The legal foundation for taxing every import into the US has now rested, at various points in the past year, on a 1977 emergency powers law, a 1974 statute designed for a monetary system that no longer exists, and — if the administration’s next move is what trade lawyers expect — a Depression-era provision that has never once been used to impose actual tariffs in almost a century. At some point, running out of legal justifications is a signal worth heeding.
In February, the Supreme Court ruled that President Trump’s sweeping IEEPA tariffs were unlawful. The Court’s rebuke was clear: Congress had not clearly delegated that kind of sweeping tariff power to the executive branch, and the President “enjoys no inherent authority to impose tariffs during peacetime.”
Before the ink was even dry on that opinion, the White House signed Proclamation No. 11012 and imposed a new 10-percent tariff on basically every imported good. This time, the administration cited Section 122 of the Trade Act of 1974 and the so-called “balance-of-payments authority.”
In a 2–1 decision, the Court of International Trade struck that one down, too.
Section 122 and the Next Legal Fight
Section 122 of the Trade Act of 1974 was written for a monetary world that no longer exists. Prior to this statute, several foreign currencies were pegged to the dollar, and the dollar was, in turn, pegged to gold at $35 per ounce. This changed in 1971 when President Nixon severed the dollar’s link to gold and, in turn, hit the world with a 10 percent surcharge on imports. Congress, watching all of this happen in real time, wanted to give the president a narrow, carefully-defined emergency power to impose temporary tariffs when the US faced specific, identifiable, and measurable monetary crises.
The statute authorizes the President to act to deal with “larger and serious United States balance-of-payments deficits.” This phrase had a precise, technical meaning. Economists measured the balance of payments using three specific metrics: the liquidity balance, the official settlements balance, and the basic balance. Without going into too much detail, these tools were designed to track whether the US had enough gold and reserves given the dollar’s fixed exchange rate.
With a floating exchange rate system and fiat money, however, these measures are all but obsolete. The Bureau of Economic Analysis stopped reporting them in 1976, just two years after the Trade Act of 1974 (and with it, Section 122) was enacted.
Gleaning from the court’s ruling, the Trump administration argued that the “balance-of-payments deficit” is a living concept that should be updated for modern conditions. Today, they said, the correct measure is the current account deficit.
Courts Question the President’s Premise
The Court of International Trade was not convinced by this argument. The court reasoned that Congress used specific words that had specific meaning in 1974, and that their job is to interpret what those words meant when they were written, not to update their meaning in light of the world today. As the court put it, “the ‘balance of payments’ as an accounting principle always nets to zero.
To the extent that is the case, if the President has the ability to select among the sub-accounts to identify a balance-of-payments deficit, unless every sub-account is balanced, the President would always be able to identify a balance-of-payments deficit.” In footnote 33, they go further, saying, “Defendants argue that ‘the balance-of-payments current account [is] the only reasonable measure of a balance-of-payment deficit.’ This argument lacks support in either the statute’s text or legislative history. Defendants’ position is the President has discretion to identify any actionable deficit for purposes of Section 122(a)(1). But Section 122 would lack an intelligible principle if the President could simply identify any deficit account, or if the phrase ‘balance-of-payments deficits’ could change with context.”
In other words, the court pointed out that if it accepted the government’s premise, any President could always point to a “deficit” somewhere and, on that basis, justify tariffs. In a system with an unconstrained imagination, that is no real limit on presidential power. As we have seen in recent years, courts have been increasingly reluctant to accept broad, open-ended delegations of Article II authority to the executive.
Why Most Plaintiffs Lost
The court’s ruling issued a permanent injunction — essentially an order to “stop it” — but it applies only to the actual importers who brought suit, not to every plaintiff in the case. Specifically, the injunction covers the State of Washington, which imported goods through the University of Washington, a small New York spice company called Burlap and Barrel, and a Florida toy company called Basic Fun.
The other plaintiffs were dismissed for lack of standing because they could not show they directly paid the tariffs, only that they might face higher costs as downstream purchasers. The court found that too speculative. Those claims were dismissed without prejudice, however, meaning the plaintiffs are free to refile if they can later establish proper standing.
The Latest Legal Theory: Section 338
The game of whack-a-mole that we have seen vis-à-vis tariff policy is certainly not going to stop. The Section 232 tariffs on products such as steel and aluminum remain in place and could still be expanded or modified, and the administration has already begun the process of implementing Section 301 tariffs. But there is another tariff authority that could be used as well: Section 338 of the Tariff Act of 1930.
This section gives the President the authority to impose tariffs of up to 50 percent on imports from any country that “discriminates” against US commerce. Unlike IEEPA and Section 122, this is an unambiguous statute that allows the president to do so. The very first line of the section reads, “the President when he finds that the public interest will be served shall by proclamation specify and declare new or additional duties as hereinafter provided.”
This as-yet-unused authority has three features that make it the likely next step in the tariff saga. First, it allows for tariff rates up to 50 percent. This is already higher than most of the IEEPA tariff rates that were imposed before they were struck down. Second, it only requires that the President “finds as a fact” that a foreign country is discriminating against US commerce, with no mandatory investigation, no notice-and-comment period, and no notification to Congress required. Third, it allows the President to issue a total ban on imported goods from a country that does not relent in response.
Given all of this, the obvious question is “why didn’t the President use this authority to begin with?” There are a few potential reasons. First, any tariff rates announced are not allowed to be implemented for a period of at least thirty days after the proclamation is issued. While the president famously issued extensions, pauses, and delays in rolling out several of the tariffs he announced throughout 2025, this thirty-day period does mean that the authority granted here is not as immediate as the President may have liked.
Second, the statute assigns the US International Trade Commission with the duty to “ascertain and at all times to be informed whether any of the discriminations against the commerce of the United States…are practiced by any country; and… to bring the matter to the attention of the President, together with recommendations.” Because of this, it’s not clear that the President can act unilaterally and at his discretion or if he needs some pro forma report from e.g. the US Trade Commission before he can act. Could he, for example, raise tariffs on Switzerland because he didn’t like the way their former president talked to him without US Trade Representative Jamieson Greer recommending that he do so? It’s unclear.
Finally, sweeping tariffs of the sort that the administration seems to prefer are legally difficult under Section 338. The statute requires that the tariffs be country-specific and must be designed to “offset” any damages done. This makes it harder to implement broad, sweeping tariffs, though, as we saw last summer, the White House is perfectly able to use mail-merge to send letters to numerous countries announcing new tariff rates, perhaps obviating this concern.
Which Will Run Out First — Courts’ Patience, or the President’s Claims to Authority?
The problem the President is going to run into is that he has now tried and failed to claim open-ended tariff authority twice. It is clear that courts are reading congressional delegations very carefully and very narrowly. If the President tries to use a Depression-era statute designed to address discrimination to reconstruct the IEEPA tariffs, he will almost certainly face a very skeptical bench. If it looks like IEEPA, walks like IEEPA, and sounds like IEEPA, we shouldn’t be surprised if the court treats it like IEEPA.
