The Supreme Court Struck Down IEEPA Tariffs. Here’s the 1974 Law Trump Invoked Hours Later.

Last updated 2 weeks ago. Our resources are updated regularly but please keep in mind that links, programs, policies, and contact information do change.

The Supreme Court handed down its ruling at 10 a.m. On February 20, 2026. By that afternoon, the White House had already moved on.

Within hours of the Court’s 6-3 decision in Learning Resources, Inc. V. Trump, the administration issued a new proclamation invoking Section 122 of the Trade Act of 1974. The ruling held that the International Emergency Economic Powers Act gave the President no authority to impose tariffs. The new tariffs: 10 percent on most imports, with significant exemptions across product categories. Effective date: February 24, 2026. Duration: exactly 150 days, expiring July 24, 2026, unless Congress votes to extend them.

The speed of the shift suggested the administration had prepared for this outcome and had a backup ready. Which raises the central legal question: does Section 122 satisfy the constitutional and statutory requirements the Court found absent in IEEPA? Or does the administration’s factual predicate expose it to the same vulnerability?

The answer depends on a 1974 law that has never been invoked in nearly 50 years. It also turns on a triggering condition that the administration’s own lawyers previously said doesn’t apply here. The 150-day clock is simultaneously a legal constraint and a strategic variable reshaping how every trading nation calculates its next move. For a fuller account of the IEEPA ruling itself and why the Court found the statute insufficient, see our earlier analysis of how Congress originally delegated tariff power and what the Court took back.

What Section 122 Says

Here is the part that trips people up: Section 122 is not a vague grant of presidential authority. It is one of the more carefully written trade statutes on the books.

The law allows the President to impose import surcharges or quotas, but only under clearly defined conditions. The statute requires “fundamental international payments problems” that necessitate special import measures to address one of three things: large and serious U.S. Balance-of-payments deficits, imminent and significant depreciation of the dollar in foreign exchange markets, or cooperation with other countries to correct an international balance-of-payments disequilibrium.

The maximum tariff rate is 15 percent. The maximum duration is 150 days. Any extension beyond that requires an act of Congress.

Those limits are exactly what the Supreme Court found missing in IEEPA. Where IEEPA’s language gave the President authority to “regulate importation” without naming tariffs, duration limits, or rate caps, Section 122 spells out the maximum rate, the maximum duration, and the specific conditions that must exist before the President can act.

As SCOTUSblog’s breakdown of the tariff decision notes, the Court’s majority emphasized that tariffs are “a branch of the taxing power” constitutionally vested in Congress. The majority further held that Congress cannot delegate this core Article I authority without clear statement. Section 122 makes that clear statement. The question is whether the statement covers what the administration is doing with it.

Does a Balance-of-Payments Problem Exist?

A balance-of-payments crisis is a specific, recognizable thing. It happens when a country can no longer pay for its imports or cover its external debt. Capital flees. Foreign exchange reserves drain. The currency faces devaluation pressure that governments can no longer handle. Think Argentina in 2001, or the Asian financial crisis of 1997. These are situations where governments are scrambling to prevent their currencies from collapsing and their import supply chains from seizing up entirely.

That is not what is happening in the United States right now. The dollar remains the world’s dominant reserve currency. Foreign investors keep buying U.S. Treasury bonds and equity securities in large amounts. The 10-year Treasury yield has not shown crisis-level volatility. As Gita Gopinath, former chief economist of the International Monetary Fund and now a Harvard economics professor, stated plainly in the days following the proclamation that “the US does not have a fundamental international payments problem.”

What the U.S. Does have is a large trade deficit: roughly $1.2 trillion annually in goods. The proclamation cited this figure, along with a current account deficit of roughly 4 percent of GDP (the largest since 2008) and a drop in the U.S. Net international investment position, as evidence of “fundamental international payments problems.”

The White House’s strongest statutory argument is that “fundamental international payments problems” is a broader phrase than “balance-of-payments crisis.” Courts, on this view, should defer to the executive branch’s reading of unclear statutory terms.

On this reading, Congress’s careful choice of “fundamental international payments problems”, rather than the narrower phrase “balance-of-payments crisis”, signals a lower triggering threshold than critics admit. A current account deficit of 4 percent of GDP, a worsening net international investment position, and sustained dollar depreciation pressure could, on a broad reading of the phrase, plausibly satisfy the statute.

White House lawyers would further argue that courts give deference to executive factual findings in trade contexts. They would also argue that the question of whether the statutory threshold is met is a legal interpretation question, not purely an economic one. On that question, the executive branch is entitled to reasonable leeway under the doctrines that have replaced Chevron.

That argument, however, faces significant obstacles. According to RSM’s economic analysis of whether Section 122 applies here, the proclamation’s factual basis does not hold up even under a generous reading of the statute.

A trade deficit and a balance-of-payments deficit are not the same thing. When a trade deficit is covered by capital inflows, as the U.S. Deficit currently is, the overall balance of payments stays in equilibrium. The U.S. Runs exactly this combination: a large trade deficit offset by an equally large capital account surplus, as foreign investors pour money into U.S. Assets. In a country with a floating exchange rate, which the U.S. Has had since 1973, this is not naturally destabilizing. The exchange rate adjusts to equilibrate the system.

