How exactly does the "Section 122" relied upon by Trump's 15% new tariffs work?

According to Xinhua News Agency, after the U.S. Supreme Court rejected the Trump administration’s previous tariffs implemented under the International Emergency Economic Powers Act (IEEPA), the Trump administration quickly invoked Section 122 of the Trade Act of 1974 to impose a uniform 10% tariff on imported goods worldwide; Trump then stated he would raise the rate to 15%.

Trump also became the first U.S. president to impose tariffs under Section 122. Market focus is now less on “how much to raise” and more on: how much discretion does Section 122 actually give the White House, how long can it last, and whether it will once again face conflicts between judicial rulings and international rules.

How does “Section 122” work: no investigation required, but “15% cap + 150 days expiration”

Media analysis indicates that Section 122 grants the U.S. president the authority to impose tariffs on imports in the short term to address concerns such as cross-border capital flow imbalances, including two explicitly stated conditions:

• “Significant and serious U.S. international balance of payments deficit”

• “The U.S. dollar is about to undergo substantial devaluation”

Unlike other tariff tools that Trump might use, a key feature of Section 122 is: the president can initiate tariffs directly without waiting for federal agencies to conduct “reasonableness” investigations. But there are stricter limits:

• Tariff rate maximum 15%

• Duration limited to 150 days

• To extend beyond 150 days, Congress approval is required

This means that even if tariffs are implemented in the short term, their “sustainability” is written into the law with a countdown, and subsequent continuation heavily depends on Congress’s stance and legal proceedings.

Why focus on “international balance of payments”?

The balance of payments (BOP) measures a country’s overall economic transactions with the world, covering not only trade in goods and services but also investments and other financial flows. Traditionally, it is used to assess a country’s ability to meet its external payment obligations.

Section 122 was incorporated into the 1974 Trade Act, with origins dating back to 1971 when Nixon announced a 10% tariff on imports. At that time, the dollar was pegged to gold and faced speculative attacks due to overvaluation concerns. Nixon’s tariffs were part of the “Nixon Shock” policy package aimed at lowering import demand and forcing other countries to renegotiate exchange rates, effectively devaluing the dollar. The tariffs lasted only a few months but contributed to the end of the Bretton Woods fixed exchange rate system.

Congress was concerned about presidential overreach, so in 1974, Section 122 was written into law with clearer caps and time limits to constrain future presidents’ use of tariffs under the guise of “international balance of payments” issues.

What is the core reason Trump invoked Section 122? The $26 trillion “deficit”

In the presidential notice announcing the use of Section 122, Trump claimed tariffs were necessary because the U.S. had a “significant and serious” trade deficit, pointing to phenomena such as net outflows of investment income abroad, indicating deterioration in the U.S.'s international balance of payments.

Media analysis suggests Trump also targeted the U.S. “Net International Investment Position” (NIIP)—the difference between U.S. assets abroad and foreign assets in the U.S. Currently, this indicator is negative $26 trillion, partly because foreign firms and residents hold U.S. assets valued significantly higher than U.S. holdings of foreign assets.

However, reports also note that Trump did not mention that: if tariffs encourage U.S. companies to increase investment domestically, the negative NIIP could further worsen; additionally, the rise in U.S. stock markets (which Trump viewed as a “vote of confidence”) is also a key factor in expanding the negative NIIP.

Market controversy and legal risks

Economists and policy experts are skeptical of Trump’s characterization of an “international balance of payments crisis.” Most believe: even if the president makes such claims, “there’s no evidence that the U.S. cannot pay its bills or fulfill its obligations to international investors.” They argue that if such a crisis truly occurred, financial markets would sell off U.S. assets, and the dollar would plummet amid a collapse of confidence.

Legal risks are also present. Legal experts suggest that Trump’s latest tariffs and their legal basis could once again come before the Supreme Court, with the key issue being whether the “international balance of payments crisis” Trump claims can withstand judicial scrutiny. More complicated is that Trump’s legal team previously argued in filings defending IEEPA tariffs that:

“The concerns cited by the president when declaring an emergency stem from trade deficits, which conceptually differ from the international balance of payments.”

This statement could become a new basis for litigation.

On the international front, challenges may also arise. Trade experts note that imposing tariffs on the grounds of an “international balance of payments crisis” typically requires notifying the World Trade Organization (WTO) and having the WTO assess whether the measures are appropriate; if deemed inappropriate, the U.S. might be required to withdraw the tariffs, and the International Monetary Fund (IMF) could be involved in judging whether a crisis exists.

However, media comments suggest that even if this process unfolds, its binding effect has diminished—since the U.S. has effectively weakened the WTO dispute resolution mechanism, making its influence more symbolic.

Risk warning and disclaimer

Market risks exist; investments should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should determine whether any opinions, viewpoints, or conclusions herein are suitable for their circumstances. Investment is at your own risk.