The Trump administration has just enacted a new 10% tariff on all imports, but its legal foundation appears to be on shaky ground.
The administration is using a rarely-touched law called Section 122 of the Trade Act of 1974. This law isn't for typical trade disputes; it's an emergency tool designed for a "fundamental international payments problem." Think of a scenario where everyone is rushing to sell their dollars, causing a currency crisis. The law itself has strict limits: any tariff can't exceed 15% and can only last for 150 days.
So, how did we get here? The story begins just a few days ago. First, on February 20th, the Supreme Court struck down the administration's previous global tariffs, which were based on a different law. This forced a quick pivot to find a new legal justification.
Second, the White House almost immediately turned to Section 122, issuing a proclamation that a "payments problem" exists and activating the new 10% tariff, effective February 24th. This was a novel use of a law that has virtually never been invoked before, immediately raising questions about its legitimacy.
This leads to the core of the problem: the economic reality doesn't seem to match the legal claim of an emergency. A true payments crisis would involve a chaotic plunge in the dollar's value. Instead, while the dollar has weakened over the past year, it has been an orderly decline, driven mainly by the Federal Reserve's interest rate cuts. Financial markets are not signaling a panic or a "flight from the dollar."
Furthermore, the U.S. current account deficit—a broad measure of trade and investment flows—has actually been improving. It narrowed significantly in late 2025, from 3.3% to 2.9% of GDP. This directly contradicts the narrative of a worsening balance of payments crisis that would be needed to legally justify using Section 122.
Because the facts don't fit the law, legal challenges are already being prepared. With a strict 150-day limit that expires on July 24, 2026, these tariffs are likely temporary. The most probable outcome is that courts will pause the tariffs, pushing the administration to use other, more targeted tools like Section 301 for its trade policy goals.
- Glossary
- Section 122: A part of the 1974 Trade Act that allows the President to impose temporary tariffs to address a "fundamental international payments problem," like a currency crisis.
- Balance of Payments (BOP): A record of all economic transactions between a country and the rest of the world. A "payments problem" is a severe deficit that threatens the country's currency.
- Current Account Deficit: The largest component of the BOP, it measures when a country imports more goods, services, and capital than it exports.