Yes, Trump Can Do That with Tariffs

Courts are likely to defer to the president this time—but he has to be careful.

Within hours of the Supreme Court’s February 20 ruling that held many of President Trump’s tariffs unlawful, Trump signed a proclamation deploying the first of his so-called “fallback options” to keep tariffs in place. He invoked Section 122 of the Trade Act of 1974, a never-before-used provision of law enacted so that the president could address problems in the U.S. balance of payments, to impose a nearly global 10% tariff.

Invocation of Section 122 quickly triggered a lively debate on social media and in the press over whether these new tariffs were any more lawful than the ones just struck down. Economists have argued that there is no “fundamental international payments problem” of the type that Congress sought to address when it enacted Section 122, with some even claiming that balance of payments problems of the type Congress envisioned 42 years ago cannot truly exist in today’s era of floating exchange rates.

For all the public debate, the legal reality is that courts will likely provide President Trump substantially more deference regarding Section 122 than they did to his previous tariffs under IEEPA, the 1977 emergency powers statute that the Supreme Court ruled on last month. But if he wants to avoid his trade policy being consumed by judicial fights over the metes and bounds of tariffs, he should be more careful to stay within the law’s boundaries. And since 122 comes with a 150-day expiration, he will need to rely on other tariff authorities thereafter.

Unlike IEEPA, which nowhere contains the word “tariff” or “duty,” Section 122 unequivocally authorizes the president to impose tariffs. The only debate is over the circumstances.

Congress enacted Section 122 in response to specific historical circumstances. In 1971, President Nixon took the U.S. off the gold standard and announced that he was imposing a 10% tariff surcharge. This was designed to protect the dollar’s value and create leverage to push several trade partners to reduce the value of their currencies. Nixon only kept the tariffs in place for a few months, but a lawsuit challenging their validity took longer, and in mid-1974 a trial-level court found that the tariffs were unlawful.

An appeals court would later uphold Nixon’s tariffs, but Congress thought the president might need new statutory authority and passed the Trade Act of 1974. Thus, with Section 122 it provided that “whenever fundamental international payments problems require,” the president could impose a uniform global tariff of up to 15% to address “large and serious United States balance-of-payments deficits,” to prevent a depreciation of the dollar, or to cooperate with other countries to address balance of payments issues.

Critics of Trump’s Section 122 tariffs have made a variety of arguments against them. One argument is that Congress intended 122 to be used to counteract strains on U.S. reserves of the type that exist in fixed currency arrangements, as the U.S. had prior to 1971. In today’s world of floating exchange rates, there is no strain on U.S. reserves or “balance of payments” deficit as Congress understood the term when it enacted the statute. But the United States had already abandoned its fixed currency arrangement when Congress acted.

Another line of argument holds that Section 122 requires there be a “fundamental international payments problem,” and that as a factual matter there simply is no evidence that such a problem exists today.

In his Proclamation imposing the Section 122 tariffs, Trump made a contrary case, citing economic data that he says fit within the statute’s requirements. Beyond the large U.S. trade deficit, the president found that official Bureau of Economic Statistics (BEA) data “has recently reflected quarterly deficits in its return on investment or labor, as reported by the BEA in the ‘balance on primary income’; and runs a deficit in voluntary transfers, such as remittances, as reported by the BEA in the ‘balance on secondary income.’” He also stated that in 2024, the U.S. balance on primary income turned negative after being in surplus from 1960 through 2023, and that the U.S. current account deficit in 2024 was double the rate of 2013-2019.

The White House interpretation appears designed to fit within the definition already offered by the Court of International Trade (CIT), which would initially hear any challenge. When the CIT first heard the case against Trump’s IEEPA tariffs last year, the Court noted that it viewed Section 122 as authorizing tariffs not when the overall balance of payments has a deficit, but when a given component of it—such as trade—is in deficit. The court wrote:

The term “balance-of-payments deficits” within Section 122 refers, necessarily, to deficits within the various accounts comprising the balance-of-payments (including the trade of goods) rather than to an overall summary deficit, because there cannot be a balance-of-payments deficit per se. Trade deficits are one of the key balance-of-payment deficits and can be directly impacted by mechanisms such as import quotas and tariffs, as authorized by Section 122.

