From Tariffs to Sovereign Debt Distress

On 20 February 2026, the United States (‘US’) Supreme Court held in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act (‘IEEPA’) does not authorise the President to impose tariffs. The 6-3 decision, authored by Chief Justice Roberts and joined by Justices Sotomayor, Kagan, Gorsuch, Barrett, and Jackson, invalidated the sweeping tariffs that had been in force since February 2025 on imports from virtually every US trading partner. Within hours, the administration terminated all IEEPA tariffs and replaced them with new measures under different statutory authority. The legal scramble continues.

The ruling has attracted considerable attention for what it means for US constitutional law and executive power. Far less attention has been paid to what it means for developing countries already in or approaching sovereign debt distress. This post argues that the US tariff shock since 2025, and the legal uncertainty that followed Learning Resources, expose a structural governance gap in international law. Three regimes bear on the problem: the World Trade Organization (‘WTO’) addresses trade distortions, the international sovereign debt architecture addresses restructuring after crises materialise, and international human rights law addresses the effects of unsustainable debt on populations. Yet these regimes operate in separate silos. No international legal framework connects unilateral trade measures to their downstream sovereign debt consequences. The result is that a major power can push vulnerable states toward debt crises without any form of international legal accountability.

The Tariff Shock and Sovereign Debt Distress

The IEEPA-linked tariff regime was unusually large in scale, with US tariff rates rising sharply during 2025 and reaching historically high levels. Under the reciprocal tariffs announced on 2 April 2025, many developing countries were hit hard, including least developed countries. The April annex shows especially steep rates for Laos at 48 percent, Sri Lanka at 44 percent, and Angola at 32 percent.

As Debt Justice documented, the twenty lowest-income countries with the highest external debt burdens all faced tariffs of at least 10 percent. Angola, which spent over 63 percent of government revenue on external debt service in 2023-25, was subject to a 32 percent tariff. Bond yields across these twenty countries rose by an average of 1.3 percentage points within a single week, pushing average yields above 11 percent. Commodity prices fell sharply: oil declined 12 percent; copper dropped 10 per cent. For commodity-dependent economies such as Angola, Cameroon, Nigeria, and Senegal, these compounding effects were severe (all figures are from Debt Justice).

Three transmission channels were identified: reduced export revenues diminish the foreign exchange needed to service dollar-denominated debt; supply chain disruption weakens demand for intermediate goods; and the broader slowdown depresses commodity prices and growth. The International Monetary Fund (‘IMF’) revised its 2025 growth forecast for emerging market and developing economies downward to 3.7 percent. Meanwhile, the IIF Global Debt Monitor reported that global debt reached a record US$348 trillion by the end of 2025, with emerging-market debt ratios at an all-time high of 235 percent of GDP and more than US$9 trillion in redemptions due in 2026.

The Learning Resources Ruling and What Comes Next

In Learning Resources, the US Supreme Court held that IEEPA does not authorise the President to impose tariffs. The Court’s reasoning treated tariff-setting as a congressional power and read IEEPA’s authority to “regulate… importation” as insufficient to create a tariff-setting power. The administration then turned to Section 122 of the Trade Act of 1974, which allows temporary import surcharges of up to 15 percent for no more than 150 days unless Congress extends them.  In parallel, the US Trade Representative (‘USTR’) opened two sets of Section 301 investigations in March 2026: one covering 16 economies over manufacturing overcapacity, and another covering 60 economies over alleged failures to address forced-labour imports. Those investigations show that the administration seeks alternative legal routes for trade restrictions after the IEEPA ruling.

For developing countries, the resulting legal uncertainty may matter as much as the tariff rate itself. Investors, credit rating agencies, and sovereign lenders all price in policy uncertainty, and a country that cannot know whether it will face a 10 or 15 percent surcharge in six months will struggle to plan fiscal policy, negotiate debt terms, or attract investment. The tariff rates may change, but the disruption to developing country fiscal planning has already begun.

Three Legal Silos and a Governance Gap

International law distributes responsibility for trade, debt, and human rights across three regimes. None is equipped to address the causal chain that runs from unilateral trade measures to sovereign debt distress in third states. The three regimes differ not only in their substantive content but in their fundamental structure and orientation. International human rights law operates vertically: it governs the relationship between the state and the individual, imposing obligations on states to respect, protect, and fulfil the rights of persons within their jurisdiction or, to a contested extent, their effective control. Trade law operates horizontally: it disciplines the conduct of WTO members in their dealings with one another, creating reciprocal obligations on tariffs, non-discrimination, and market access. Sovereign debt restructuring occupies a different register: it addresses the relationship between a debtor state and its creditors, in a field dominated by creditor preferences and lacking any binding multilateral framework. These structural differences mean that no single regime captures the full chain of harm that runs from a unilateral trade measure, through fiscal disruption in third states, to the populations who bear the consequences.

