President Donald Trump is pivoting to Section 122 of the Trade Act to impose tariffs after the U.S. Supreme Court blocked reciprocal tariffs based on the International Emergency Economic Powers Act (IEEPA). Critics argue this represents an anachronistic attempt to apply legislation created nearly 50 years ago to address international monetary crises.
According to the Wall Street Journal and Bloomberg on the 23rd (local time), Trump has turned to Section 122 to fill the gap left by the IEEPA tariff restrictions. The provision allows the president to impose additional import tariffs of up to 15% when deemed necessary to address a "large and serious balance of payments deficit" or "sharp depreciation risk of the dollar." However, the tariff period is limited to 150 days, after which congressional approval is required.
Major international media outlets and economists point out that the logic for applying Section 122 is fundamentally flawed. The balance of payments is the most comprehensive measure of external transactions, encompassing not only trade in goods and services but also investment and capital flows. Economically, the balance of payments consists of the current account (CA), financial account (FA), and capital account (KA), following the formula "CA+FA+KA=0."
The WSJ noted, "America's balance of payments deficit is effectively close to zero because trade deficits are offset by capital inflows." The journal added, "Once the balance of payments ceased to be an important policy variable, the federal government stopped publishing related statistics after the 1970s."
Legal experts also question the grounds for applying Section 122. While the Trump administration has framed America's external imbalance problem in terms of trade deficits, Section 122 specifically requires a balance of payments crisis. During Supreme Court arguments defending IEEPA-based reciprocal tariffs, Trump's lawyers themselves argued that Section 122 could not apply because the president's concern was the trade deficit, not the balance of payments.
Bloomberg reported that "legal experts believe Trump's new tariffs and their legal basis could end up back at the Supreme Court."
The historical context of Section 122 also appears disconnected from current realities. Under the Bretton Woods system, which operated from 1944 to 1973, currencies were pegged to the dollar, which was in turn convertible to gold. During this period, persistent U.S. trade deficits raised concerns about gold outflows, weakening dollar credibility, and potential international financial instability. Section 122 was introduced as a policy tool to address such crisis scenarios.
However, following the suspension of dollar-gold convertibility in August 1971 and the subsequent establishment of the floating exchange rate system, the structural problems that Section 122 was designed to address have effectively disappeared. Congress retained the provision in 1974 likely due to lingering uncertainty about exchange rate stability during the early stages of the floating rate regime.
The WSJ criticized, "This provision was not originally created to manage trade deficits. It is a relic of a bygone era when the gold standard, fixed exchange rates, and global liquidity crises existed."