At least two separate cases have now been filed at the Court of International Trade seeking to stop the Trump administration from utilizing Section 122 of the 1974 Trade Act to impose tariffs on all imports into the U.S.
Section 122 allows the president to impose a temporary import tariff of up to 15 percent, temporary quotas, or both on imported merchandise in order to (1) deal with large and serious U.S. balance of payments deficits, (2) prevent an imminent and significant depreciation of the dollar in foreign exchange markets, or (3) cooperate with other countries in correcting an international BOP disequilibrium. Measures may be imposed for up to 150 days unless extended by an act of Congress.
Under a recent presidential proclamation a global 10 percent tariff was imposed under Section 122 as of Feb. 24. The White House has threatened to increase this tariff to 15 percent but so far has taken no official action to do so.
In a lawsuit filed March 5, two dozen states pointed out that Section 122 has not only “never been used to impose tariffs” but in fact “has never been used in any way at all.” This suit, and a similar case filed March 9 by two importers, argue that the Section 122 tariffs are unlawful for the following reasons.
- The BOP consists of the current account, the capital account, and the financial account, but the proclamation ignores the latter two completely and instead focuses solely on one component (the balance of trade) of the current account. When the latter two are properly considered, the U.S.’ actual BOP is about $53 billion or 0.2 percent of national GDP, which is “essentially a rounding error” and “consistent with the United States’ balance of payments position for the last five decades.”
- A trade deficit is “distinct from, and does not on its own generate, a balance of payments deficit,” and in fact “Section 122 expressly differentiates between ‘balance of payments’ and ‘balance of trade.’” The companies noted that the government itself acknowledged this distinction in the litigation challenging the president’s IEEPA tariffs.
- There is never a “large and serious” BOP deficit under the floating exchange rate system the U.S. has utilized since 1976 “because the exchange rate automatically adjusts.”
- Section 122 requires that tariffs be “applied consistently with the principle of nondiscriminatory treatment” and “of broad and uniform application with respect to product coverage,” subject to narrow exceptions, but the proclamation exempts many goods from Canada, Mexico, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua and “includes more than 80 pages of product exceptions.”
- The use of Section 122 to impose tariffs (1) violates the major questions doctrine, which “requires Congress to speak clearly in granting such a broad and consequential power,” and (2) even if it were allowed would violate the non-delegation doctrine because it “would constitute a ‘sweeping delegation of legislative power’ of the kind rejected in previous Supreme Court cases.”
Both suits are asking the CIT to declare the Section 122 tariffs unlawful, to stop the federal government from enforcing them, and to order refunds of such tariffs already paid. It is unclear when the CIT may issue a decision or if the plaintiffs will ask the court for an injunction to halt the tariffs in the meantime.
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