Washington: US President Donald Trump’s newly implemented 15 percent tariffs, intended to replace those invalidated by the Supreme Court, are already facing potential legal challenges. The administration shifted its strategy after the court struck down its use of the International Emergency Economic Powers Act (IEEPA) to justify the tariffs, but the new duties, levied under Section 122 of the Trade Act of 1974, are drawing scrutiny from economists and legal experts.
The Trump administration began collecting the tariffs at midnight on Tuesday, following the cessation of IEEPA-based collections. The move raises questions about the legality of invoking a statute that, according to reports, even Trump’s own legal team previously considered irrelevant.
Why the New Tariffs Could Face Legal Troubles
Section 122 of the Trade Act of 1974 authorizes the president to impose duties of up to 15 percent for a maximum of 150 days on any country to address “large and serious” balance-of-payments deficits and “fundamental international payments problems.” The Trump administration argued that a $1.2 trillion annual US goods trade deficit, a current account deficit of 4 percent of GDP, and a reversal of the US primary income surplus constituted such a crisis.
However, economists, including former International Monetary Fund First Deputy Managing Director Gita Gopinath, have disputed this assessment. Experts contend that the US is not currently experiencing the conditions that would warrant the use of Section 122. These conditions include a plunging currency, spiking interest rates, or a freeze in foreign capital inflows.
“We can all agree that the US is not facing a balance of payment crisis, which is when countries experience an exorbitant increase in international borrowing costs and lose access to financial markets,” Gopinath told Reuters.
Gopinath also challenged the White House’s assertion that a negative balance on the US primary income, a first since 1960, indicated a significant balance-of-payments problem. She attributed this negative balance to increased foreign investment in US equities over the past decade, which have outperformed foreign equities during that period.
“No matter how one looks at the current circumstances—the condition of the US economy, its balance of payments or its currency regime—none of these meets the standards outlined under Section 122,” Axios reported, quoting RSM chief economist Joe Brusuelas.
Mark Sobel, a former US Treasury and IMF official, pointed out that balance-of-payments crises are typically associated with countries that have fixed exchange rates, while the US dollar floats and has remained relatively stable, with 10-year Treasury yields also remaining fairly consistent and US stocks performing well.
Josh Lipsky, chair of international economics at the Atlantic Council, further clarified that a balance-of-payments crisis involves a country’s inability to pay for imports or service its foreign debt – a situation distinct from a trade deficit.
The Trump Administration’s Previous Stance on Section 122
Notably, the Justice Department’s own lawyers had previously dismissed Section 122 as a viable option. In court filings defending the IEEPA tariffs, the Justice Department argued that the provision had “no obvious application” in a situation where concerns stemmed from trade deficits, which are “conceptually distinct from balance-of-payments deficits.”
Neal Katyal, who argued against the IEEPA tariffs before the Supreme Court, told CNBC that the Trump administration’s previous stance against using Section 122 for trade deficits would likely make the new tariffs vulnerable to legal challenges. “I’m not sure it will necessarily even need to get to the Supreme Court, but if the president adheres to this plan of using a statute that his own Justice Department has said he can’t use, yeah, I think that’s a pretty easy thing to litigate,” Katyal said.
Potential Legal Battles Loom
The question of who will initiate a legal challenge to the Section 122 tariffs remains open. Sara Albrecht, chair of the Liberty Justice Center, a nonprofit law firm representing businesses that challenged the IEEPA tariffs, stated that the group would closely monitor the implementation of any new statutes. Albrecht did not disclose any specific litigation plans, but emphasized the firm’s commitment to ensuring that refunds are issued to businesses that paid the previously deemed unconstitutional duties.
Should the Section 122 tariffs be challenged, a definitive ruling on their legality within the 150-day timeframe permitted by the statute is unlikely without congressional support. This situation allows the Trump administration the opportunity to pursue more targeted tariffs based on national security concerns, unfair trade practices, or other established legal grounds, utilizing Sections 232 and 301 of relevant trade laws.