The court could of course reinterpret 122 in light of new arguments, or be overruled by a higher court, but the president is starting from a favorable precedent.

Further buttressing the legality of President Trump’s action, courts are likely to show much greater deference to his findings of fact regarding the economic conditions specified in Section 122 than they did to his statutory interpretation of tariffs as “regulation” under IEEPA.

Partly, this reflects existing judicial precedent. Although Section 122 has never been used, the courts that hear trade cases—the Court of International Trade and the Court of Appeals for the Federal Circuit—tend to be deferential to presidential and agency findings of fact in the areas of trade law.

This is because, as Chief Justice John Roberts wrote in Learning Resources, the opinion overturning Trump’s IEEPA tariffs, the courts “claim no special competence in matters of economics or foreign affairs,” but rather only in the role of determining what the law allows. In Learning Resources, the Court found that a law that did not contain the word “tariff” cannot be used to impose one, which is quite different from a court deciding whether or not to defer to the President in determining whether problems exist in international payments.

The Supreme Court’s 2024 revocation of Chevron deference and instruction that courts should exercise “independent judgment” in interpreting statutes may mean that the courts will not entirely refrain from reviewing the president’s finding, but the reality is that they will start from a position of deference.

Practically speaking, judicial deference may also be influenced by the fact that Section 122 is time-limited—Congress made very clear the president can only maintain the 122 tariffs for 150 days “unless such period is extended by Act of Congress,” and the tariff rate cannot exceed 15%. That makes Section 122 very different from IEEPA, under which the president effectively claimed the power to impose a tariff of any amount on any country for any duration.

That said, the president should refrain from any actions that would increase judicial scrutiny. If Trump follows through on his threat to raise the Section 122 tariff rate to 15%, made just one day after proclaiming a rate of 10%, he risks inviting judges to ask what could possibly have changed in balance of payments to merit the new rate.

More recently, the Trump administration has suggested it might impose different Section 122 rates on different countries. Section 122, however, is clear that tariffs “shall be applied consistently with the principle of nondiscriminatory treatment,” provided, however, that if the president finds that only one or a few countries are causing the payments problems, he may impose tariffs on those countries only and “exempt all other countries.”

The plain-language interpretation of those words is that a president can impose Section 122 tariffs on a handful of countries where the U.S. has substantial payments imbalances while exempting the rest. But “exempting all others” means setting their tariff rate at 0%, not setting the rate for some countries at 15% and for others at 10%.

Trump should also keep in mind that he has other legal fights over tariffs coming. With the Section 122 tariffs set to expire in late July, U.S. Trade Representative Jamieson Greer has already announced plans to rely on Section 301 of the Trade Act of 1974, which authorizes him to impose tariffs after finding that a foreign country is engaging in an unfair trade practice.

Courts have been deferential to the government’s use of Section 301, though companies challenging Trump’s first-term tariffs on China in a long-running case recently asked the Supreme Court to review the statute. Justice Roberts made clear in Learning Resources that he sees the trade laws as “clear and limited delegations” and was skeptical of a presidential power “to unilaterally impose unbounded tariffs.”

The more Trump looks like he is using 122, 301, and other tariff statutes to claim an unbounded tariff power, the more he is inviting the courts—and particularly the Supreme Court—to fight back. A well-documented, more regular, and more stable trade policy is more likely to be upheld in court.

President Trump made tariffs a signature issue in his 2024 campaign, and his victory earned him the right to vigorously impose tariffs within the bounds of the law. There is bipartisan support for his objectives of rebuilding U.S. manufacturing and boosting the wages of working Americans.

Our constitutional system is based on Alexander Hamilton’s concept of an “energetic executive,” and Trump is nothing if not energetic. But the Constitution also charges Congress with primary authority over tariffs and other forms of taxation. Trump said last week that he sees no reason for Congress to enact new tariff laws, but he should revisit that view.

Many members of Congress recognize that America’s tariff laws—most of which date to the 1970s or earlier—are badly out of date and not adequate for today’s challenges. While relying on the tariff authorities within his power for now, he should also press Congress to modernize our tariff laws for the future.