The Trumps will probably return to court again

President Donald Trump’s sweeping “Liberation Day” tariffs barely cooled after the Supreme Court declared them illegal on Friday before announcing their replacement. At a press conference just hours after the ruling, he declared a 10% global tariff (increased to 15% a day later) under a different law.

But Trump’s new blanket tariff, based on never-before-used powers granted to the president by a 1974 law, is potentially as illegal as the previous ones, and is virtually certain to be subject to new lawsuits. Skepticism about his power under the law comes not only from his critics, but also from his own Justice Department.

“It is very likely that there will be challenges to the Section 122 tariffs,” said Ilya Somin, a law professor at George Mason University who represented plaintiffs in the case in which the Supreme Court struck down Trump’s emergency tariffs.

Trump relies on Section 122 of the Trade Act of 1974, which gives the president the power to implement tariffs to address “fundamental international payments problems” that appear as “large and serious United States balance of payments deficits,” “imminent and significant depreciation of the dollar in foreign exchange markets,” or “an international balance of payments imbalance.”

No president had ever used this authority before Friday.

The problem? While the United States has a trade deficit (we import more goods than we export), many experts say we do not have a balance of payments deficit, which goes beyond imports and exports to include all monetary transactions between nations, such as dollars held by foreign countries, debt financing, and foreign investment. The dollar remains the world’s reserve currency, US debt is still funded, and foreign investment continues to flow into the country.

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However, the Trump administration said when the president announced the Section 122 tariffs that there were actually “fundamental international payments problems, particularly a large and serious balance of payments deficit,” and attempted to argue that a trade deficit inherently meant the country also had a balance of payments problem.

But conservative economists, such as Milton Friedman, have long argued that a balance of payments problem is simply not possible when the currency has a floating exchange rate.

“There is no balance of payments crisis at the moment and there simply cannot be as long as we have flexible exchange rates,” Somin said.

It’s not just critics who have argued that Trump’s invocation of Section 122 is illegal, but the Trump administration itself. When the legal challenge that ultimately struck down Trump’s emergency tariffs came before an appeals court, the Justice Department argued that Section 122 could not be used in place of the emergency tariffs that the Supreme Court struck down because trade deficits and balance of payments were not the same.

“Neither [Section 122] “They have some 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,” the Justice Department report, filed in 2025, states, citing the Senate’s original report on the law.

That may not directly affect any future arguments the administration makes in an upcoming court case, although it “reduces the credibility of the claims they’re making now,” Somin said.

The context in which the law became reality adds to the confusion. In 1971, President Richard Nixon imposed emergency 10% tariffs in response to a balance of payments crisis that arose from pegging the dollar to gold as part of the Bretton Woods monetary system. The country faced a shortfall in gold reserves needed to support the growing amount of dollars held abroad, which contributed to the overvaluation of the dollar. In response, Nixon removed the dollar from its fixed peg to gold and imposed a tariff to prevent a flood of imports and as a measure to pressure countries to revalue their currencies.

Congress enacted the Trade Act to give the president leeway to deal with a similar situation should it arise in the future. But, according to many observers, that is not what is happening now.

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“The United States does not have a fundamental international payments problem,” former International Monetary Fund chief economist Gina Gopinath wrote on social media on Sunday, adding: “As long as there is sufficient demand for US debt and equities, as is the case, the United States does not have a ‘payments’ problem. It can easily finance its trade deficits. A sign of a payments problem would be if US borrowing costs increased dramatically.”

Other experts say it doesn’t make much sense for Congress to enact a law that only applies to fixed-rate currencies after the United States moved to a floating exchange rate.

“I don’t know if they’re going to have five or six votes in the Supreme Court for the idea that Congress enacted a void statute in 1974,” said Todd Tucker, director of trade and industrial policy at the Roosevelt Institute, a progressive think tank.

Others insist that the trade deficit does play a role. Brian Setser, senior fellow at the Council on Foreign Relations argued in X that “there is a reasonable case that the United States has a ‘large and serious… balance of payments deficit,’” as measured by its trade deficit and other international financial deficits. Sester is not the only one who has raised this argument.

The court hearing tariff policy cases may be more inclined to accept that Trump can use it to address trade deficits. In the decision of the International Trade Court which initially went against Trump’s emergency tariffs, the decision specifically stated that other authorities, including Section 122, existed as an argument against the president’s ability to invoke an emergency to apply tariffs as Trump did. That decision also mentioned that Section 122 could be used to address trade deficits.

“The President’s imposition of the Global and Retaliatory Tariffs responds to an imbalance in trade, a type of balance of payments deficit, and therefore falls within the stricter, non-emergency authorities in Section 122,” the decision states.

It’s also possible that the Supreme Court doesn’t want to get into the weeds of economic definitions.

“There’s not much appetite – I don’t think – to address these subtle macroeconomic issues,” Tucker said.

Whether these issues will ever be resolved by the courts is another question. Section 122 tariffs can only be imposed for 150 days unless Congress makes a further extension. And there is no way for the courts to reach a meaningful final decision by then.