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Why Trump's Section 122 Tariffs Are Illegal
trump's new replacement tariffs are illegal. These tariffs can only be used when there is a balance-of-payments deficit which is very different from a balance of trade deficit. Since the US is no longer on a currency fixed exchange rate there have not been any balance of payment deficits for a couple of decades. These tariffs will be challenged and trump will lose again
Fascinating National Review post on Trump's latest Tariff gambit. Archive link here (it's pay walled, please don't give them money lol)
— Rude Law Dog (@esghound.com) 2026-02-21T19:01:57.437Z
archive.is/r4Xdf
https://www.nationalreview.com/corner/trumps-section-122-tariffs-are-illegal/
In Section 122, Congress endowed the president with narrow, temporary authority to impose tariffs “to deal with large and serious United States balance-of-payments deficits” (emphasis added). What Trump is complaining about — something he insists is a crisis but is not — is the balance of trade, not of payments. The United States does not have an overall balance of payments deficit, much less a large and serious one.
A trade deficit between the U.S. and a foreign nation occurs, mainly in connection with goods (which is just one aspect of international commerce), when imports are greater than exports. This is not really a problem for a variety of reasons — e.g., a trade deficit results in an investment surplus, the U.S. is a major services economy and often runs exported services surpluses that mitigate the imports deficit in goods, etc.
The balance of payments is a broader concept than the balance of trade. It accounts for all the economic transactions that take place between the United States and the rest of the world. Even without getting into every kind of transaction that entails, suffice it to say that foreign investment in the United States, coupled with the advantages our nation accrues because the dollar is the world’s reserve currency, more than make up for the longstanding trade deficit in goods.
Our overall payments are in balance. There is no crisis.
It’s vital to understand why Section 122 was enacted. There was a financial crisis in the late 60s and early 70s under the Bretton Woods system, when the dollar was tied to gold. Foreign countries that held dollar reserves could exchange them for gold at a fixed rate. Meanwhile, our government was spending at a high clip due to the Vietnam War and Great Society programs. This and the obligation to pay out gold put enormous pressure on the dollar. In response, in 1971, President Nixon severed the dollar’s tie to gold and — as several justices recounted in Friday’s Learning Resources opinions — imposed a temporary 10 percent import surcharge (a tariff) to stabilize the economy......
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.
A trade deficit between the U.S. and a foreign nation occurs, mainly in connection with goods (which is just one aspect of international commerce), when imports are greater than exports. This is not really a problem for a variety of reasons — e.g., a trade deficit results in an investment surplus, the U.S. is a major services economy and often runs exported services surpluses that mitigate the imports deficit in goods, etc.
The balance of payments is a broader concept than the balance of trade. It accounts for all the economic transactions that take place between the United States and the rest of the world. Even without getting into every kind of transaction that entails, suffice it to say that foreign investment in the United States, coupled with the advantages our nation accrues because the dollar is the world’s reserve currency, more than make up for the longstanding trade deficit in goods.
Our overall payments are in balance. There is no crisis.
It’s vital to understand why Section 122 was enacted. There was a financial crisis in the late 60s and early 70s under the Bretton Woods system, when the dollar was tied to gold. Foreign countries that held dollar reserves could exchange them for gold at a fixed rate. Meanwhile, our government was spending at a high clip due to the Vietnam War and Great Society programs. This and the obligation to pay out gold put enormous pressure on the dollar. In response, in 1971, President Nixon severed the dollar’s tie to gold and — as several justices recounted in Friday’s Learning Resources opinions — imposed a temporary 10 percent import surcharge (a tariff) to stabilize the economy......
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.
9 replies
= new reply since forum marked as read
= new reply since forum marked as read
Link to tweet
Per the statute, Section 122 tariffs may only be imposed when there are "United States balance-of-payments deficits."
The US does not have a balance-of-payments deficit.
Trump cannot just say "well, they really meant a balance-of-trade deficit" and enact tariffs.
The US does not have a balance-of-payments deficit.
Trump cannot just say "well, they really meant a balance-of-trade deficit" and enact tariffs.
Link to tweet
Section 122 tariffs can only be used when there is a balance of payments deficit which does NOT exist. Someone did not read the statute before letting trump try this executive order
Trump’s plan B to impose new tariffs is also illegal because a balance-of-payments deficit doesn’t exist, trade experts say fortune.com/2026/02/21/t...
— Ian Kremer (@leadcoalition.bsky.social) 2026-02-22T19:12:07.516Z
#tariffs #economics #economy #law #SCOTUS
https://fortune.com/2026/02/21/trump-tariffs-section-122-trade-law-trade-deficit-capital-account-surplus-balance-of-payments/
Just hours after the Supreme Court struck down President Donald Trump’s global tariffs on Friday, he signed an order to impose another package of levies under a different law that wasn’t affected by the court’s decision......
But the actual language of the Trade Act lists requirements that don’t exist today, including a “large and serious” balance-of-payments deficit.
While the U.S. has run a trade deficit for decades, it’s been offset by capital inflows as foreign investors pour billions into financial markets, resulting in a net balance of zero.
“Section 122 of the 1974 Trade Act, on which Trump’s 10% tariff is based, does not apply in the current macro environment,” said Peter Berezin, chief global strategist at BCA Research, in post on X on Friday. “A balance of payments deficit is not the same thing as a trade deficit. You cannot have a balance of payments [deficit] if you have a flexible exchange rate, as the US currently does.”
Similarly, economist Alan Reynolds, a senior fellow at the Cato Institute, pointed out that the trade deficit is fully funded by the capital account surplus, adding that there is no overall balance-of-payments deficit to justify Trump’s newest tax on imports.....
“Section 122 only authorizes tariffs in the presence of a fundamental international payments problem,” he added. “Because the United States does not face such a problem, Section 122 cannot legally be used by President Trump to impose new tariffs.”
But the actual language of the Trade Act lists requirements that don’t exist today, including a “large and serious” balance-of-payments deficit.
While the U.S. has run a trade deficit for decades, it’s been offset by capital inflows as foreign investors pour billions into financial markets, resulting in a net balance of zero.
“Section 122 of the 1974 Trade Act, on which Trump’s 10% tariff is based, does not apply in the current macro environment,” said Peter Berezin, chief global strategist at BCA Research, in post on X on Friday. “A balance of payments deficit is not the same thing as a trade deficit. You cannot have a balance of payments [deficit] if you have a flexible exchange rate, as the US currently does.”
Similarly, economist Alan Reynolds, a senior fellow at the Cato Institute, pointed out that the trade deficit is fully funded by the capital account surplus, adding that there is no overall balance-of-payments deficit to justify Trump’s newest tax on imports.....
“Section 122 only authorizes tariffs in the presence of a fundamental international payments problem,” he added. “Because the United States does not face such a problem, Section 122 cannot legally be used by President Trump to impose new tariffs.”
This is the type of ruling by the court of appeals that will be used in the upcoming challenges of trump's use of Section 122
Link to tweet
This section will show up very early in a summary judgement attacking these tariffs.