This is where the White House’s own legal record becomes a problem. During the IEEPA litigation before the Federal Circuit Court of Appeals, the Department of Justice openly admitted that Section 122 has “no application” to a situation where the President’s concerns arise from trade deficits, which are “conceptually distinct from balance-of-payments deficits.” The DOJ dropped this argument at the Supreme Court, apparently changing strategy once the IEEPA case appeared headed toward defeat.

But the argument remains on the record, signed by those same lawyers. It acknowledges that the factual predicate offered for Section 122 in the proclamation does not satisfy the statute’s triggering condition.

That admission, made in a prior DOJ filing, is now part of the evidentiary record available to any court reviewing the Section 122 proclamation.

Why Congress Wrote Section 122 in the First Place

Section 122 was not drafted in the abstract. It was drafted in response to a specific event: Nixon’s 1971 import surcharge.

In August 1971, President Nixon faced what appeared to be a genuine balance-of-payments emergency. Foreign governments were redeeming their surplus U.S. Dollars for gold, rapidly draining American gold reserves. The Bretton Woods system of fixed exchange rates was collapsing. Nixon responded by imposing a temporary 10 percent import surcharge. Nixon’s Proclamation 4074 imposing the import surcharge cited the Constitution and statutes including the Tariff Act of 1930 as its primary authority, though the Trading with the Enemy Act was cited in related actions.

The surcharge was challenged in court. The U.S. Customs Court eventually ruled Nixon had exceeded his statutory authority, though a federal appeals court later reversed that decision. Despite the appeals court reversal, Congress saw enough legal uncertainty about the statutory basis for Nixon’s action — particularly questions about the use of wartime statutes for peacetime economic purposes — to act. Congress passed Section 122 of the Trade Act of 1974 in response, imposing stricter conditions than Nixon had used: a required finding of a “fundamental international payments problem,” a 15 percent rate cap, and a 150-day duration limit.

The world Section 122 was built for no longer exists. Fixed exchange rates are gone. The dollar floats. The conditions that made a genuine balance-of-payments crisis possible for the United States in 1971 are different from anything the U.S. Faces today. Whether courts will treat this historical mismatch as legally significant — or defer to the executive’s factual finding regardless of its economic accuracy — is one of the open questions a future challenge will have to resolve. Our earlier piece on why the next round of tariffs may survive judicial review covers the Major Questions Doctrine analysis in more depth.

In nearly 50 years since Section 122’s enactment, no president has invoked it: not during the trade disputes of the 1980s, not during the Asian financial crisis, not during the 2008 financial crisis. The February 20 proclamation was the first use of the statute in its entire history. It was applied at 10 percent, with exemptions across multiple product categories, touching trillions of dollars in annual trade.

What Importers Are Dealing With Right Now

While legal scholars debate the statute’s constitutional validity, importers have a more pressing problem. Goods priced under IEEPA tariff assumptions have arrived or are in transit under a different tariff regime with different exemptions and different legal uncertainty.

The Section 122 proclamation imposes a flat 10 percent surcharge on most imports, with a defined set of exemptions. Steel, aluminum, and copper products are exempt. So are USMCA-compliant goods from Canada and Mexico, critical minerals, energy products, pharmaceuticals, and certain agricultural goods. For thousands of products that had country-specific tariff advantages under negotiated agreements built around IEEPA-based rates, the new regime means recalculating costs from scratch.

U.S. Customs and Border Protection inactivated all IEEPA-related tariff codes in its Automated Commercial Environment system, describing the update as administrative compliance with the Supreme Court ruling. It then created new codes to handle Section 122 tariff lines, all within days of the proclamation. Customs brokers are now processing entries under Harmonized Tariff Schedule codes that did not exist a week ago.

The proclamation included a narrow “on the water” exception. Goods loaded onto a vessel and in their final mode of transit before 12:01 a.m. EST on February 24, 2026, that enter the United States for consumption before February 28, 2026, are not subject to Section 122 duties. This created an understandable scramble. It also created a documentation burden. Proving that a container was “loaded” and “in transit” on the relevant dates now requires vessel schedules, bills of lading, and port records reviewed under closer scrutiny.

The refund question for IEEPA tariffs already paid is unresolved. The Supreme Court’s opinion said nothing about remedies or refund procedures. Some importers have already sued for refunds in the Court of International Trade, the specialized federal court with jurisdiction over tariff disputes. Others are waiting to see whether the government will set up a voluntary refund process. Snell & Wilmer’s importer guidance on IEEPA refunds and Section 122 lays out the procedural options. None of them are fast or cheap.

The National Retail Federation immediately called for “a seamless process to refund the tariffs to U.S. Importers.” No such process has materialized. The responsibility for seeking relief has been put on importers themselves, through litigation in a court not built for the volume of claims now pending.

The 150-Day Clock as a Strategic Variable

July 24, 2026. That date is both a legal deadline and a negotiating variable that every trading nation is now running calculations around.

