Clark Packard and Alfredo Carrillo Obregon
On May 7, the US Court of International Trade (CIT) struck down the Trump administration’s 10 percent across-the-board import tariff imposed under Section 122 of the Trade Act of 1974. Just as with the president’s International Emergency Economic Powers Act (IEEPA) tariffs struck down by the US Supreme Court earlier this year, the CIT’s latest ruling is another sign that the judiciary won’t accept tenuous legal and economic theories regarding congressionally delegated tariff authorities. The decision represents another important step toward restoring the rule of law and constitutional balance in setting US trade policy—even if, as it stands, its actual impact is relatively limited.
What the Court Decided
The administration argued that a series of negative international trade- and investment-related indicators—the trade deficit, the broader current account deficit, and a declining US net international investment position—taken altogether amounted to “large and serious balance-of-payments deficits,” justifying tariffs under Section 122. The court disagreed.
Relying on the language and legislative history of the statute and the broader historical context in which Congress passed it, the majority opinion ruled that a “balance-of-payments” (BoP) deficit had a precise meaning, namely, deficits measured by specific, established methodologies: 1) liquidity, 2) official settlements, and 3) basic balance. These measures were highly relevant in a world of fixed exchange rates, which ceased to exist shortly after the Trade Act of 1974 was enacted. The Bureau of Economic Analysis, in fact, no longer reports these measures. More importantly, the court held that a deficit in particular components (e.g., the current account) or sub-components (e.g., the trade balance) of the BoP does not constitute a BoP deficit under Section 122, as the government argued.
The implications of this reasoning are significant: had the government’s position prevailed, it would have meant that it could impose tariffs under Section 122 at any time, as our colleague Kyle Handley recently observed. The BoP is an accounting identity that should always net to zero, so under the government’s interpretation, it could always point to a negative component or sub-component and argue it constitutes a BoP deficit warranting tariffs as a remedial measure.
Fortunately, sound economic and legal reasoning prevailed.
How Significant Is the Ruling?
Though the court rightly curtailed the executive’s abuse of Section 122, the relief it provides to importers currently paying the tariffs is relatively limited. The court declined to grant a nationwide injunction barring the government from continuing to collect the tariffs. Instead, it granted injunctive relief only to the companies that filed suit and the state of Washington, as they were the only plaintiffs who could establish direct standing. In other words, the government can continue to collect duties from all other importers.
More importantly, the Section 122 tariffs were intended to serve as a temporary bridge between the administration’s illegal IEEPA tariffs and additional tariffs imposed pursuant to other executive authorities, including Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962. Again, the court’s check on executive abuse of a long-forgotten statute is important, but we are far from seeing the last of the administration’s discretionary tariffs.
The Bigger Picture: The Executive Branch Cannot Simply Conjure Tariff Authority.
For years, we have warned that successive administrations of both parties have stretched emergency trade statutes far beyond what Congress ever intended. The IEEPA tariff regime that the Supreme Court struck down in Learning Resources v. Trump just months ago was the most egregious example. But the Section 122 proclamation that replaced it was hardly better.
The Constitution vests the power to lay and collect duties squarely in Congress. When Congress delegates that power to the president, it does so with specific conditions and carefully chosen language. Those conditions are not suggestions. They are the legal boundaries of presidential authority. And when the president colors outside those lines—as today’s court found he did—the resulting tariffs are simply unauthorized by law.
That’s not a political judgment. It’s a legal one. And the CIT made it correctly.