U.S. President Donald Trump has imposed a fresh round of global tariffs under a rarely used 1974 trade provision, declaring that the world’s largest economy faces a “large and serious” balance-of-payments deficit — a claim many economists and investors dispute.
Bloomberg, on Monday, reported the move follows a 6-3 ruling by the US Supreme Court on Feb 20 that found Trump had exceeded his authority by imposing earlier tariffs under a 1977 economic emergency powers statute.
In response, Trump invoked Section 122 of the Trade Act of 1974, which permits the president to levy duties of up to 150 days in cases of “fundamental international payments problems”, including “large and serious United States balance-of-payments deficits” or an “imminent and significant depreciation of the dollar”.
Trump introduced a 10 per cent tariff to replace those invalidated by the court, later raising it to 15 per cent.
Treasury Secretary Scott Bessent said in interviews with CNN and Fox News on Feb 22 that the new measures were temporary and designed to maintain revenue flows while more durable tariffs are prepared under separate legal authorities.
“We’ll see what Congress does, but the 122 is likely a five-month bridge during which studies on Section 232 tariffs and Section 301s are done,” Bessent told CNN, referring to other trade tools that require formal investigations. “So, this is more of a bridge than a permanent facility.”
To Fox News, he added that Section 122 is “a very robust authority.”
Bessent did not state that the tariffs were required to address a specific payments crisis.
In an executive order announcing the new duties, Trump cited the US trade deficit and other financial flows as evidence of “large and serious” balance-of-payments deficits.
He pointed in particular to the country’s net international investment position, now US$26 trillion in deficit — the gap between US-owned assets abroad and foreign-owned assets in the US.
However, the US Bureau of Economic Analysis said in a January report that soaring US equity valuations — which Trump has hailed as a vote of confidence in the American economy — were a major factor behind the widening negative investment position.
Many economists argue there is no sign the United States is struggling to meet its external obligations.
Financial markets have shown little indication of stress, with the dollar remaining resilient and capital continuing to flow into US assets.
“Wearing my (former) IMF hat I will say that the US does not have a fundamental international payments problem,” Gita Gopinath, the former first deputy managing director of the International Monetary Fund, wrote in a social media post on Feb 22.
In an email to Bloomberg News, she added that “150-day tariffs will do little to durably reduce trade deficits. It will mainly result in another round of volatile trade numbers as importers try to time their purchases to avoid tariffs.”
Jay Shambaugh, who previously held the top international post at the US Treasury during the Biden administration, said there was no evidence of a payment’s crisis.
“That would be a situation where not enough money is flowing into the country to balance all the things where money is flowing out of the country,” Shambaugh said.
But that was not the case, he added, noting that financial inflows were covering the trade deficit. If they were not, the dollar would be “depreciating rapidly because nobody wanted to put money into the US to cover the things that are going out”.
Mark Sobel, another former senior Treasury official, described the administration’s reasoning as rooted in an outdated understanding of the global economy shaped by the Bretton Woods system of fixed exchange rates and the gold standard.
“The president should be far more concerned about the fiscal outlook. Many estimates point to our fiscal deficits averaging 6 per cent of GDP annually over the next decade, before subsequently going much higher,” Sobel said. “That is a lot of Treasury issuance for global markets to digest and could push interest rates much higher.”
The last time a US president used tariffs explicitly to address balance-of-payments concerns was in 1971, when President Richard Nixon imposed a 10 per cent duty in an effort to pressure trading partners into renegotiating fixed exchange rates and to counter an overvalued dollar.
At the time, the US faced mounting pressure on its gold reserves as speculators attacked the currency.
Section 122 was later enacted by Congress in part to set clearer boundaries on presidential tariff powers in the wake of Nixon’s actions.
Some economists argue the administration may have partial grounds for invoking the provision. Brad Setser, a former Treasury and trade official now at the Council on Foreign Relations, said the US current-account deficit — now around 3 to 4 per cent of gross domestic product — could qualify as “large and serious”.
But whether the country faced “‘fundamental international payments problems’ is a harder question,” he wrote in a series of social media posts on Feb 22.
“The deficit is big,” Setser said. However, portfolio inflows into the US in 2025 remained strong enough to fund a US$500 billion external deficit, he noted, “and the dollar is currently quite strong.”
The new tariffs may yet face further legal challenge. Jennifer Hillman, a former US trade judge and now a professor at Georgetown University Law Center, said it was “not clear to me that he’s met the conditions” required under Section 122, particularly given that the United States abandoned the gold standard decades ago.
She suggested any case could prove less straightforward than the one decided on Feb 20, in which the Supreme Court found that the 1977 statute relied upon by the administration did not mention tariffs at all.
Neal Katyal, the lawyer who argued against Trump’s earlier global tariffs before the Supreme Court, noted that administration lawyers had previously contended that Section 122 was not applicable in similar circumstances.
“Nor does (Section 122) have any obvious application here, where the concerns the president identified in declaring an emergency arise from trade deficits, which are conceptually distinct from balance-of-payments deficits,” administration lawyers wrote in a filing in 2025.
Setser suggested the legal debate may ultimately prove academic. While he expects the justification for the tariffs to be tested in court, he wrote: “more importantly, I don’t think litigation over the meaning of a fundamental payments problem and a balance-of-payments deficit will be sorted in 150 days.
“So, my bet is that the clock on the tariffs will expire” before the courts rule. - February 23, 2026
