Experts warn Donald Trump's new tariffs are also illegal. Here's why they think Section 122 won't work

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.

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.

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.

In a post on social media platform X (formerly Twitter), Peter Berezin, Chief Global Strategist and Director of Research at BCA Research noted that Section 122 “does not apply in the current macro environment”. 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).

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”. There is no rationale under Section 122 to impose tariffs. Because President Trump has no unilateral authority to order tariffs, he must meet the preconditions of Section 122 to justify levying them. He cannot. Not even close,” Reynold stated.

Bryan Riley, director of the National Taxpayers Union’s Free Trade Initiative in multiple posts on X, also noted that there is no “fundamental international payments problem” that could justify use of Section 122 of the 1974 Trade Act. “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.