On Feb. 20, the U.S. Supreme Court wisely held that the International Emergency Economic Powers Act (IEEPA) does not authorize the president to impose tariffs. The decision means that President Donald Trump’s signature economic policy of “reciprocal” tariffs was unlawful. So were his tariffs purportedly imposed to combat fentanyl imports from Canada, China, and Mexico; his tariff on India in response to its oil imports from Russia; and his tariffs on Brazil that were meant to spring former President Jair Bolsonaro from prison.

To put it more bluntly, the court held that the Trump administration illegally extracted as much as $175 billion from taxpayers over the course of the past year.

For a different administration, this might be deemed scandalous by supporters and opponents alike. The administration would apologize and strive to process refunds as fast as humanly possible, and pledge that any new tariffs would be imposed only cautiously and on unassailable legal grounds.

This was not the case for this president.

As we foreshadowed in December, the administration immediately turned to other controversial and untested tools in the trade law toolbox. Within hours of the ruling, the administration issued a proclamation invoking Section 122 of the Trade Act of 1974, initially imposing worldwide tariffs of 10 percent on imports before announcing the following day that it would raise them to 15 percent. Confusingly, Customs and Border Protection then issued guidance for importers that reiterated the 10 percent rate and the exemptions included in the proclamation, after which the White House signaled that it would amend the levy to 15 percent.

Either way, the measures are scheduled to expire after 150 days unless Congress affirmatively votes to extend it (assuming that a court does not strike them down or at least enjoin them). The administration may try to extend or re-up the tariffs, but that would violate the spirit if not the letter of the law.

The Trump administration likely invoked Section 122 in part because it involves no procedural requirements, while any legal challenge would struggle to reach a final resolution before the statute’s 150-day clock runs out. By comparison, the two firms leading the charge in last week’s IEEPA decision filed suit in April last year, more than 300 days ago. The 150-day window buys time to ready Section 232 and Section 301 tariffs—the tools that the administration plans to use to reconstruct the tariff architecture the court just struck down under IEEPA. In short, Section 122 is an illegal bridge to the next fight.

These new tariffs are as economically and geopolitically illiterate as the previous batch. They apply to both consumer goods and intermediate inputs, sabotaging American producers in general and manufacturers in particular. They fail to distinguish between friend and foe, undermining administration claims to a coherent China policy—or really any kind of grand strategy. They are incompatible with the trade “deals” that the administration spent much of the past year touting, and their temporary nature places yet another wet blanket of policy uncertainty over the economy. And they constitute a regressive tax on a narrow base, creating large distortions per dollar of revenue.

The tariffs are just as unlawful as the previous batch, too. Section 122 only provides the president with tariff authority—in fact, it mandates that he impose tariffs or quotas—under narrowly defined circumstances. These circumstances are in place whenever “fundamental international payments problems” require that imports be reduced for one of three specific reasons: to address “large and serious United States balance-of-payments deficits,” to prevent “an imminent and significant depreciation of the dollar in foreign exchange markets,” or to cooperate with other countries in correcting “an international balance-of-payments disequilibrium.”

The administration’s theory is that the United States’ persistent trade deficit—roughly $900 billion in 2025—constitutes a “large and serious balance-of-payments deficit” within the statute’s meaning. This reading conflates two concepts that economists, trade lawyers, and the administration’s own lawyers have long treated as distinct. A trade deficit and a balance-of-payments deficit are not the same thing.

To understand why the administration’s reading fails, it helps to recall the world in which Section 122 was written—one of fixed and managed exchange rates, gold outflows, and currency pegs. The provision was enacted as part of the Trade Act of 1974, in the immediate aftermath of the collapse of the Bretton Woods international monetary system.

Under Bretton Woods, which governed the international economy from 1944 until its breakdown between 1971 and 1973, the dollar was convertible to gold at $35 per ounce, and other major currencies were pegged to the dollar. A “balance-of-payments deficit” had a natural meaning in that system: More foreign holders of dollars were seeking to exchange them for gold than vice versa, forcing the U.S. government to draw down its official reserve assets to maintain the peg. Run the deficit long enough and the country could exhaust its reserves entirely, triggering a collapse of the entire international monetary architecture.

In August 1971, President Richard Nixon closed the “gold window,” suspending dollar-gold convertibility and effectively ending Bretton Woods. To stabilize the situation, Nixon imposed a temporary 10 percent surcharge on imports. A predecessor court of the U.S. Court of International Trade initially decided that the surcharge was unlawful. Congress responded a few years later by enacting Section 122 to provide explicit authority for such measures in future monetary crises, in case a system of fixed or managed exchange rates required emergency intervention. Part of the motivation was that if the surcharge was declared unlawful on appeal, importers would receive a windfall to the extent they passed on some of the surcharge to their customers or suppliers. That is precisely the situation the Trump administration has created with its unlawful IEEPA tariffs.

