Trump's tariff "Plan B" questioned; expert says current U.S. economic situation does not meet "Section 122".

According to a report by Xinhua News Agency, after the US Supreme Court rejected the White House's attempt to use the International Emergency Economic Powers Act (IEEPA) to impose tariffs, the Trump administration swiftly launched "Plan B", citing Section 122 of the Trade Act of 1974 to impose tariffs of up to 15% on global imports. However, this emergency tool aimed at addressing a "balance of payments crisis" is facing widespread skepticism regarding its legitimacy from economists and legal circles, with the key argument being that the current US economic fundamentals do not meet the statutory threshold for applying this provision. According to Axios, the Trump administration’s justification for invoking this clause is that the US faces a "large and serious" trade and balance of payments deficit, including a negative $26 trillion "net international investment position". In a fact sheet released Friday, the White House warned that if these international payment issues are not resolved, it will threaten the US's ability to finance its expenditures, erode investor confidence, and pose risks to the US economy and national security. Despite the White House's tough stance, market and legal experts point out that the US is not exhibiting typical symptoms of a balance of payments crisis, such as a currency crash, soaring interest rates, or frozen foreign capital inflows. RSM Chief Economist Joe Brusuelas stated in a report that, "from the perspective of US economic conditions, balance of payments, or monetary system, the current situation does not meet the standards set by Section 122." While this new tariff measure grants the president the power to bypass investigation procedures and directly levy tariffs, it is also legally constrained by a "15% cap" and a "150-day validity period". Dave Townsend, an international trade lawyer at Dorsey & Whitney LLP, pointed out that, "considering the huge involved amounts, a new wave of litigation targeting Section 122 is expected, with companies once again seeking refunds for tariffs already collected." Department of Justice’s “Self-Negation” and Legal Obstacles The Trump administration's invocation of Section 122 is facing challenges from its own legal team’s previous statements. According to Axios, last year, Brett Shumate, Assistant Attorney General of the US Department of Justice, clearly refuted the idea of using Section 122 as a basis for tariffs in a briefing. At the time, DOJ documents pointed out that the president’s concerns about an emergency stemmed from the trade deficit, but this is conceptually different from a balance of payments deficit, emphasizing that Section 122 has "no apparent applicability" in this context. This earlier legal stance may now become a strong argument in new lawsuits challenging the legitimacy of the White House’s decision. Nevertheless, a time lag at the operational level may benefit the Trump administration. Analysis points out that, "it is difficult for courts to issue a final ruling on the legality of Section 122 tariffs within the 150-day period allowed by law." This gives the Trump administration more time, enabling it to use more established legal authorities such as Sections 232 and 301 to seek more specific tariff measures under reasons of national security and unfair trade practices. Economic Logic Paradox Behind Deficit Data According to a Wallstreetcn article, to justify the tariffs, Trump specifically cited the US’s negative $26 trillion "net international investment position" (NIIP) in a presidential proclamation, which is the difference between US assets abroad and foreign assets in the US, to prove the worsening balance of payments situation. However, economists are not convinced by this reasoning. Analyses indicate that one important reason for the negative NIIP is that the value of US assets held by foreigners is significantly higher than the value of overseas assets held by Americans, and the rise of the US stock market—which Trump once regarded as a "confidence vote" for his policies—is precisely a major driver of the expanded negative NIIP. Furthermore, if tariffs successfully encourage foreign companies to increase investment in the US, the negative value may actually further increase. Most economists believe that without evidence showing the US cannot pay its bills or meet its obligations to international investors, there is no so-called “crisis”. If a genuine balance of payments crisis occurred, financial markets would sell off US assets and the dollar would plummet due to collapsing confidence, but this is not the current state of the US market. Policy Battles Within the 150-Day Limit Unlike other tariff tools Trump previously attempted to use, Section 122 of the Trade Act of 1974 grants the president the power to act directly without waiting for federal agency investigations, aimed at addressing "large and serious US balance of payments deficits" or "imminent substantial depreciation of the dollar". The provision’s history traces back to Nixon’s shock in 1971, which was mainly used to force other countries to renegotiate exchange rates. However, the clause also imposes very clear restrictions on executive power: the tariff rate cannot exceed 15%, and the implementation period cannot exceed 150 days. Extension requires congressional approval. This means that, even if the new tariffs are enacted in the short term, their sustainability is already countable under the law. According to international rules, imposing tariffs on the grounds of a “balance of payments crisis” usually requires notification to the World Trade Organization (WTO), which must judge the appropriateness of the measure. But with the US having effectively crippled the WTO dispute resolution mechanism, international constraints have become mostly symbolic. Dorsey & Whitney’s Dave Townsend believes the White House’s sudden use of Section 122 is a signal that it will continue to push the legal boundaries of executive authority on tariff and trade issues. Risk Warning and Disclaimer The market involves risk, and investment should be cautious. This article does not constitute personal investment advice, nor does it take into account individual users’ specific investment objectives, financial circumstances, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific situation. 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