Two trade shocks hit the U.S. economy in early 2026, pulling inflation in opposite directions — and canceling each other out. On February 20, the Supreme Court struck down a portion of IEEPA tariffs, cutting average U.S. import costs by roughly 4.8 percentage points. Weeks later, Iran closed the Strait of Hormuz, driving global shipping costs sharply higher.
According to new analysis from the Dallas Fed, the shipping cost increase triggered by the Hormuz closure fully offsets the disinflationary effect of the tariff rollback — leaving the net impact on U.S. core PCE inflation near zero, with upside risks ahead.
Two opposing trade shocks hit the U.S. in early 2026
The first months of 2026 delivered back-to-back disruptions to U.S. trade flows. On February 20, the Supreme Court struck down the IEEPA-specific portion of tariffs the administration had imposed in April 2025, reducing average U.S. import tariffs by approximately 4.8 percentage points. That ruling offered a clear, if partial, source of price relief for American importers.
Then, beginning March 1, Iran closed the Strait of Hormuz, halting nearly all ship transits through the waterway. Vessels were stranded in the Persian Gulf almost immediately, scrambling global shipping logistics and pushing trade costs higher across multiple cargo categories.
To assess how these two shocks interact, the Dallas Fed applied a trade-disruption inflation model built specifically to trace how changes in tariffs and shipping costs work their way through production chains into consumer prices.
Why the tariff ruling produced only a modest disinflationary effect
The IEEPA tariffs announced in April 2025 had already left a visible mark on prices — raising average U.S. import costs by roughly 12.1 percentage points and adding about 0.8 percentage points to 12-month core PCE inflation by year-end 2025.
The Supreme Court ruling reversed only the IEEPA-specific portion of those measures. Other tariff measures stayed in place, producing a net reduction of 4.8 percentage points. In isolation, the Dallas Fed model estimates that reduction would lower core PCE inflation by approximately 0.2 percentage points by year-end 2026.
That estimate assumes no further tariff changes follow. Since the ruling, the U.S. Trade Representative has opened multiple investigations under Section 301 of the Trade Act of 1974, which targets trade practices deemed unfair to U.S. commerce — and those investigations signal possible additional tariff measures ahead. If they push the average U.S. tariff rate back into the 12–13 percent range, the disinflationary effect of the ruling narrows to roughly 0.1 percentage points. The court ruling’s impact is real, but modest, and its final magnitude depends heavily on what trade policy does next.
Hormuz closure drove shipping costs higher and erased tariff relief
The Strait of Hormuz handles roughly one quarter of global crude oil and petroleum product volumes, along with significant flows of chemicals, containers, and dry bulk cargo. When Iran closed the strait on March 1, those flows came to a near-complete standstill.
The Dallas Fed model incorporates the closure as an increase in route-specific shipping costs between the Middle East and the United States, China, advanced foreign economies, and Asia. A 5 percent trade cost increase serves as a conservative lower bound — though actual costs rose far more sharply. The Shanghai Containerized Freight Index climbed more than 50 percent between February 20 and April 10, with freight jumping more than 6 percent in the week immediately before the closure, likely driven by a spike in Iranian oil exports and rising shipping insurance premiums.
Even at that conservative 5 percent assumption, the shipping cost shock fully offsets the disinflationary impact of the tariff ruling, adding approximately 0.1 percentage points to four-quarter core PCE inflation in Q4 2026.
Net inflation effect close to zero, with upside risks remaining
Taken together, the two shocks nearly cancel each other out. The Dallas Fed’s combined model result leaves the net effect on core PCE inflation through year-end 2026 close to zero — but that is not the same as neutral.
Because 5 percent represents a strict lower bound on actual shipping cost increases, the Dallas Fed warns that additional inflationary pressure from global shipping disruptions should be expected. Higher oil prices resulting from the closure add a further upside risk to core inflation beyond the shipping cost channel alone. Higher input costs also work gradually through production chains, which is why the effect shows up most clearly in Q4 2026 rather than at the moment the shocks occurred.
The Dallas Fed’s conclusions are straightforward. The Supreme Court’s partial IEEPA tariff rollback would, on its own, reduce core PCE inflation by roughly 0.1–0.2 percentage points by year-end 2026. The Hormuz closure fully offsets that relief through shipping cost increases alone — before accounting for oil price effects. The net result leaves U.S. core inflation on an upward path relative to year-end 2025 forecasts, with the balance of risks tilted higher.
Carlos is an engineer with strong expertise in technical and industrial topics. He previously worked at international companies such as Siemens and speaks Spanish, German, English, and Italian.
