Section 122 Can’t Carry Trump’s Tariffs

It requires a balance-of-payments deficit—a problem that has become obsolete

By Phillip W. Magness. Excerpts:

"The U.S. has run trade deficits for most years since the mid-1970s. But Mr. Trump’s reading of Section 122 is erroneous. The relevant statute allows only tariffs that “deal with large and serious United States balance-of-payments deficits,” “prevent an imminent and significant deprecation of the dollar,” or facilitate an international agreement to correct a “balance-of-payments disequilibrium.”"

"While the U.S. current account is in deficit, the capital account runs a large surplus, effectively balancing it out. Under this full accounting, the current U.S. balance-of-payments deficit is close to zero."

"the problem Congress had in mind when it crafted Section 122 in the early 1970s vanished shortly thereafter." 

"A balance-of-payments crisis could happen when sustained demand for a particular currency depleted the U.S. government’s official reserve holdings, thereby threatening the stability of the peg."

"Records from 1973 show that Congress had this exact scenario in mind when it drafted Section 122. The committee report for the bill noted that a “large decline in the U.S. net international monetary reserve position would be evidence of a serious balance-of-payments deficit.”"

"America eventually settled on the floating exchange system we have today. And so we left behind any possibility of a problem that would trigger Section 122. As Milton Friedman explained in 1967, “a system of floating exchange rates completely eliminates the balance-of-payments problem.”"

"Solicitor General John D. Sauer [said] . . . that Section 122 tariffs aren’t a viable substitute for IEEPA, because “trade deficits . . . are conceptually distinct from balance-of-payments deficits.”"