What exactly does the “Section 122” that Trump relies on for the new 15% tariff stipulate?

What exactly does the “Section 122” that Trump relies on for the new 15% tariff stipulate?

According to a Xinhua News Agency report, after the U.S. Supreme Court struck down the Trump administration's previous tariff arrangements implemented under the International Emergency Economic Powers Act (IEEPA), the Trump administration quickly invoked Section 122 of the Trade Act of 1974 to impose a uniform 10% tariff on imported goods worldwide; Trump subsequently stated he would raise the rate to 15%.

Trump also became the first U.S. president to impose tariffs under Section 122. However, the market is currently more focused not on “how much to raise,” but rather: How much room does Section 122 really give the White House, how long can it last, and will it once again fall into disputes over legal and international rules?

What does “Section 122” stipulate: No investigation required, but “15% cap + 150-day expiration”

According to media summaries, Section 122 grants the U.S. president the authority to temporarily impose tariffs on imported goods to address concerns such as imbalanced cross-border capital flows, including two circumstances specified in law:

  • A massive and serious U.S. balance of payments deficit;
  • Imminent significant depreciation of the U.S. dollar.

Unlike other tariff tools Trump may employ, a major feature of Section 122 is: The president can initiate it directly, without having to wait for a “reasonableness” investigation by federal agencies. But the restrictions are also tighter:

  • Tariff rate capped at 15%;
  • May be imposed for a maximum of 150 days;
  • If continuation beyond 150 days is needed, Congress approval is required.

This means: Even if tariffs are implemented in the short term, their “sustainability” is written into legal text as a countdown, and subsequent developments will heavily depend on Congress' attitude and progress of litigation.

Why focus on “balance of payments”?

The balance of payments measures a country’s overall economic interactions with the world, covering not only trade in goods and services but also investment and other financial flows; it has traditionally been used to observe a country’s capacity to fulfill external payment obligations.

Section 122 was written into the 1974 Trade Act, with its origins traceable to President Nixon’s announcement in 1971 to impose a 10% tariff on imported goods. At that time, the U.S. dollar, pegged to gold and suspected of being overvalued, faced speculative attacks. Nixon's tariffs were part of the "Nixon Shock" policy package, one aim of which was to suppress import demand and force other countries to renegotiate exchange rates, effectively devaluing the dollar. The tariffs lasted only a few months, but also contributed to the demise of the Bretton Woods fixed exchange rate system.

Congress at the time was concerned about presidential overreach, so in 1974 Section 122 was added, setting a clear cap and deadline to constrain future presidents from using tariffs under the pretext of “balance of payments issues.”

What is Trump’s core rationale for invoking Section 122? $26 trillion “deficit”

In the presidential proclamation announcing use of Section 122, Trump asserted the necessity of tariffs, citing the "massive and serious" U.S. trade deficit, and pointed to phenomena such as net outflows of overseas investment income, indicating a worsening balance of payments relationship between the U.S. and the world.

Media analysis said Trump also targeted the U.S. “Net International Investment Position” (NIIP) — the difference between U.S. foreign assets and foreign-owned U.S. assets. This indicator currently stands at minus $26 trillion, one reason being: The value of U.S. assets held by foreign firms and residents is significantly higher than the value of overseas assets held by Americans.

However, the report also pointed out that Trump did not mention: If tariffs were used to drive foreign companies to increase investment in the U.S., the negative NIIP could further expand; moreover, the rise of the U.S. stock market (which Trump had touted as a “vote of confidence”) is also a key reason for the expanding negative NIIP.

Economists and policy experts are not convinced by Trump’s “balance of payments crisis” claim. Most economists' view is: Even if the president makes such statements, “there is no evidence that the U.S. cannot pay its bills or fulfill its obligations to international investors.” They believe that if such a crisis really arose, financial markets would dump U.S. assets, and the dollar would collapse in a crisis of confidence.

Legal risks also exist. Legal experts say Trump’s latest tariffs and their legal rationale may once again come under Supreme Court scrutiny, with the issue being whether Trump's claimed "balance of payments crisis" can withstand review. More problematic is that when Trump administration lawyers previously defended IEEPA tariffs, they wrote in documentation:

“The president’s concerns stated when declaring an emergency stem from trade deficits, which conceptually differ from balance of payments deficits.”

This statement may, in turn, become a focal point in new lawsuits.

International challenges are also possible. Trade experts note that imposing tariffs under the pretext of "balance of payments crisis" usually requires the U.S. to notify the World Trade Organization (WTO), with the WTO determining whether the measures are appropriate; if deemed inappropriate, the WTO may demand the U.S. withdraw the tariffs, and the issue may involve the International Monetary Fund (IMF) in judging whether a crisis exists.

However, media commentary notes: Even if it comes to this, the binding force is weaker than in the past — the U.S. has in fact weakened the WTO's dispute settlement mechanism, rendering its influence more symbolic.

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