A country that negotiates quickly might win tariff exemptions or rate reductions for its key industries, in exchange for market access concessions or investment commitments. But a country that delays might benefit from the tariffs’ automatic expiration on July 24, avoiding the need to offer concessions at all. The July date falls a few months before the November 2026 midterm elections. This creates political pressure within Congress to either extend Section 122 or allow it to lapse. Neither party’s incentives are obvious.

White House officials have indicated that Section 122 is a “bridge” authority, designed to keep tariffs in place while longer-term authorities, particularly Section 301 investigations into unfair trade practices, are pursued. Section 301 investigations are conducted country-by-country, follow formal procedural requirements, and typically take 6 to 18 months to conclude — the statutory deadline runs 12 to 18 months, and the mandatory quasi-judicial process cannot be compressed significantly. Officials have announced they will initiate Section 301 investigations against major trading partners. Completion before July 24, 2026, is not assured.

This creates an uneven strategic situation. The White House wants trading partners to believe tariffs will continue indefinitely through some combination of Section 301, Section 232, and other authorities. Trading partners might reasonably decide that waiting until June is less risky than agreeing to concession terms in March or April. By June, it will be clearer whether Congress will extend Section 122. It will also be clearer whether Section 301 investigations will generate sufficient legal authority to maintain tariffs post-July 24.

Japan’s situation illustrates the problem concretely. Japan had negotiated a 15 percent base tariff rate, matching the Section 122 rate, in exchange for a $550 billion investment commitment. Within hours of the IEEPA ruling, that negotiated rate became the default global rate. Japanese opposition figures called the situation “a real mess,” and reasonably so. They had traded a specific concession for a specific tariff arrangement. The legal foundation of that arrangement disappeared before the ink was dry.

No backup plan has been publicly outlined for the scenario in which Congress refuses to extend Section 122 or Section 301 investigations are not finished in time. That silence is itself strategic. It allows the White House to claim readiness for any outcome while avoiding public commitment to backup positions that trading partners might use to adjust their negotiating strategies.

The International Monetary Fund has warned that policy unpredictability is itself economically harmful, even apart from the tariff rates themselves. Companies cannot make long-term supply chain investments when tariff policy might change in 150 days.

The Overlapping Tariff Authorities: A Reference

Importers now work under a layered system of tariff authorities that will shape import costs through the end of 2026 and potentially beyond. Here is where things stand:

Sources: Thompson Hine’s Section 122 implementation summary; White House proclamation text; Federal Register publication.

What Happens When July 24 Arrives

The statutory end of Section 122 authority on July 24 does not mean tariffs will stop. It means only that the White House will no longer have Section 122 authority to keep a 10 percent surcharge on most imports. Section 301, Section 232, antidumping duties, and countervailing duties will remain operative unless specifically revoked.

But here is the specific question Congress will face between now and then: whether to vote on extending Section 122. If it does nothing, the authority expires. If it passes an extension, the tariffs continue, subject to possible legal challenge to the extension mechanism itself. The timing of this decision relative to the midterm election cycle will affect the political calculations on both sides.

The administration could also try to invoke Section 122 again on July 25, arguing a fresh balance-of-payments emergency exists. Courts would likely view repeated re-invocations of a 150-day authority skeptically, as an attempt to get around the statute’s duration limit. No court has yet ruled on this question, and the statute’s silence on the point leaves room for argument.

A reasonable textual counterargument exists: if a genuine triggering condition persists or recurs on its own, a new proclamation supported by a new factual finding could be defended as a fresh invocation rather than an extension. Courts would nonetheless likely examine whether a “new” finding made one day after expiration reflects a truly distinct condition. They would also consider whether it simply re-labels the same circumstances the 150-day limit was designed to make temporary.

It could move to Section 301 tariffs, but those must be country-specific and justified by specific unfair trade practices, not by global balance-of-payments concerns. It could expand Section 232 tariffs, but stretching that authority to cover products not plausibly related to national security would likely invite another judicial challenge.

There is also the question of what courts do with Section 122 before July 24. The Court of International Trade, which handles tariff disputes, has already shown some skepticism about executive overreach in trade authorities. If a court decides that the factual finding, that the U.S. Faces a balance-of-payments emergency, is not even plausibly supported by the evidence in the proclamation, the invocation fails regardless of Section 122’s textual clarity. Courts generally defer to executive fact-finding in the trade context. But the DOJ’s own prior admission that trade deficits are “conceptually distinct from balance-of-payments deficits” is an unusual piece of evidence for a court to have to work around.

The tariff confrontation with the Supreme Court is not resolved by the February 20 ruling. It is paused, temporarily, by a 50-year-old statute that has never been tested in court — now invoked for the first time in history to address conditions that critics, and the administration’s own prior DOJ filings, argue fall outside what its drafters intended.

Whether that move holds legally, whether trading partners treat the July 24 deadline as real or as a negotiating pose, and whether Congress will extend or let lapse an authority it never expected to see used: these are the questions that will determine what American trade policy looks like on July 25, 2026.

Our articles make government information more accessible. Please consult a qualified professional for financial, legal, or health advice specific to your circumstances.