A panel of judges sharply questions attorneys on both sides of a challenge to President Donald Trump’s backup tariffs under a never-used 1974 law.
Oral arguments before the little-known Court of International Trade went for more than three hours on Friday morning, with the three judges questioning attorneys about the economic terms in Section 122 of the Trade Act of 1974.
A coalition of mostly Democrat-led states and small businesses is challenging Trump’s 10% global tariff, imposed under Section 122 of the Trade Act of 1974, a statute allowing tariffs of up to 15% for 150 days. Trump turned to this law after the U.S. Supreme Court struck down his earlier tariff attempt. Section 122 has not been tested in court.
The challengers argue that Trump’s use of Section 122 is unlawful because there is no international balance-of-payments problem, a requirement they contend is economically impossible for the U.S. under floating exchange rates. The federal government calls this view absurd. The Justice Department argues that large account deficits can trigger rapid economic disruption, including declining income growth and currency depreciation.
In one significant exchange, Judge Claire Kelly asked the government’s attorney, Assistant Attorney General Brett Shumate, about the nation’s existing balance of payments deficit as the term was understood when lawmakers passed the 1974 law.
“Could you measure whether there is a basic balance or liquidity deficit?” Kelly asked.
The question caught Shumate flat-footed. He said yes, it could be calculated on a theoretical basis, but not on a practical basis.
“The reason as a technical matter is that I think it becomes impractical because nobody cares about any of these measures anymore in the context of a floating rate system,” he responded.
Phillip Magness, a senior fellow at the Independent Institute who has extensively studied Section 122, said the exchange was telling.
“The White House’s attorney was left flustered in response to these questions, and could not point to any measure today that showed a deficit exists today under the terms used in 1974,” Magness told The Center Square.
Jeffrey Schwab, who argued on behalf of the small businesses in the suit and is a senior counsel at the Liberty Justice Center, said all the parties faced tough questions from the panel of judges.
Schwab argued that the administration’s interpretation would transform a rarely used law into a tool with sweeping powers Congress never intended.
“Defendants assert unreviewable authority to impose tariffs under Section 122 by declaring a ‘balance-of-payments deficit’ whenever any component of the balance of payments has a deficit, effectively transforming a narrow trade statute into a grant of limitless domestic power,” he wrote in a brief.
The court in New York could soon decide the fate of Trump’s controversial new round of global tariffs. The case, focused on the president’s use of a decades-old trade law, could have major consequences for U.S. trade policy and executive authority.
In April 2025, Trump unilaterally imposed the highest tariffs in nearly a century. The U.S. Supreme Court ruled in February that Trump overstepped by using the International Emergency Economic Powers Act to impose tariffs worldwide.
During Trump’s initial round of tariffs, courts permitted the administration to continue collecting import taxes as legal challenges played out.
Trump has defended the tariffs, saying the revenue could fund increased military spending and other goals, including a tariff refund check for some Americans. Still, experts have questioned whether tariffs will raise enough money to cover these spending plans.
As the midterm elections approach, Trump’s tariffs remain unpopular. Research shows that U.S. consumers and businesses bear the bulk of the costs of these import taxes.
There’s no schedule for a decision in the case.
