Section 122 of the 1974 Trade Act Was Designed for Emergencies. Here’s What Congress Actually Intended.

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Not during the Latin American debt crisis of the 1980s, not during the 1997 Asian financial crisis that spread across the region, not during the 2008 collapse that nearly took the global banking system with it. Through decades of genuine financial emergencies, Section 122 of the Trade Act of 1974 went untouched. Then, within hours of the Supreme Court striking down his tariff regime on February 20, 2026, President Trump announced a 10 percent global tariff under Section 122. That figure is the statutory maximum, and the tariff was set to take effect within days.

The speed of the shift was striking. Reports suggest the administration had contingency plans already in motion. The White House proclamation offered the clearest view of the legal theory: the United States faces “fundamental international payments problems” requiring emergency action. Whether that claim holds up in court depends almost entirely on what Congress meant when it wrote those words in 1974. To understand that, you have to go back to a moment when the world’s monetary system was coming apart at the seams.

Nixon’s Shock and the Problem Congress Was Solving

On August 15, 1971, Richard Nixon went on television and announced that the United States would no longer convert dollars to gold. The Bretton Woods system, the fixed exchange rate arrangement established during World War II but not fully operational until major currencies achieved convertibility in the late 1950s, was effectively over. But buried inside that announcement was something more immediately disruptive for American importers: a 10 percent surcharge on most goods entering the country.

The economic logic, as economist Douglas Irwin recorded in his analysis of the Nixon surcharge, was blunt. The U.S. Balance of payments had been getting worse for years. Foreign governments were converting dollar holdings into gold at a faster rate, draining American reserves. Treasury Secretary John Connally joined the administration in February 1971. He decided that “benign neglect” of the problem had run its course.

The surcharge was meant as a pressure tactic: force trading partners to revalue their currencies against the dollar, or watch their exports become more expensive in the American market. It worked, more or less. By December 1971, the Smithsonian Agreement had established new exchange rate parities. Nixon then lifted the surcharge.

But the episode left Congress deeply uneasy. Here was the president, acting under authority that was legally questionable, imposing a significant tax on imports without explicit congressional authorization. The Constitution’s requirement that only Congress can levy taxes was not a minor detail; it was the whole point.

When Congress began writing the Trade Act of 1974, the Nixon surcharge was the event they were responding to. The question before them was whether the president should have this kind of authority at all, and if so, under what conditions.

Their answer was Section 122. Yes, the president should have emergency tariff authority. Balance of payments crises could be genuine and urgent. But the authority would be narrow, temporary, and limited by specific conditions.

The statute set a ceiling of 15 percent and a duration limit of 150 days unless Congress explicitly extended it. It also required the tariff to apply equally to all countries as a default, with a significant exception allowing the President to target only countries with large or persistent balance-of-payments surpluses, and set a triggering condition requiring “fundamental international payments problems.” These were not empty constraints. They were the core of the deal Congress was making with itself.

What the Statute Says (and What It Doesn’t)

The law’s text is precise in ways that matter greatly right now. The president may impose a temporary import surcharge “whenever fundamental international payments problems require special import measures to restrict imports.” Three circumstances qualify: dealing with “large and serious United States balance-of-payments deficits”; preventing “an imminent and significant depreciation of the dollar in foreign exchange markets”; or cooperating with other countries “in correcting an imbalance in international payments.”

Notice what is not on that list. Trade deficits, generally. Revenue generation. Use over trading partners in bilateral negotiations. Reshaping the structure of American manufacturing. These are valid policy goals, and Congress has given the president other tools to pursue them. But Section 122 was written for something specific: the kind of crisis where a country is running out of the foreign exchange or gold reserves needed to honor its international obligations. It is a specific economic concept. It fits directly onto the world as it existed in 1971.

Here is the part that confuses people. By the time Congress passed the Trade Act in 1974, the world had already moved to floating exchange rates. The Bretton Woods system Nixon had effectively ended in 1971 was officially buried. Under floating rates, the balance of payments always balances by definition. If Americans import more than they export, foreigners invest the difference in American assets: Treasury bonds, real estate, businesses.

The trade deficit and the capital account surplus (foreign investment flowing in) are two sides of the same ledger. Think of it this way: when you buy something on a credit card, you have a “deficit” in your wallet but not in your overall financial position, because the credit card company has given you credit. The U.S. Trade deficit works similarly. Every dollar that flows out to pay for imports flows back in as foreign investment. No reserve drain, no threat to the government’s ability to meet its obligations, no crisis in the classical sense.

Bryan Riley, director of the Free Trade Initiative at the National Taxpayers Union, has made this point directly: Section 122 only makes sense under a fixed exchange rate, which hasn’t existed in the U.S. In more than 50 years. From this view, the authority became outdated almost as soon as it was written. Congress kept it on the books, but the economic conditions it assumed cannot arise under the current monetary system.

