US President Donald Trump has imposed new global tariffs after the Supreme Court struck down an earlier set of import taxes. To replace them, his administration announced a 10% tariff, later raised to 15%, using Section 122 of the Trade Act of 1974.
Section 122 allows a president to impose tariffs for up to 150 days during “fundamental international payments problems.” These include large balance-of-payments deficits or a sharp and significant fall in the US dollar.
The executive order announcing the tariffs pointed to the US trade deficit and other financial measures as proof of a serious imbalance. It described the situation as “large and serious.”
Treasury Secretary Scott Bessent said the tariffs are temporary. He called them a short-term bridge while studies are conducted under other laws such as Section 232 and Section 301, which require investigations before tariffs can be applied. He described Section 122 as a very strong authority.
The Economic Debate Over a Payments Crisis
A balance-of-payments crisis happens when a country cannot attract enough foreign money to cover what flows out. In such cases, the currency usually weakens, investors pull money out, and borrowing costs rise.
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The United States does run a large trade deficit. In 2025, the trade gap was about $901.5 billion, one of the largest since 1960. The administration also highlighted the net international investment position, which stands at about negative $26 trillion. This means foreign investors own far more US assets than Americans own abroad.
However, government data has noted that rising US stock market values helped widen that investment gap. Higher equity prices increased the value of foreign-held American assets.
Many economists say there is no sign of a true payments crisis. The US dollar remains strong, and financial markets have not shown panic. Investors continue to buy American assets in large amounts.
Gita Gopinath, former first deputy managing director of the International Monetary Fund, stated publicly that the United States does not have a fundamental international payments problem. She also said short-term tariffs would do little to permanently reduce trade deficits and could cause volatile trade patterns.
Jay Shambaugh, who previously held the top international role at the US Treasury during the Biden administration, said there is no evidence that financial inflows are failing to cover the trade deficit. He explained that in a real crisis, the dollar would be depreciating rapidly because investors would not want to put money into the country.
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Some analysts, including Brad Setser, a former US Treasury and trade official now at the Council on Foreign Relations, noted that the current-account deficit of around 3% to 4% of gross domestic product is significant. However, he said deciding whether that qualifies as a “fundamental international payments problem” is more complicated. He also pointed out that portfolio inflows remain strong and the dollar is quite firm.
Legal Questions and Historical Context
The last time a US president imposed tariffs tied to balance-of-payments concerns was in 1971 under President Richard Nixon. At that time, the US was under the Bretton Woods system of fixed exchange rates and linked to gold reserves. The country did not hold enough gold to match the dollar’s value, and the currency faced pressure from speculators.
Section 122 was later passed to place limits on presidential tariff powers.
Former senior Treasury official Mark Sobel argued that today’s justification reflects an outdated view rooted in the old fixed exchange rate system. He also said fiscal deficits could be a larger concern.
Legal experts have questioned whether the conditions required under Section 122 have been met. Jennifer Hillman, a former top US trade lawyer and judge now at Georgetown University’s law school, said it is not clear that the legal standards apply. Neal Katyal, who argued the earlier tariff case before the Supreme Court, noted that administration lawyers had previously said Section 122 does not clearly apply to trade deficits.
Some trade experts say the matter could also be raised at the World Trade Organization. The new tariffs have created fresh uncertainty for trading partners, companies, consumers, and investors, following the court ruling that limited earlier tariff authority.