Trade experts warn that United States President Donald Trump’s new 15% global tariffs, imposed under Section 122 of the 1974 Trade Act, is another legal strike out waiting to happen. They note that using a measure aimed at correcting balance-of-payments deficit makes no sense where there is no deficit to show.
The Supreme Court of the United States (SCOTUS) with a 6-3 majority handed Trump his first major defeat since returning to the White House, ruling that his global tariffs exceed legal authority. The International Emergency Economic Powers Act (IEEPA) of 1977 is a national emergency law.
What has Donald Trump done after SCOTUS verdict?
Hours after SCOTUS overturned his IEEPA-based tariffs on 20 February, Trump signed an executive order implementing 10% tariffs and raised the rate to 15% the next day, on 21 February.
This time, the tariffs are imposed under Section 122, which allows for a temporary import surcharge (up to 15%) for 150 days to address balance-of-payments deficits. Beyond the five-month period however, Trump requires Congressional approval to continue imposing the duties.
According to economists at the Penn-Wharton Budget Model (PWBM), the SCOTUS verdict has also opened a path for refund claims worth over $175 billion on the more than $133 billion collected in tariffs so far.
Key FAQs: What is Section 122? When is it used?
Section 122 of the 1974 Trade Act grants the US president Balance-of-Payments (BOP) Authority, allowing them to impose a “temporary import surcharge” (aka tariff) of up to 15% or implement import quotas. These measures are only valid for 150 days without congressional approval, and the president must get Congress to approve any extensions.
This measure is meant to be temporary and generally imposed to address “large and serious United States balance-of-payments deficits”. According to US-based law firm Holland and Knight, any attempt to recreate the Reciprocal Tariffs under Section 122 would need to conform to the regulatory limits and satisfy the statute’s balance-of-payments criteria.
Why do experts feel Section 122 tariffs are also ‘illegal’?
Economists and trade experts think there is legal basis for Trump’s use of Section 122 to impose tariffs, and these could thus also be successfully challenged.
In a post on social media platform He noted that the Act has a host of requirements that need to be satisfied in order to be applicable, including a “large and serious” US balance-of-payments deficit — which does not exist today.
“A balance of payments deficit is not the same thing as a trade deficit. You cannot have a balance of payments if you have a flexible exchange rate, as the US currently does,” he added. Berezin has previously also worked with Goldman Sachs and the International Monetary Fund (IMF).
‘Economic conditions for Section 122 no longer exist’
Economist Alan Reynolds further noted that there is no balance-of-payments deficit justification for Trump’s newest tariffs as the country’s “current account trade deficit is fully funded by the capital account surplus” i.e. net foreign capital inflows into the US.
In a longer, more detailed post, he called the new tariffs illegal noting that the 60s and 70s economy (when the US Dollar was tied to Gold), that necessitated Section 122 no longer exists.
“Now, over a half century later, these conditions no longer obtain… We have strong capital inflows and our highly liquid financial markets are the envy of the world. Notwithstanding trade deficits, there is no balance of payments problem. Nor is it necessary, as Section 122 puts it, to impose temporary tariffs in order “to prevent an imminent and significant depreciation of the dollar in foreign exchange markets”. Because President Trump has no unilateral authority to order tariffs, he cannot even close.”
Bryan Riley, director of the National Taxpayers Union’s Free Trade Initiative in multiple posts on “Because the United States does not face such a problem, it cannot legally be used to impose new tariffs,” he added.
It seems like a matter of time before Donald Trump’s Section 122 tariffs are also challenged.
Apart from this, duties under section 232 of the Trade Expansion Act of 1962 (National Security); and section 301 of the Trade Act of 1974 (Unfair Trade), remain unchanged. And, the Office of the United States Trade Representative has been directed to use its section 301 authority to investigate certain unreasonable and discriminatory acts, policies, and practices that burden or restrict US commerce.
