U.S. President Donald Trump announced new 15% tariffs on imports from all countries under Section 122 of the Trade Act of 1974, hours after the Supreme Court struck down his previous IEEPA-based tariffs. The new duties are intended to address what the White House describes as a “large and serious” U.S. balance-of-payments deficit, allowing tariffs of up to 15% for up to 150 days. Collections began at midnight on Tuesday, replacing IEEPA tariffs ranging from 10% to 50%.
Trump cited a $1.2 trillion annual U.S. goods trade deficit, a 4% of GDP current account deficit, and a reversal of the U.S. primary income surplus as justification for the move.
Economists Dispute the “Crisis” Narrative
Many economists disagree that the U.S. faces a genuine balance-of-payments crisis. Gita Gopinath, former IMF First Deputy Managing Director, noted that a true crisis occurs when a country loses access to financial markets or faces soaring international borrowing costs conditions the U.S. does not face. She attributed the negative primary income balance to large foreign investments in U.S. equities rather than structural economic weakness.
Other experts, including Mark Sobel and Josh Lipsky, emphasized that the floating-dollar regime and stable Treasury yields indicate the U.S. is not in danger of default or inability to service foreign debt, distinguishing a trade deficit from a balance-of-payments crisis. Brad Setser, former U.S. Trade Representative adviser, argued that while the U.S. current account deficit is historically high, it still does not equate to a classical crisis.
Legal Vulnerabilities of Section 122
The use of Section 122 has already raised questions. The Justice Department previously argued that the statute is ill-suited to address trade deficits, which differ conceptually from balance-of-payments deficits. Legal experts like Neal Katyal suggest that invoking Section 122 in this context could make the tariffs vulnerable to new court challenges, potentially even without reaching the Supreme Court.
Small-business advocates, including Liberty Justice Center, which previously challenged the IEEPA tariffs, are closely monitoring the new tariffs and emphasizing the need for refunds to businesses that paid the unconstitutional duties.
Uncertain Economic and Legal Impact
While the Trump administration frames the tariffs as a solution to a serious financial problem, economists largely see the balance-of-payments rationale as overstated. Combined with potential legal challenges and ongoing debates over Section 122’s applicability, the new tariffs could face both political and judicial hurdles, leaving their long-term effectiveness and legality uncertain.
With information from Reuters.
