Asia Decoded, Singapore.
Singapore Budget 2026 — Market Readiness Assistance Grant Enhancements. Ministry of Finance, Singapore.
Dixit, A.K. & Pindyck, R.S. (1994). Investment Under Uncertainty. Princeton University Press.