Legal challenge says Trump’s switch to Section 122 still rests on a nonexistent balance-of-payments crisis

President Donald Trump’s revised tariff strategy, announced after the Supreme Court struck down his earlier plan, has become the subject of a new lawsuit that challenges the legal and economic basis for imposing sweeping import surcharges. The Liberty Justice Center (LJC) filed suit on Monday in the U.S. Court of International Trade, arguing that Section 122 of the Trade Act of 1974 — the provision the president invoked after his IEEPA-based plan failed in court — cannot lawfully be used because the statutory conditions it requires do not exist under the modern international monetary system.

Trump’s initial approach relied on the International Emergency Economic Powers Act (IEEPA), a 1977 statute he cited in announcing last year’s so-called "Liberation Day" tariffs. IEEPA, however, does not mention import taxes and historically had not been used to impose them; the Supreme Court rejected that approach in February. In response, the president turned to Section 122 of the Trade Act of 1974, a provision that does expressly authorize a "temporary import surcharge" in narrowly defined circumstances tied to “fundamental international payments problems” caused by “large and serious United States balance-of-payments deficits.”

The LJC, which led the legal challenge that prevailed against the IEEPA tariffs, contends that those circumstances are a relic of a monetary regime that no longer exists. In its complaint, the group notes that Section 122 was written to address the sort of international payments crises that arose under the Bretton Woods system, when currencies were pegged to the U.S. dollar and dollars were convertible into gold. That system broke down in the early 1970s, prompting President Richard Nixon to suspend dollar-gold convertibility and to impose emergency tariffs to respond to dwindling gold reserves and persistent balance-of-payments deficits.

Congress enacted the Trade Act of 1974 against that historical background, seeking to constrain presidential authority to react to "fundamental international payments problems" like those experienced in the Nixon era. Section 122 therefore capped any temporary import surcharge at 15 percent and limited its initial duration to 150 days, extendable only with congressional approval. The statute also included substantive restrictions: it forbids tariffs that discriminate against particular countries or that distinguish between product categories without special findings, and it explicitly rules out tariffs imposed "for the purpose of protecting individual domestic industries from import competition."

Trump’s February 20 proclamation invoking Section 122 complied with some of those formal constraints, initially imposing a surcharge of 10 percent — which the president later said would be raised to 15 percent — "for a period of 150 days." But the LJC argues that the administration’s specific lists of country and product exceptions do not include the separate findings required by the statute, and more fundamentally that the predicate "international balance-of-payments problems" cannot occur in the current economic regime.

Economists and legal analysts cited in the LJC filing point to the basic mechanics of modern balance-of-payments accounting to support that contention. The balance of payments records all financial flows between a country and the rest of the world, including the "current account" (exports and imports of goods and services) and the financial and capital accounts (loans, investments, and other capital movements). When a country runs a trade deficit — imports exceed exports — that shortfall is offset by inflows of capital and borrowing, meaning that a trade deficit does not automatically produce a separate balance-of-payments crisis.

As economist Milton Friedman wrote in 1967, "a system of floating exchange rates completely eliminates the balance-of-payments problem," so "there cannot be a deficit or a surplus threatening an exchange crisis." The LJC emphasizes that point, arguing that the United States operates today under floating exchange rates and therefore cannot suffer the type of balance-of-payments emergency Section 122 contemplates. Government lawyers, during litigation over the earlier IEEPA-based tariffs, conceded that a trade deficit is "conceptually distinct" from a balance-of-payments deficit — an admission the LJC highlights as undermining the administration’s shift to Section 122.

The new lawsuit raises both statutory and economic questions that are likely to be litigated in the U.S. Court of International Trade and potentially beyond. If the court accepts the LJC's argument that the conditions for Section 122 cannot be met under current monetary arrangements, the administration’s alternate legal route for broad import surcharges could be blocked in the same way the IEEPA plan was. Observers say the case will test not only the limits of presidential authority over trade policy but also how courts interpret laws crafted for a different era of global finance.