Trump's Tariff "Plan B" Faces Skepticism, Experts: The Current State of the U.S. Economy Does Not Meet the "Section 122" Criteria

According to Xinhua News Agency, after the U.S. Supreme Court rejected the White House’s attempt to impose tariffs under the International Emergency Economic Powers Act (IEEPA), the Trump administration quickly launched “Plan B,” invoking Section 122 of the Trade Act of 1974 to impose up to 15% tariffs on global imports.

However, this emergency tool aimed at addressing an “international balance of payments crisis” is facing widespread legal and economic skepticism regarding its legitimacy. The core controversy lies in the fact that the current U.S. economic fundamentals do not meet the statutory thresholds for applying this section.

According to Axios, the Trump administration justified invoking this section by citing a “massive and serious” trade and international balance of payments deficit, including a negative $26 trillion “net international investment position.” In a fact sheet released on Friday, the White House warned that if these international payment issues are not addressed, it could threaten America’s ability to finance its spending, erode investor confidence, and pose risks to the U.S. economy and national security.

Despite the tough stance from the White House, market and legal experts point out that the U.S. does not exhibit typical signs of an international balance of payments crisis, such as currency crashes, soaring interest rates, or frozen foreign investment inflows. RSM Chief Economist Joe Brusuelas bluntly stated in a report that, from the perspectives of the U.S. economy, international balance of payments, and monetary system, the current situation does not meet the standards set by Section 122.

While this new tariff measure grants the president the authority to bypass investigation procedures and impose tariffs directly, it is also constrained by legal caps such as a “15% maximum rate” and a “150-day validity period.” Dorsey & Whitney international trade lawyer Dave Townsend noted that, considering the large amount involved, a new wave of lawsuits challenging the legality of Section 122 tariffs is expected, with companies likely seeking refunds for tariffs already collected.

Self-Contradiction in the Justice Department and Legal Barriers

The Trump administration’s use of Section 122 faces challenges from its own legal team’s prior statements. Axios reports that last year, Assistant Attorney General Brett Shumate explicitly rebutted the idea of using Section 122 as a basis for imposing tariffs in a briefing.

At that time, the Justice Department’s document pointed out that the emergency declared by the president was based on trade deficits, which conceptually differ from the international balance of payments deficit, and emphasized that Section 122 had no “obvious applicability” in this context. This prior legal stance could now serve as a strong argument in upcoming lawsuits challenging the White House’s decision.

However, the practical timing may favor the Trump administration. Analysts suggest that it will be difficult for courts to make a final ruling on the legality of Section 122 tariffs within the 150-day statutory window. This provides the Trump administration with more time to leverage other legal authorities, such as Sections 232 and 301, to pursue more specific tariff measures based on national security and unfair trade concerns.

Economic Logic Behind the Deficit Data Paradox

According to Wallstreetcn, to justify the necessity of tariffs, Trump specifically cited the U.S. “Net International Investment Position” (NIIP), which stands at a negative $26 trillion, as evidence that the international balance of payments is deteriorating.

However, economists are skeptical of this attribution. Analyses indicate that a major reason for a negative NIIP is that foreign-held U.S. assets are significantly more valuable than U.S. assets abroad, and the rise in U.S. stock markets—viewed by Trump as a “vote of confidence” in his policies—has actually contributed to the widening negative NIIP. Moreover, if tariffs succeed in encouraging foreign companies to increase investment in the U.S., this negative position could further worsen.

Most economists argue that unless there is clear evidence that the U.S. cannot meet its payment obligations or fulfill its commitments to international investors, there is no real “crisis.” If a true international balance of payments crisis were to occur, financial markets would sell off U.S. assets, and the dollar would plummet due to collapsing confidence, but this is not the current market reality.

Policy Battles Under the 150-Day Limit

Unlike previous tariff tools used by Trump, Section 122 of the 1974 Trade Act grants the president the authority to act directly without waiting for federal agency investigations, aiming to address “massive and serious U.S. international balance of payments deficits” or “significant imminent devaluation of the dollar.” This section dates back to the “Nixon Shock” of 1971, initially used to pressure countries into renegotiating exchange rates.

However, the section also explicitly limits executive power: tariffs cannot exceed 15%, and the maximum implementation period is 150 days. Extending the tariffs requires congressional approval. This means that even if new tariffs are implemented in the short term, their legal sustainability is effectively limited by this countdown.

Although under international rules, imposing tariffs “on grounds of an international balance of payments crisis” generally requires WTO notification and approval, the U.S. has substantially weakened the WTO dispute resolution mechanism, rendering such constraints largely symbolic. Dorsey & Whitney’s Dave Townsend believes that the White House’s sudden invocation of Section 122 signals an intention to continue expanding the legal boundaries of executive authority in tariffs and trade issues.

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