What Happened
- After the US Supreme Court struck down IEEPA-based tariffs in February 2026, the Trump administration imposed new tariffs under Section 122 of the Trade Act of 1974 — the first-ever presidential use of this 50-year-old statute.
- Unlike earlier tariffs imposed under IEEPA, Section 232, or Section 301, Section 122 tariffs come with hard statutory constraints: a maximum rate of 15%, a maximum duration of 150 days, and mandatory uniform application across all trading partners.
- This shift from emergency executive authority (IEEPA) to a balance-of-payments authority (Section 122) represents a fundamental change in the legal basis, scope, and flexibility of US tariff policy.
- The change has significant implications for bilateral trade deals: since Section 122 mandates uniformity, country-specific tariff bargains (like the India 18% deal or bilateral exemptions) cannot be carved out within this framework.
- Legal experts debate whether the balance-of-payments trigger is genuinely met, as the US technically has a current account deficit but also a large capital account surplus — the two together constitute the overall balance of payments.
Static Topic Bridges
US Tariff Statutes: A Comparative Framework
The US President's tariff authority derives from multiple Congressional delegations, each with distinct triggers, rate limits, and procedural requirements:
| Statute | Authority | Rate Limit | Duration | Country Specific? |
|---|---|---|---|---|
| IEEPA (1977) | National emergency | None specified | Emergency duration | Yes |
| Section 232 (TEA 1962) | National security | None specified | Indefinite | Yes |
| Section 301 (TA 1974) | Unfair trade practices | None specified | Indefinite | Yes |
| Section 201 (TA 1974) | Safeguard (import surge) | None specified | 4 years max | No |
| Section 122 (TA 1974) | Balance of payments | 15% | 150 days | No |
| Section 338 (Tariff Act 1930) | Discrimination by foreign country | 50% | Indefinite | Yes |
- IEEPA: Most flexible authority — no rate cap, no time limit, highly country-specific; struck down for tariff use by Supreme Court (2026)
- Section 232: Used by Trump (first term) for steel (25%) and aluminium (10%) tariffs, citing national security
- Section 301: Used for China tariffs (2018–present), targeting unfair technology transfer and IP practices
- Section 201: "Safeguard" tariff — protects specific domestic industry from import surge; requires USITC investigation
- Section 122: Balance-of-payments authority — narrowest, most constrained; first use in 2026
Connection to this news: The shift to Section 122 represents the executive branch losing access to its most powerful tariff tool (IEEPA) and being forced into the most constrained one — a significant structural change in US trade policy capacity.
Balance of Payments: Concept and Components
The Balance of Payments (BoP) is a systematic record of all economic transactions between a country's residents and the rest of the world over a given period. It has two main accounts: (1) the Current Account — recording trade in goods (merchandise), services (tourism, software), primary income (dividends, wages), and secondary income (remittances, aid); and (2) the Capital and Financial Account — recording FDI, portfolio investment, loans, and reserve changes. By accounting identity, the current account deficit must equal the capital account surplus. Section 122 was designed to address a "large and serious" current account deficit or imminent dollar depreciation — not an overall balance of payments crisis, since the overall BoP always nets to zero.
- US Current Account deficit in 2024: approximately $1.1 trillion (largest in history)
- US Capital Account surplus (FDI + portfolio inflows): roughly mirrors the current account deficit
- Section 122's "balance-of-payments problem" trigger: legally disputed — the US has a current account deficit but overall BoP is balanced
- IMF Article IV: IMF conducts annual consultations with members on BoP sustainability — the US has not formally triggered IMF balance-of-payments assistance
- India's BoP position: India typically runs a current account deficit of 1-2% of GDP, financed by services surplus and remittances
Connection to this news: The legal validity of Section 122 tariffs hinges on whether a "large and serious" BoP problem exists — a contested empirical and legal question that experts argue could be challenged in US courts or at the WTO.
WTO Safeguards and Trade Remedy Mechanisms
The WTO permits three categories of "trade remedies" that allow members to restrict imports under defined conditions: (1) Anti-dumping measures — against imports sold below cost or below home-market price (WTO Anti-Dumping Agreement); (2) Countervailing duties (CVDs) — against subsidised imports (WTO Agreement on Subsidies and Countervailing Measures, ASCM); and (3) Safeguards — temporary measures against a sudden surge in imports causing serious injury to domestic industry (WTO Agreement on Safeguards). A blanket 10-15% global tariff under Section 122, not tied to any of these three mechanisms, would be difficult to defend under WTO rules and could face challenge under the General Agreement on Tariffs and Trade (GATT 1994), specifically Articles I (MFN), II (Bound tariffs), and XIX (Emergency safeguards).
- GATT Article I (MFN): Any tariff advantage to one country must be extended to all WTO members
- GATT Article II: Countries cannot charge tariffs above their "bound" rates (US averages ~3.5% for industrial goods)
- GATT Article XIX + WTO Safeguards Agreement: Emergency import restrictions permitted but must be non-discriminatory, time-limited, and subject to compensation
- WTO Balance-of-Payments exception: GATT Article XII allows developing countries (not developed countries like the US) to invoke BoP restrictions
- WTO Appellate Body paralysis: US has blocked appointments since 2019, leaving dispute rulings unenforceable for the US
Connection to this news: Section 122 tariffs — by exceeding US bound tariff rates and applying without a WTO-conforming safeguard investigation — are likely inconsistent with WTO obligations, but enforcement is hampered by the non-functional Appellate Body.
Key Facts & Data
- Section 122 rate ceiling: 15%; duration ceiling: 150 days
- First presidential invocation of Section 122: Trump, February 2026
- IEEPA enacted: 1977; Supreme Court ruling against its tariff use: February 2026 (Learning Resources v. Trump)
- US Current Account deficit (2024): approximately $1.1 trillion
- US WTO-bound tariff average (industrial goods): ~3.5%
- Section 232 steel tariff rate (first Trump term): 25%
- Section 301 China tariff rate (2018–present): 7.5%–25% (sector-dependent)
- WTO Appellate Body paralysed since: 2019 (US blocking judge appointments)
- Nixon's 10% surcharge year: 1971 (Trading with the Enemy Act — TWEA)