What Happened
- A coalition of 24 US states, led by Oregon, California, New York, and Arizona, filed a lawsuit at the US Court of International Trade challenging President Trump's new round of global tariffs imposed under Section 122 of the Trade Act of 1974.
- The tariffs, which impose a 15% surcharge on most imports from countries worldwide, were invoked four days after the US Supreme Court struck down Trump's earlier sweeping tariffs imposed under the International Emergency Economic Powers Act (IEEPA) on February 20, 2026.
- The states argue that Section 122 was designed solely to address balance-of-payments emergencies under the now-defunct Bretton Woods gold-standard system and cannot legally be used for broad protectionist purposes.
- The lawsuit seeks both an injunction blocking the tariffs and a refund of tariff payments already made — a significant demand given the volume of trade affected.
Static Topic Bridges
Separation of Powers in the US Constitutional System
The United States Constitution distributes governmental authority among three branches: the legislature (Congress), the executive (President), and the judiciary (Courts). The power to levy taxes and duties — including import tariffs — is constitutionally vested in Congress under Article I, Section 8, which gives Congress the power to "lay and collect Taxes, Duties, Imposts and Excises."
However, Congress has over decades delegated significant tariff-imposing authority to the President through various trade statutes. Courts are now being asked to determine whether the executive has exceeded this delegated authority. The states' lawsuit specifically invokes separation-of-powers concerns — arguing that using Section 122 for purposes beyond its congressional intent amounts to an unconstitutional executive overreach.
- The Supreme Court's February 20, 2026 ruling that IEEPA tariffs were unlawful was a landmark check on presidential trade authority
- The US Court of International Trade (CIT) is the specialised federal court for trade and customs matters; its decisions can be appealed to the US Court of Appeals for the Federal Circuit
- Under Article III of the US Constitution, courts can review the legality of executive actions through the doctrine of judicial review (established in Marbury v. Madison, 1803)
- States have standing to sue the federal government when they can demonstrate direct economic harm — here, the states argue their economies and residents face unconstitutional taxation
Connection to this news: The lawsuit exemplifies a fundamental constitutional tension in the US system: broad congressional delegation of trade powers to the executive, followed by judicial correction when the executive overreaches — a pattern directly relevant to comparative constitutional law in UPSC syllabus.
Section 122 of the Trade Act 1974: Legal Authority and Limits
Section 122 of the Trade Act of 1974 (codified as 19 U.S.C. § 2132) authorises the President to impose import surcharges of up to 15% for up to 150 days (without Congressional approval) to address "fundamental international payments problems" — specifically, a large US balance-of-payments deficit or an imminent significant depreciation of the dollar.
The authority was enacted following President Nixon's 1971 decision (the "Nixon Shock") to impose a 10% import surcharge and suspend dollar convertibility to gold, effectively ending the Bretton Woods fixed-exchange-rate system. At the time of enactment, even the Senate Finance Committee noted that the authority was "not likely to be utilised" under normal circumstances.
- Section 122 has never before been used to impose global tariffs of this magnitude — its previous uses were narrower and targeted
- Critics argue that a "balance-of-payments problem" under Section 122 requires a current account deficit in the strict monetary sense, not merely a trade deficit — and that today's floating exchange rate system makes the trigger irrelevant
- The 150-day limit means the tariffs would automatically expire without Congressional extension — a significant procedural constraint
- The IEEPA, which the Supreme Court struck down, had been used to impose unlimited-duration tariffs on specific countries for national security reasons; Section 122 is narrower in scope but the administration argues it is legally distinct
Connection to this news: The legal challenge tests whether the executive can use a 1974 statute designed for a gold-standard world to impose broad protectionist tariffs in the contemporary floating-exchange-rate era — a question with direct consequences for global trade including India's export industries.
Global Trade Architecture: WTO and Unilateral Tariffs
The World Trade Organization (WTO), established in 1995 as successor to the General Agreement on Tariffs and Trade (GATT, 1947), provides the multilateral framework governing international trade. Its core principles include Most-Favoured-Nation (MFN) treatment (equal tariff treatment for all members), national treatment, and tariff binding (commitments not to raise tariffs above agreed levels). Unilateral tariff surcharges like those under Section 122 potentially violate WTO MFN obligations unless justified under exceptions like Article XXI (national security) or the balance-of-payments safeguard provisions of Articles XII/XVIII.
- WTO has 166 member states; the US is a founding member
- The WTO dispute settlement system (Dispute Settlement Body, Appellate Body) allows member states to challenge others' trade measures — but the Appellate Body has been non-functional since 2019 due to US blocking of new appointments
- India has been one of the countries most active in challenging US tariff actions at WTO — including the Section 232 steel and aluminium tariffs
- India's bound tariff rates at WTO are significantly higher than its applied rates, giving India formal space to raise tariffs without WTO violation — this asymmetry has been a point of US-India trade friction
- GATT Article XII (balance-of-payments exceptions) provides a narrow carve-out under which Section 122 tariffs might be defended internationally
Connection to this news: The US states' lawsuit and the broader Section 122 controversy are likely to generate WTO challenges from multiple countries, potentially further weakening the already-stressed multilateral trading system — relevant for India's own export strategy.
Key Facts & Data
- 24 states filed the lawsuit, led by Oregon, California, New York, and Arizona
- Section 122 surcharge: 15% on most global imports (maximum permissible under the statute)
- Duration limit: 150 days without Congressional extension
- IEEPA tariffs struck down by Supreme Court: February 20, 2026 (Learning Resources, Inc. v. Trump)
- Section 122 was enacted in the Trade Act of 1974, in the aftermath of the 1971 Nixon Shock
- US trade deficit (goods): approximately $1.2 trillion in 2024-25 — cited by the administration as justification
- India's goods exports to the US: approximately $77 billion in 2024-25 — directly affected by any global surcharge
- WTO Appellate Body: non-functional since December 2019; US has blocked all new appointments
- The US Court of International Trade is located in New York City and has exclusive jurisdiction over international trade cases