New U.S. Tariff Measures and Their Impact on the International Balance of Payments

On February 22, according to Jin10 reports, the United States imposed new provisional tariffs using an exceptionally invoked legal provision in contemporary trade. The measure is based on Section 122 of the Trade Act of 1974, a regulatory tool rarely used by governments in current trade negotiations. The U.S. administration argues that these actions aim to address structural problems in the country’s economic and trade situation, with particular emphasis on the significant trade imbalance it faces.

Section 122: A Rarely Used Legal Provision in Modern Trade Frameworks

Applying this specific section introduces a crucial element in viability analysis: Section 122 does not only examine the trade deficit in goods but requires identifying a fundamental problem in the overall balance of payments. This comprehensive assessment includes multiple economic dimensions, such as capital flows, service exchanges, and traditional merchandise trade.

This feature significantly differentiates the invoked legal framework, as it establishes broader evaluation criteria than simply analyzing bilateral or sectoral trade deficits. International trade law experts note that this more comprehensive approach could lead to considerable legal challenges, comparable to historical precedents where the U.S. implemented similar measures without fully withstanding legal challenges.

Balance of Payments as a Central Factor vs. Traditional Trade Deficit

It is essential to understand the distinction between these two concepts, as it directly impacts the legal robustness of the measures taken. While the trade deficit specifically reflects the imbalance between imports and exports of goods, the balance of payments is an all-encompassing record that includes all transnational economic flows. This includes capital transfers, foreign investment, remittances, financial services, and reserve movements.

When Washington invokes issues in the balance of payments as a legal justification, it presents an argument of considerably broader scope. However, this breadth also creates a larger surface for potential legal challenges, as evaluation criteria become simultaneously more complex and more susceptible to interpretative disputes.

China’s Position and the Horizon of Trade Negotiations

Cui Fan, an internationally recognized expert in trade negotiations, has stated that China maintains a flexible but vigilant stance. If the U.S. administration decides to back down on these measures or significantly reduce the applied tariffs, Beijing would evaluate and adjust its response accordingly. This approach reflects a trade diplomacy strategy that prioritizes reciprocity and the assessment of intentions before escalating confrontations.

Alternatively, if Washington persists in imposing new tariff measures using other legal instruments available within its regulatory framework, China would seriously consider implementing reciprocal actions to balance the bilateral trade dynamics. This conditional response proposal suggests that the upcoming period will be decisive in determining the trajectory of the trade relationship between the two powers.

The invocation of Section 122 and its focus on the balance of payments thus marks a potential turning point in international trade dynamics, with implications extending beyond the bilateral relations between the U.S. and China to the global trading system.