Legislators were also concerned about a related threat: Oil-producing states were accumulating vast dollar holdings in European banks, exposing the dollar to risk of abrupt depreciation and the international monetary system to sudden instability. The Senate Finance Committee’s report on the legislation notes that across-the-board tariffs are not an appropriate response to these kinds of concerns.

We are in a very different world now. American economist Milton Friedman had long argued that a system of floating exchange rates “completely eliminates the balance-of-payments problem,” and the post-Bretton Woods experience has borne him out. Under floating rates, the balance of payments clears through price adjustment. There are no official reserves to exhaust, no gold window to close, no peg to defend.

Today’s trade deficit is financed voluntarily by foreign investors who choose to hold dollar-denominated assets—a reflection of the dollar’s status as the world’s reserve currency. As former International Monetary Fund Deputy Managing Director Gita Gopinath has observed, a country with a “fundamental international payments problem” is one that cannot pay its bills in its own currency. The United States pays its external obligations in a currency that it issues.

The statute itself provides further evidence against the administration’s reading. Section 122(c)—the mirror-image provision authorizing the president to liberalize trade—explicitly uses “large and persistent … balance-of-trade surpluses” as its trigger. That is, the same statute uses “balance of payments” as the basis for imposing tariffs and “balance of trade” as the basis for removing them.

Legislative history confirms that the distinction was deliberate: An earlier draft of the legislation used “balance of trade” in both provisions, and the Senate Finance Committee specifically changed the tariff-authorization trigger to “balance of payments” to reflect a narrower, monetary concept.

The surrounding triggers in Section 122(a) reinforce the point. Preventing “imminent and significant depreciation of the dollar in foreign exchange markets” and cooperating with other countries on “international balance-of-payments disequilibrium” are exchange rate concepts, not concepts directly associated with trade flows. The provision was written for currency crises, to address instability in the international monetary system—not to raise enormous amounts of tax revenue, engage in industrial policy, or move the United States closer to autarky.

Perhaps most remarkable is that the administration’s own lawyers effectively conceded this in the IEEPA litigation, as Neal Katyal and others have pointed out. In a filing earlier this year, the Department of Justice acknowledged that trade deficits “are conceptually distinct from balance-of-payments deficits” and suggested that Section 122 did not have “any obvious application here, where the concerns … arise from trade deficits.”

In addition, in a pro-administration dissent last year, judges on the U.S. Court of Appeals for the Federal Circuit noted that Section 122 “does not apply to the problems underlying” the administration’s reciprocal tariffs because those tariffs do not address the kind of payments crisis that the statute was designed to prevent.

The tariffs face a further obstacle under the major questions doctrine, the same principle that the Chief Justice  applied to IEEPA. That doctrine requires Congress to speak clearly when authorizing the executive to make decisions of vast economic and political significance.

Within 150 days, the Section 122 tariffs would impose roughly $30 billion in additional taxes on U.S. businesses, with costs passed along to consumers and supply-chain disruptions rippling across industries that depend on imports. Under the Supreme Court’s 2025 decision in FCC v. Consumers’ Research, even a fixed numerical ceiling does not necessarily insulate a broad delegation from constitutional scrutiny if it does not sufficiently guide and constrain the executive’s discretion over decisions of economy-wide consequence.

Section 122’s 15 percent cap allows for the highest tariffs in almost a century, hardly a meaningful constraint on the president’s discretion: It would let him collect most of the revenue that would have been collected with the IEEPA tariffs. The problem is further compounded if the president can simply declare a new crisis every 150 days, exempt—as he has already done—entire categories of imports, and move the tariff rate around without notice or clear rationale.

Challengers seeking to halt these tariffs will face real procedural hurdles. A plaintiff seeking a permanent injunction must satisfy a four-factor test from eBay Inc. v. MercExchange (2006)—irreparable injury, inadequate legal remedies, a favorable balance of hardships, and no disservice to the public interest—the same standard that the Court of International Trade found met in the IEEPA litigation.

Furthermore, the Supreme Court’s 2025 decision in Trump v. CASA, Inc. prompted the Federal Circuit to vacate the universal injunction the Court of International Trade had granted in the IEEPA case, suggesting that nationwide relief may be harder to secure going forward. But even after the CASA decision, class action might bring universal relief, while state government plaintiffs can secure broad remedies. The U.S. Constitution also mandates uniform tariff schedules, bolstering the case against limited injunctions in this context.

When affected parties challenge the Section 122 tariffs in the coming days, the courts should reach the same conclusion as they did with the IEEPA tariffs, but more promptly. That would force the president to rely on more procedurally demanding and less flexible instruments, as he should. The taxing power belongs to Congress. The president cannot borrow it by misreading a law that belongs to the world of yesterday.