What Happened
- On February 20, 2026, the US Supreme Court ruled 6-3 in the case Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act (IEEPA) of 1977 does not authorize the President to impose tariffs — invalidating all tariffs imposed by President Trump under that authority, including the "Liberation Day" reciprocal tariffs.
- Within hours of the ruling, Trump signed an executive order invoking Section 122 of the Trade Act of 1974, imposing a 10% import surcharge on all goods entering the US.
- By the night of February 21, Trump raised this to 15% — the statutory maximum under Section 122.
- The 15% tariff applies as a universal import surcharge on all countries, replacing the prior country-specific tariff architecture that had been struck down.
- Section 122 has never been invoked by any previous US president; this is the first time the authority has been used in the 52 years since the Trade Act of 1974 was enacted.
- The tariff is legally limited to 150 days (approximately 5 months) unless extended by Congress.
- Trump reacted to the Supreme Court ruling by calling the majority justices "fools and lapdogs" and an "embarrassment to their families."
- The ruling is expected to result in refunds of over $160 billion in tariffs already collected under IEEPA.
Static Topic Bridges
International Emergency Economic Powers Act (IEEPA), 1977
IEEPA was enacted on December 28, 1977, to give the US President broad authority to regulate international commerce and financial transactions in response to a declared national emergency arising from an "unusual and extraordinary threat" with a foreign source. It has historically been used to impose financial sanctions on foreign entities, freeze assets, and restrict transactions — but not to impose tariffs.
- IEEPA replaced earlier powers granted under the Trading with the Enemy Act (1917), which had originally been used to impose tariffs.
- The Act requires the President to declare a national emergency under the National Emergencies Act before invoking IEEPA authorities.
- Prior uses include freezing Iranian assets (1979), sanctions on Cuba, North Korea, Russia (post-2022), and targeted actions against terrorist financing.
- Chief Justice Roberts' majority opinion in Learning Resources, Inc. v. Trump held that IEEPA's use of the words "regulate" and "importation" could not bear the weight of granting unlimited tariff authority: "IEEPA contains no reference to tariffs or duties."
- The 6-3 majority included Roberts, Sotomayor, Kagan, Gorsuch, Barrett, and Jackson; Thomas, Kavanaugh, and Alito dissented.
Connection to this news: The Supreme Court's ruling dismantled the legal foundation of the most sweeping US tariff regime in a century. Trump's pivot to Section 122 is a direct workaround, using an untested statutory authority that carries its own legal and political constraints.
Section 122 of the Trade Act of 1974: Balance-of-Payments Authority
Section 122 (codified at 19 USC 2132) is titled "Balance-of-payments authority." It permits the President to impose temporary import measures when "large and serious" US balance-of-payments deficits threaten the dollar or require international cooperation. The authority is subject to strict statutory limits.
- Maximum tariff rate under Section 122: 15% ad valorem (on the value of goods imported).
- Maximum duration: 150 days, unless extended by Congress through a majority vote.
- The statute requires measures to be applied uniformly — it cannot target individual countries.
- Requires only a presidential determination (not a formal interagency investigation) that a balance-of-payments deficit exists.
- No US President has ever previously invoked Section 122 since the Trade Act of 1974 was enacted.
- Critics (including trade law experts cited by Fortune) argue that the US does not actually run a "balance-of-payments deficit" — its current account deficit is offset by capital account surpluses — making Trump's legal justification technically questionable.
Connection to this news: Section 122 gives Trump a legally distinct but temporally limited tool to maintain import surcharges. The 150-day ceiling creates a deadline pressure: by approximately July 2026, Trump must either abandon the tariffs or seek Congressional extension, which is uncertain given partisan dynamics.
The World Trade Organization (WTO) and Tariff Disciplines
The WTO provides the multilateral framework governing international trade. Member countries bind their tariff rates through negotiations, and any tariff imposed above the "bound rate" is generally considered a violation of WTO commitments unless covered by a recognized exception.
- The US's bound tariff rate (the maximum it committed to charge) averages approximately 3.4% for industrial goods.
- WTO Article XIX allows "safeguard" measures (temporary tariffs) if a product surge causes serious injury to domestic industry — but requires country-specific findings and is subject to dispute settlement.
- GATT Article XXI (national security exception) was previously invoked by the US for steel and aluminum tariffs in 2018; the WTO Appellate Body has since clarified the exception is not self-judging.
- A universal 15% surcharge would breach US WTO commitments on virtually all bound tariff lines.
- Multiple WTO members — including India, the EU, and China — have challenged various US tariff actions through the WTO Dispute Settlement Body.
Connection to this news: The Section 122 tariff, while having domestic legal authority, would still constitute a violation of US WTO commitments. This dual-track legal exposure — domestic legal challenges to Section 122's scope and WTO dispute proceedings — will likely shape the tariff regime's durability.
US Trade Deficit and Balance-of-Payments Dynamics
The US runs a persistent current account deficit — it imports more goods and services than it exports. In 2024, the US goods trade deficit exceeded $1 trillion. However, balance-of-payments accounting includes both current account (trade in goods and services) and the capital/financial account (investment flows). On a total balance-of-payments basis, the US does not run a deficit because capital inflows (foreign investment in US assets, including US Treasury bonds) offset the current account gap.
- US goods trade deficit in 2024: approximately $1.06 trillion (a record).
- The US runs a services trade surplus (tourism, finance, IP licensing), which partially offsets the goods deficit.
- The current account deficit was approximately $1.1 trillion in 2024.
- Capital account surpluses (foreign purchases of US stocks, bonds, and direct investment) have historically offset the current account deficit, keeping the total balance-of-payments near zero.
- Trade economists and legal experts have argued this balance-of-payments surplus renders the Section 122 "large and serious deficit" justification legally weak.
Connection to this news: Trump's invocation of Section 122 rests on the legal trigger of "large and serious balance-of-payments deficits." Whether courts will accept this characterization — given that the full balance-of-payments (including capital flows) may not show a deficit — is likely to be the next legal battleground over US tariff authority.
Key Facts & Data
- Supreme Court ruling date: February 20, 2026
- Case name: Learning Resources, Inc. v. Trump (607 U.S. ___)
- Vote: 6-3 (Roberts, Sotomayor, Kagan, Gorsuch, Barrett, Jackson in majority)
- IEEPA enacted: December 28, 1977
- Section 122, Trade Act of 1974: first-ever invocation in US history
- Section 122 maximum tariff rate: 15%
- Section 122 maximum duration: 150 days (without Congressional extension)
- Estimated IEEPA tariffs illegally collected and subject to refund: over $160 billion
- Tariff progression: initial EO at 10% → raised to 15% within 24 hours
- Section 122 requirement: "large and serious" balance-of-payments deficit finding
- The tariff applies uniformly — cannot target individual countries under Section 122