Can the Section 122 “Gold Standard” Law of 1974 Save Your Trade War?

Trump has said the tariffs are essential to reducing the United States’ long-standing trade deficits. It imposed tariffs under Section 122 of the Trade Act of 1974 after the Supreme Court struck down tariffs it imposed last year under an emergency powers law.

Section 122, which has never been invoked, allows the president to impose tariffs of up to 15%. They are limited to five months unless extended by Congress.

The lawsuit is led by attorneys general from Oregon, Arizona, California and New York.

“The focus now should be on returning people’s money, not doubling down on illegal tariffs,” said Oregon Attorney General Dan Rayfield. The lawsuit comes a day after a judge ruled that companies that paid tariffs under Trump’s old framework should receive refunds.

The new lawsuit argues that Trump cannot invoke Section 122 because it was intended to be used only in specific and limited circumstances, not to impose sweeping taxes on imports. He also argues that tariffs will increase costs for states, businesses and consumers.

Many of those states also successfully sued over tariffs imposed by Trump under a different law: the International Emergency Economic Powers Act (IEEPA).

Four days after the Supreme Court struck down his sweeping IEEPA tariffs on February 20, Trump invoked Section 122 to impose 10% tariffs on foreign goods. Treasury Secretary Scott Bessant told CNBC on Wednesday that the administration would raise taxes to the 15% limit this week.

Democratic states and other critics say the president cannot use Section 122 as a replacement for defunct tariffs to combat the trade deficit.

The Section 122 provision is directed at what it calls “fundamental international payments problems.” The question is whether that language covers trade deficits, the gap between what the United States sells to other countries and what it buys from them.

Section 122 arose from the financial crises that arose in the 1960s and 1970s, when the US dollar was pegged to gold. Other countries were dumping dollars for gold at a fixed exchange rate, risking a collapse of the U.S. currency and chaos in financial markets. But the dollar is no longer pegged to gold, so critics say Section 122 is outdated.

Uncomfortably for Trump, his own Justice Department argued in a court filing last year that the president needed to invoke the emergency powers law because Section 122 “had no obvious application” in combating trade deficits, which it called “conceptually distinct” from balance of payments issues.

Still, some legal analysts say the Trump administration has stronger arguments this time.

“The legal reality is that the courts will likely give President Trump substantially more deference with respect to Section 122 than with his previous tariffs under the IEEPA,” wrote Peter Harrell, a visiting scholar at Georgetown University’s Institute of International Economic Law, in a commentary Wednesday.

The specialized International Trade Court in New York, which will hear the states’ lawsuit, wrote last year in its own decision to repeal the emergency powers tariffs that Trump did not need them because Section 122 was available to combat trade deficits.

Trump has other legal authorities he can use to impose tariffs, and some have already survived judicial testing. Tariffs Trump imposed on Chinese imports during his first term under Section 301 of the same 1974 trade law are still in place.

Also joining the lawsuit are the attorneys general of Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Rhode Island, Vermont, Virginia, Washington, Wisconsin, and the governors of Kentucky and Pennsylvania.