The Supreme Court’s Ruling and the Rapid Pivot

On February 20, 2026, the Supreme Court struck down the tariffs Trump had imposed through the International Emergency Economic Powers Act (IEEPA), a 1977 statute giving the president economic tools to address foreign threats. Chief Justice John Roberts, writing for the majority, found that IEEPA’s grant of authority to “regulate importation” did not authorize tariffs. The reasoning was based on the text: tariffs are taxation, and the Constitution reserves taxation to Congress. As Roberts noted, IEEPA “contains no reference to tariffs or duties.” When Congress has wanted to hand over tariff authority, it has said so clearly. IEEPA did not.

The ruling was a major practical blow. The struck-down tariffs had brought in an estimated $142 billion in collected duties through 2025, with some extrapolations placing the figure above $175 billion by the date of the ruling. The Committee for a Responsible Federal Budget estimated the ruling could add $2.4 trillion to the debt if refunds were required. The Court’s opinion did not shut every door, though. Roberts and two other justices noted Section 122 among statutes Congress had written for tariff action, though the majority explicitly stopped short of ruling that deploying those statutes would be lawful.

By Saturday afternoon, February 21, Trump announced a 10 percent global tariff under Section 122. The next morning, via social media, he escalated to 15 percent, the statutory maximum. The White House released a detailed proclamation asserting that the country faced “fundamental international payments problems” requiring the temporary import surcharge. The administration called the new tariffs “legally tested.”

Why Economists Dispute the Administration’s Balance of Payments Claim

The administration’s legal theory rests on a specific factual claim: that the country currently faces a large and serious balance of payments deficit. The numbers it cites are real. In 2024, the U.S. Current account deficit reached 4.0 percent of GDP, double the 2.0 percent that held between 2013 and 2019. The U.S. net international investment position stood at negative $26 trillion as of mid-2025, roughly 89 percent of annual economic output, though the precise ratio varies with the GDP denominator used. These are large numbers. The administration’s proclamation puts them forward as evidence of a genuine emergency.

But economists who study international finance draw a sharp distinction that the administration’s framing appears to ignore. Peter Berezin, chief global strategist at BCA Research, has argued along these lines: “A balance of payments deficit is not the same thing as a trade deficit. You cannot have a balance of payments deficit if you have a flexible exchange rate, as the U.S. Currently does.” The core claim shared by critics is that the trade deficit is fully funded by the capital account surplus, meaning there is no overall balance of payments deficit to justify the surcharge.

Under Bretton Woods, it did not automatically balance. The U.S. Had to maintain a fixed exchange rate by standing ready to buy or sell gold at $35 per ounce. A lasting deficit meant a shrinking gold stock and a potential crisis. That was the emergency Section 122 was designed for. By definition, that emergency cannot arise when exchange rates float freely.

Some legal scholars argue the statute’s language is too vague to permit meaningful judicial review, leaving courts unable to second-guess the president’s call. Others argue that when Congress writes a condition as specific as “balance of payments deficit,” courts can and should examine whether the underlying facts exist.

The Constraints Congress Built In, and Whether They Hold

The 150-day limit is the constraint that matters most right now. Under the statute, the tariff expires on approximately July 24, 2026, unless Congress passes legislation explicitly extending it. This structure is more limiting than many emergency authorities, which require Congress to vote to end a presidential action. Section 122 flips the default: inaction means the tariff dies. Congress must actively choose to keep it alive.

But the statute leaves open what lawyers are calling a “restart” question. Nothing in the text clearly forbids the president from declaring a new balance of payments emergency after the 150-day period expires and invoking Section 122 again. If invoking the law again and again is allowed, the 150-day limit becomes a formality rather than a real constraint. Courts would likely face this question directly if the administration attempts it. Their answer would depend heavily on how skeptically they view the factual basis for the original invocation.

The nondiscrimination requirement adds another layer. Section 122 tariffs must be applied consistently across countries, with narrow exceptions for nations running large balance of payments surpluses. This stops the administration from using Section 122 the way it used IEEPA: as a tool for country-specific pressure. The 15 percent tariff on all imports is blunt in a way that limits how useful it is for pressuring individual countries. This may explain why the administration was at the same time pursuing negotiated deals with individual trading partners under other authorities.

Congress holds the most direct check: let the tariff expire and refuse to extend it. Independent economic analyses suggest the surcharge would raise consumer prices modestly and reduce long-run GDP growth, though these estimates carry real uncertainty. Import duties are consistently among the least popular of the administration’s economic policies in public polling.

Representatives Don Bacon of Nebraska and Thomas Massie of Kentucky had already supported resolutions to end the IEEPA-based tariffs on Canada, suggesting support for tariffs within the party is weaker than the administration might prefer.

