BY MIRABEL ODETA
President Donald Trump’s promise of temporary 15% tariffs, designed to replace those struck down by the U.S. Supreme Court, has raised concerns among economists and legal experts alike. Many argue that the tariffs address a problem that does not exist—a U.S. balance-of-payments crisis—leaving them potentially vulnerable to fresh legal challenges.
Hours after the Supreme Court invalidated a large portion of Trump’s previous tariffs imposed under the International Emergency Economic Powers Act (IEEPA), the president announced a new round of duties under Section 122 of the Trade Act of 1974. The statute, rarely used in modern times, authorizes the president to impose tariffs of up to 15% for up to 150 days to address “large and serious” balance-of-payments deficits and other international payment issues. Even Trump’s own legal team had dismissed the statute as largely irrelevant in prior months.
A 10% tariff went into effect shortly after midnight on Tuesday, according to a notice from U.S. Customs. However, it remains unclear when the planned increase to 15% will be implemented, as only the initial 10% tariff has been signed into law by the president.
In the administration’s announcement, Trump cited a $1.2 trillion annual U.S. goods trade deficit, a current account deficit of roughly 4% of GDP, and a reversal of the U.S. primary income surplus as evidence of a “serious balance-of-payments deficit.” The White House argued that these figures justified immediate intervention.
Economists, however, have questioned the validity of this claim. Gita Gopinath, former First Deputy Managing Director of the International Monetary Fund, said the United States is not experiencing a balance-of-payments crisis, which typically involves skyrocketing borrowing costs and a loss of access to financial markets. She explained that the negative balance in U.S. primary income is largely due to increased foreign investment in U.S. equities and other high-performing assets over the past decade, rather than any structural financial emergency.
Mark Sobel, a former U.S. Treasury and IMF official, emphasized that balance-of-payments crises are generally associated with countries that maintain fixed exchange rates, whereas the U.S. dollar operates under a floating-rate system. The dollar has remained stable, long-term Treasury yields are steady, and U.S. equities have been performing well, he noted.
Josh Lipsky, chair of international economics at the Atlantic Council think tank, highlighted a common misconception: a trade deficit is not equivalent to a balance-of-payments crisis. Such crises typically occur when a country cannot pay for imports or service its foreign debt, which is not the situation in the United States.
On the other hand, Brad Setser, a currency and trade expert at the Council on Foreign Relations, offered a more nuanced perspective. He argued that the current account deficit and U.S. net international investment position are worse today than when President Richard Nixon imposed tariffs in 1971, giving the Trump administration a plausible argument for invoking Section 122, even if unconventional.
Despite this rationale, the Trump administration faces potential legal obstacles. In previous court filings defending the IEEPA tariffs, the Justice Department argued that Section 122 was not an appropriate mechanism to address trade deficits. They contended that Section 122 applies specifically to balance-of-payments problems, which are conceptually different from the trade deficits cited by the administration.
Neal Katyal, who represented plaintiffs challenging the IEEPA tariffs at the Supreme Court, said this discrepancy could make the new tariffs vulnerable to litigation. “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 explained.
It is not yet clear who might lead such a legal challenge. Sara Albrecht, chair of the Liberty Justice Center—a nonprofit public-interest law firm representing small businesses that challenged the IEEPA tariffs—said her group is closely monitoring any new statutes invoked by the administration. While Albrecht did not reveal specific legal strategies, she stressed that their immediate focus remains ensuring that refunds from the unconstitutional duties are distributed to affected businesses.
The Supreme Court’s ruling striking down the IEEPA tariffs did not address the process for issuing refunds. Instead, the case was remanded to a lower trade court to determine the next steps, leaving American businesses and international trading partners uncertain about potential compensation and future trade disruptions.
As the Trump administration moves forward with its Section 122 tariffs, questions about both their necessity and legality are likely to persist. Economists warn that invoking the rarely used statute without clear evidence of a true balance-of-payments crisis could spark new legal battles, while businesses and investors weigh the potential impact of higher import duties on the global economy
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