The WTO system addresses trade distortions, and the US tariffs appear to contravene core obligations: the most‑favoured‑nation principle under Article I GATT, tariff‑binding commitments under Article II, and the prohibition on unilateral determinations under Article 23.2 of the DSU. Several WTO members, including China, Canada, the European Union, and Brazil, have brought disputes against the United States over its high and discriminating tariffs. Yet the WTO Appellate Body has been non‑functional since December 2019, after the United States blocked the appointment of new members. The US invokes the national security exception under Article XXI GATT to justify many of its measures; a practice that critics argue stretches the clause beyond its original intent. Even where dispute settlement is available, WTO remedies are structured to address trade policy breaches between the disputing parties, not to trace the ripple effects of tariffs through commodity markets, currency movements, and sovereign bond spreads into the budgets of low‑income states. The WTO was not designed to do so.

The international sovereign debt architecture addresses restructuring after crises materialise, but not the underlying causes of debt distress. The G20 Common Framework has proven painfully slow: only four countries have applied (Chad, Ethiopia, Ghana, and Zambia), and some cases have taken years to conclude. The Global Sovereign Debt Roundtable remains non‑binding. The Compromiso de Sevilla, adopted at the Fourth International Conference on Financing for Development (‘FfD4’) in July 2025, called in its paragraph 50(f) for an intergovernmental process at the United Nations to explore options for addressing debt sustainability, including but not limited to a multilateral sovereign debt mechanism. Yet the function of this process is limited to making recommendations, and several major creditor states, including the US, the United Kingdom, Canada, Japan, and Switzerland, dissociated from the provision. As the Afronomicslaw Sovereign Debt Quarterly Brief observed, FfD4 failed to establish a binding debt workout mechanism, leaving the creditor‑dominated architecture intact. Crucially, no mechanism in this architecture links the trade policies of creditor states to the debt sustainability of debtor states.

International human rights law names the consequences but cannot compel a remedy. The Office of the High Commissioner for Human Rights has argued consistently that unsustainable sovereign debt undermines economic and social rights. The Human Rights Council’s Guiding Principles on Foreign Debt and Human Rights and the General Assembly’s Basic Principles on Sovereign Debt Restructuring Processes articulate relevant norms. Yet these instruments are declaratory and non-binding. They impose no obligations on a state whose unilateral trade measures cause debt distress elsewhere. The concept of extraterritorial obligations under the International Covenant on Economic, Social and Cultural Rights remains contested, and no enforcement mechanism exists.

The governance gap is therefore structural: no international legal forum can hold a state accountable for the sovereign debt consequences of its unilateral trade measures.

Towards Connecting the Silos

Closing this gap will require several complementary steps. First, trade shock analysis should be systematically integrated into IMF and World Bank debt sustainability assessments. At present, these assessments treat external shocks as exogenous. The IMF’s Debt Sustainability Analysis methodology applies ‘sensitivity tests’ for ‘macroeconomic developments’ but these are structured as standardised exogenous shocks rather than policy-attribution analyses. Similarly, the World Bank–IMF Low-Income Country Debt Sustainability Framework uses ‘tailored scenario tests’ but within a framework designed for typical commodity and exchange-rate volatility, not trade-policy attribution. Where a trade shock results from an identifiable policy decision by a specific trading partner, this should be documented and its fiscal effects modelled explicitly.

Second, the Sevilla Forum on Debt, launched at the United Nations Conference on Trade and Development (‘UNCTAD’) in October 2025, provides a potential platform for developing norms that link trade policy to debt sustainability. Its broad mandate could accommodate discussions that neither the G20 Common Framework nor the WTO currently permits.

Third, and most ambitiously, international lawyers should examine whether the International Law Commission’s Articles on State Responsibility offer a pathway for accountability. Article 1 provides that every internationally wrongful act of a state entails its international responsibility. Article 2 requires an act or omission attributable to a state that constitutes a breach of an international obligation. If tariffs violate WTO bindings, the wrongful act exists. The question is whether the consequential economic harm to third states, including fiscal harm that triggers or deepens debt distress, constitutes an injury within the meaning of Article 31, which requires full reparation for the injury caused by the wrongful act. This chain of causation is untested, and questions of attribution, remoteness, and the relationship between WTO-specific remedies and general international law remain open. Yet the absence of precedent is not a reason to avoid the inquiry. It is a reason to pursue it. If international law is to take the sovereign debt consequences of trade policy seriously, the conceptual groundwork must be laid.

Fourth, domestic anti-holdout legislation in creditor jurisdictions offers a complementary mechanism. As Hinrichsen, Reichert-Facilides, Waibel, and Wiedenbrüg have recently demonstrated, legislation in Belgium, the United Kingdom, and France, together with pending proposals in New York, seek to facilitate orderly restructuring when trade shocks trigger debt crises. These domestic tools do not resolve the international governance gap, but they reduce the costs that fall on debtor states when restructuring becomes necessary.

Conclusion

Learning Resources exposed the fragility of the domestic legal basis for US tariffs. It did not repair the fragility of the international legal framework that is supposed to protect vulnerable states from the tariffs’ economic consequences. The IEEPA tariffs have been replaced by others, and the replacement measures are themselves being challenged. For developing countries already in or near sovereign debt distress, the damage was done during the months the tariffs were in force, and the uncertainty that followed compounds it. Until international law can address the governance gap that arises from the siloed operation of its trade, debt, and human rights regimes, developing countries will continue to bear the costs of unilateral decisions made elsewhere. That gap is one the discipline of international law should be working to close.