Just a week after the Supreme Court demolished the cornerstone of President Donald Trump’s tariff regime, questions are swirling about the legal foundation of his replacement tariffs.
Trump swapped out the emergency tariffs the high court struck down with new global tariffs that rely on untested legal authority under Section 122 of the Trade Act of 1974.
Some economists and trade experts argue the conditions do not exist to justify the never-before-deployed Section 122 tariffs, leaving them vulnerable to getting knocked down by courts, too.
The reality: While these new levies will almost certainly face a legal assault, the outcome might not matter much to Trump’s broader tariff ambitions. That’s because Section 122 is merely one page in Trump’s new trade playbook.
These tariffs are just a 150-day holdover before more permanent ones can be deployed. By the time a legal challenge of Section 122 tariffs plays out, Trump will likely have moved on to sturdier replacements.
“New tariffs are only smoke and mirrors for other options,” ING’s Carsten Brzeski and James Knightley wrote in a recent report to clients.
Those other options on the tariff menu can’t be executed immediately, as they take time and require investigations before they can kick in.
So Section 122 is “a bridge to buy time. The real goal is higher tariffs, not specific situations like national security or balance of trade,” Erica York, vice president of federal tax policy at the Tax Foundation, told CNN in a phone interview.
The next front in the trade war
Trump officials have already previewed those other tariff options, some of which have already been deployed by Trump in the past.
For instance, US Trade Representative Jamieson Greer has said the administration will launch multiple investigations under Section 301 of the Trade Act of 1974 to deal with “unjustifiable, unreasonable, discriminatory and burdensome acts, policies and practices by many trading partners.”
Greer said those Section 301 investigations will take place under an “accelerated timeframe” and cover “most major trading partners.”
And then there are the national security tariffs under Section 232 of the Trade Expansion Act of 1962 on steel, aluminum, copper and other items. Greer has said the administration is launching 232 investigations into rice imports and other areas.
According to The Wall Street Journal, the administration is preparing to launch Section 232 investigations into US imports of everything from large-scale batteries and iron fittings to plastic piping and telecom equipment.
Another option: Dust off the infamous Smoot-Hawley tariffs, which, as immortalized by Ferris Bueller’s Day Off, exacerbated the Great Depression.
This could be a powerful weapon.
Section 338 of the Tariff Act of 1930 allows the president to spike tariffs to up to 50% on any nation that “discriminates” against US commerce. However, Section 338 has never been deployed before and could face legal challenges, too.
‘Large and serious’ deficits
For now, Trump is relying on Section 122 to buy time.
What’s clear is this law empowers the president to deploy tariffs for up to 150 days. That’s a contrast to the International Emergency Economic Powers Act, the 1970s law that Trump relied on for his emergency tariffs but that the Supreme Court ultimately rejected.
The problem, however, is that the law is designed to deal with “large and serious United States balance-of-payments deficits.”
There is ongoing debate, and plenty of confusion, over whether such a situation truly exists today. The United States obviously has a massive trade deficit, but that’s different from a full-blown balance of payment crisis.
Balance of payments includes all economic transactions between the United States and other countries. The trade deficit, on the other hand, is mostly driven by imports versus exports.
While the United States has had a staggering trade deficit for decades, the balance-of-payments is near zero.
High cholesterol vs. heart attack
Gita Gopinath, former chief economist at the International Monetary Fund (IMF), likened the difference between a patient suffering from chronically high cholesterol versus someone who experiences an actual heart attack.
“There is no doubt in the US ability to pay the world and therefore no crisis. There is high cholesterol but not a heart attack,” Gopinath, now an economics professor at Harvard University, wrote in a post on X. “A 150 day tariff cannot reduce persistent trade deficits and the US is not having a heart attack.”
Section 122 is a relic of the 1970s, created after President Richard Nixon took the United States off the gold standard.
Alan Wolff, a staffer in the US Treasury Department during the Nixon administration, recalls that the United States was indeed experiencing a crisis and literally running out of gold at the time.
“There was a balance of payments crisis that could be felt palpably,” Wolff, now a senior fellow at the Peterson Institute for International Economics, told CNN in a phone interview. “Today, there is no crisis. If there were, financial markets would be in deep free fall.”
Wolff said no clear cut answer to whether courts will determine that conditions exist today to justify Section 122 tariffs.
“We’ll only know years from now,” he said.
Of course, that’s no comfort to the countless small businesses and corporations paying the Section 122 tariffs — let alone the consumers paying indirectly through higher prices and fewer job opportunities.
WSJ: Trump is ‘statute shopping’ like Biden
Some conservatives have rejected the legal justification for Section 122.
“These new tariffs are even more clearly illegal than Trump’s IEEPA tariffs,” Andrew C. McCarthy argued in the conservative National Review.
“Mr. Trump’s reading of Section 122 is erroneous,” the opinion page at The Wall Street Journal declared recently, likening Trump’s Plan B to what they called failed “statute shopping” by President Biden after his student loan forgiveness effort got rejected by courts.
Others, including Brad Setser, a senior fellow at the Council on Foreign Relations, said there is a “reasonable case” the United States does have a “large and serious” balance of payments deficit but that it’s not clear this will be sorted out in time.
“I don’t think litigation over the meaning of a fundamental payments problem and a balance of payments deficit will be sorted in 150 days,” Setser wrote on X, “so my bet is that the clock on the tariffs will expire before the courts rule.”
Congress is unlikely to green light an extension beyond the 150-day limit on Section 122.
Some have argued that, in theory, Trump could allow the Section 122 tariffs to lapse and then just restart the 150-day clock by declaring another emergency.
Wolff, the Peterson Institute fellow, doesn’t think such a move would fly with judges.
“I don’t think the courts would get the joke,” he said.
