President Donald Trump’s backup strategy for implementing worldwide import taxes is facing another court battle as his signature economic initiative encounters continued legal resistance.
On Friday, the U.S. Court of International Trade in New York conducted oral arguments regarding Trump’s current tariff system, which he implemented after the Supreme Court rejected his original, more expansive tariff plan in February.
Trump initially attempted to establish global tariffs by citing the International Emergency Economic Powers Act of 1977, declaring the nation’s persistent trade deficit a national emergency to justify imposing substantial import taxes worldwide. His interpretation of this legislation was broad, allowing him to set tariffs of any amount, at any time, targeting any nation he chose.
However, the Supreme Court invalidated those tariffs on February 20, ruling that the emergency powers law did not grant authority to use tariffs as a response to national emergencies.
Following this setback, Trump turned to Section 122 of the Trade Act of 1974 as his backup plan. This provision permits presidents to establish worldwide tariffs up to 15% for a maximum of 150 days, requiring Congressional authorization for any extension. Trump immediately announced 10% tariffs under this authority and indicated he might increase them to the full 15%, though he has not yet done so. These current tariffs will end on July 24.
The legal dispute centers on whether Section 122’s language regarding “fundamental international payments problems” encompasses trade deficits — the difference between American exports and imports with other nations.
This trade provision was created during the monetary crises of the 1960s and 1970s, when the dollar was backed by gold. During that era, foreign countries were exchanging dollars for gold at fixed rates, threatening to destabilize American currency and create financial market turmoil. Since the gold standard no longer exists, opponents argue Section 122 has become outdated.
The situation presents complications for both sides. Trump’s own Justice Department previously filed court documents stating the president had to use emergency powers because Section 122 lacked “obvious application” to trade deficit issues, describing trade deficits as “conceptually distinct” from payment problems.
Conversely, the challengers face their own contradiction: the same trade court that is now hearing their case previously ruled that Trump could have used Section 122 to address trade deficits instead of emergency powers.
