Trump "Changing Masks" to Enforce Tariffs! Multiple Parties Criticize: The New Tariff Law Still Lacks a Solid Legal Basis

Financial Associated Press, February 24 (Editor: Xiaoxiang) — Even if the “mask” is changed in an attempt to reimpose tariffs, the Trump administration may still face legal challenges — many industry experts believe the reasons given for the new tariffs are still unsubstantiated…

To implement a 10% (later raised to 15%) comprehensive tariff to replace the broad tariffs invalidated by last Friday’s landmark court ruling, Trump cited Section 122 of the Trade Act of 1974 — which allows the U.S. president to impose tariffs “under circumstances of fundamental international balance of payments problems,” for up to 150 days. These circumstances include “large and serious U.S. international balance of payments deficits” and “significant impending devaluation of the dollar.”

In the executive order signed last Friday announcing the new import tariffs, Trump pointed out that the U.S. trade deficit and other capital flows are evidence of “large and serious” international balance of payments deficits.

However, many economists and financial markets clearly do not believe the U.S. is on the brink of such a crisis. This may also mean that Trump’s latest tariffs could ultimately trigger new legal challenges, bringing more uncertainty to U.S. trade partners, businesses, consumers, and investors.

Is the “balance of payments crisis” just an excuse for new taxes?

Most economists believe the current issue is that, despite the White House’s statements, there is no significant evidence that the U.S. cannot pay its bills or meet its obligations to international investors. In fact, if there were, financial markets would sell off U.S. assets, and the dollar would collapse due to loss of confidence in the U.S. economy and the world’s primary reserve currency.

One of the bases Trump mentioned is the net international investment position — the difference between U.S. investments abroad and foreign investments in the U.S. — which is currently at a negative $26 trillion.

However, analysts point out that Trump did not mention that he is using tariffs to force U.S. and foreign companies to increase investments in the U.S., which would further inflate this figure. Additionally, the U.S. Bureau of Economic Analysis’s latest report on this position in January indicated that the surge in U.S. stock market valuations is one of the main reasons for the expanding negative net foreign investment position — which is not necessarily a bad thing; Trump himself has repeatedly praised it as a sign of foreign trust in the U.S.

Gita Gopinath, former IMF Deputy Managing Director, wrote on social media Sunday, “As a former IMF official, I believe the U.S. does not have a fundamental balance of payments problem.”

Jay Shambaugh, who served as the top international official at the U.S. Treasury Department under the Biden administration, also said that despite Trump’s statements, there is no current evidence that the U.S. faces any international balance of payments crisis.

Shambaugh explained that a crisis would mean capital inflows are insufficient to offset all capital outflows. But the current reality is that inflows into the U.S. balance the trade deficit. If not, the dollar would rapidly depreciate because no one would want to invest in the U.S. to offset the outflows.

Another former senior U.S. Treasury official, Mark Sobel, said that Trump’s justification for new tariffs is based on outdated views of the U.S. economy — remnants of the Bretton Woods fixed exchange rate system and the gold standard, which have long since disappeared. He also believes Trump is targeting the wrong issue.

“The president should be more concerned about fiscal outlook. Many forecasts show that over the next decade, the U.S. fiscal deficit will average 6% of GDP, and could go even higher,” Sobel said. “This will require the global markets to absorb large amounts of U.S. debt issuance, potentially pushing up interest rates.”

Will Section 122 trigger another legal battle?

Looking back at U.S. history, the last president to impose tariffs citing concerns over the balance of payments was President Nixon in 1971 — when he introduced a 10% tariff, but only for a few months, aiming to force other countries to renegotiate fixed exchange rates and address the overvaluation of the dollar.

At that time, the fundamental payment issue was that U.S. gold reserves were insufficient to back the dollar under the Bretton Woods system, and speculators began attacking the dollar. On August 15, 1971, the U.S. finally announced the dollar’s decoupling from gold.

Thus, Section 122 is actually part of a law passed by Congress in response to Nixon’s tariffs, intended to limit future presidents’ use of this authority.

Many industry insiders argue that whether the U.S. faces a “fundamental international balance of payments problem” is itself a highly contentious issue. Brad Setser, a former U.S. Treasury and trade official now at the Council on Foreign Relations, pointed out that while the U.S. deficit is large, the inflow of financial capital into the U.S. in 2025 remains strong enough to support a $1.2 trillion trade deficit, and “the dollar is currently quite strong.”

Some trade experts believe that Trump’s invocation of a balance of payments crisis to justify tariffs could ultimately lead the U.S. or other countries to appeal to the World Trade Organization (WTO), and possibly involve the IMF — which might be asked to determine whether the U.S. is truly facing a crisis sufficient to justify tariffs.

Trump’s latest tariffs and their justifications could also reignite a legal battle within the U.S., potentially reaching the Supreme Court again.

“I’m not sure whether he (Trump) meets the criteria of Section 122, or even whether the law still exists, since the U.S. has abolished the gold standard,” said Jennifer Hillman, a former senior U.S. trade lawyer and now a professor at Georgetown University Law Center. She noted that such cases would not be as straightforward as the challenge last Friday, when the Supreme Court found that Trump’s use of the 1977 law (International Emergency Economic Powers Act) did not even mention “tariffs.”

Neal Katyal, a prominent lawyer representing the U.S. government in the Supreme Court’s global tariffs case, also pointed out last weekend that if the president’s new tariffs are challenged, one problem he might face is that his own lawyers have argued that Section 122 does not apply to these situations.

In court filings last year, U.S. government lawyers wrote, “(Section 122) is not clearly applicable here; the concerns cited by the president when declaring an emergency stem from trade deficits, which conceptually differ from the balance of payments.”

Of course, the Trump administration currently seems unwilling to consider all these complexities…

Setser noted that while he believes Trump’s tariffs will eventually face court challenges, “more importantly, I don’t think lawsuits over the meaning of fundamental balance of payments issues and international deficits can be resolved within 150 days. So I bet the tariff’s 150-day limit will expire before the courts rule.”