How Section 122 Compares to the Other Tools

Part of what makes the Section 122 dispute important is how different it is from the other authorities the administration has used. A comparison makes the limits clear:

Sources: 19 U.S.C. § 2132; Congressional Research Service analyses on trade authorities.

Section 122 is the only authority on this list with a firm rate ceiling and a firm expiration date. Every other tool is, in principle, unlimited in rate and duration. Congress designed it to be narrow on purpose. The question now is whether the administration is using it within those bounds, or treating the explicit limits as the outer edge of a much broader power.

What the Supreme Court’s Reasoning Implies for Section 122

The Court’s IEEPA ruling contains language that will appear in Section 122 litigation. Roberts wrote that accepting the government’s reading of IEEPA would “give the President power to unilaterally impose tariffs on imports from any country, of any product, at any rate, for any amount of time,” leaving courts unable to review the president’s emergency determination.

The majority was worried about the broader pattern of reading emergency powers so broadly that statutory conditions become meaningless.

The Court also noted that IEEPA’s half-century of non-use in the tariff context was telling that the statute did not authorize what the administration claimed. Section 122’s fifty-one-year dormancy is at least as telling. If the provision offered broad, easily triggered authority to impose tariffs on all imports, why had no previous administration ever used it, despite facing genuine trade pressures and political incentives to act?

Jennifer Hillman is a senior fellow at the Council on Foreign Relations and a former member of the WTO Appellate Body (the trade organization’s top court). She has stressed that the legal question is not simply whether the administration can point to a large current account deficit. The real question is whether that deficit constitutes the kind of “fundamental international payments problem” Congress had in mind when it carefully limited this particular authority. Those are different questions. The Court’s reasoning in the IEEPA case suggests at least five justices are willing to ask the more difficult one.

The International Dimension: WTO Rules and Trading Partner Responses

Section 122 does not exist apart from international law. The General Agreement on Tariffs and Trade includes Article XII, which allows nations to impose import restrictions to protect their balance of payments. But Article XII involves the International Monetary Fund in a consultative role, and WTO case law has interpreted a qualifying crisis to require something like a shortage of foreign exchange reserves or an actual threat to a country’s ability to meet its international obligations — not merely a chronic trade deficit under a floating exchange rate. Chronic trade deficits under a floating rate regime do not generally meet that standard in WTO case law.

Trading partners are watching closely. The European Union extended its suspension of retaliatory tariffs against U.S. Products through August 2026, clearly buying time to see whether the Section 122 surcharge survives its 150-day window. EU policymakers appear to be treating the measure as possibly temporary. They are reluctant to escalate before seeing whether Congress extends it. If it expires in July, the EU avoids a tit-for-tat cycle of escalating tariffs. If it continues, the legal and diplomatic confrontation becomes unavoidable.

The roughly 20 bilateral deals the administration had negotiated under IEEPA authority before the Supreme Court ruling are now in an uncertain legal situation. Those agreements were built around relief from IEEPA-based levies that no longer exist. Whether they can be renegotiated or re-justified under Section 122 or other authorities is unclear. Trading partners who made concessions in exchange for that relief may feel they got nothing in return.

July 24, 2026: The Date That Will Define This Dispute

Everything in this legal and political fight comes down to a single date. If the Section 122 surcharge expires on schedule, the administration will need to decide whether to let it lapse, seek congressional extension, or attempt a re-invocation. Each path carries different legal and political risks. Congressional extension requires votes that may not be there. Re-invocation invites an immediate legal challenge on the grounds that nothing has changed to justify a second emergency declaration. Letting it lapse admits that the 150-day limit was real.

If courts step in before July, the question shifts to whether judges will review the administration’s factual claim that a balance of payments emergency exists. The administration’s strongest argument is that “balance of payments deficit” is vague enough that the president’s interpretation controls. The critics’ strongest counter is that the term has a specific economic meaning. Congress was responding to a specific historical crisis. Reading the term to cover any large current account deficit makes the triggering condition meaningless.

There is a version of this where the administration is right on the law and the surcharge stands for 150 days, generates some revenue, creates some negotiating leverage, and then expires or gets extended through normal legislative process — Section 122 working more or less as Congress designed it, if you accept the administration’s reading of the triggering condition.

In another version, courts applying the same skepticism the Supreme Court brought to IEEPA conclude that a floating-rate current account deficit is not the kind of emergency Congress was addressing in 1974 and strike down the surcharge before July, leaving the administration with Section 232 and Section 301 as its main remaining tools — both of which require more specific factual justifications and carry their own legal weaknesses.

What neither version resolves is the deeper structural question the Court raised in the IEEPA ruling: whether emergency trade authorities, once handed over, can be limited by the conditions Congress attached to them, or whether those conditions are always flexible enough to cover whatever emergency the president declares. Section 122’s fifty-one years of dormancy suggested the constraints were real. The next 150 days will test whether they still are.

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