The Unending Trump Tariff Mess

snitzoid
34 minutes ago
3 min read

For god's sake. He's the Dark Lord! Did Lord Vader throttle it back? Well! I'm waiting!

The Unending Trump Tariff Mess

Section 122, the basis for his new tax plan, is a relic of a bygone age.

By The Editorial Board, WSJ

Feb. 23, 2026 5:35 pm ET

Now that the Supreme Court has struck down Trump's "emergency" tariffs, will the government refund the billions of dollars it unlawfully collected? And as Trump turns to other tariff authorities, how much will he be limited by those laws?

Well, that will show the Supreme Court—or something. President Trump is reacting to his Friday tariff defeat not by calming the trade waters but by roiling them further. He is aiming in fury at the Supreme Court, but he will end up hitting the economy and Republicans in Congress.

The smart play after his legal defeat would be to take an off-ramp and forgo or pause new tariffs. Instead the White House this weekend dusted off Section 122 of the Trade Act of 1974 as a work-around. That provision lets a President impose tariffs of up to 15% across the board for up to 150 days “to deal with large and serious United States balance-of-payments deficits.”

What a relic, which wasn’t intended to manage a trade deficit per se. Instead it’s a holdover from a bygone era of the gold standard, fixed exchange rates and periodic panics about global liquidity.

The balance of payments is much broader than the balance in the trade of goods or services. It encompasses an economy’s total international position, including trade and capital flows. These days the U.S. balance of payments deficit is effectively zero because trade and capital flows exactly offset each other. The balance of payments is such a nonissue that the feds stopped publishing several data series about it in the 1970s.

Until 1973 the U.S. and its main trading partners operated under the Bretton Woods system by which European countries pegged their currencies to the dollar and Washington bound the dollar to gold. Throughout the 1960s, anxiety grew in some circles that this would result in a crisis owing to sustained U.S. trade deficits and America’s role in providing liquidity to Europe.

That background explains why Congress wrote Section 122 as it did. The provision also authorizes a temporary tariff in case of “an imminent and significant depreciation of the dollar,” and speaks of “cooperat[ing] with other countries in correcting an international balance-of-payments disequilibrium.” Another clause authorizes the President to cut tariffs if a U.S. trade surplus creates “fundamental international payments problems.”

The end of Bretton Woods in 1973, after President Nixon closed the U.S. gold window in 1971, ended the problem Section 122 was supposed to address (while creating others). Congress appears to have passed the provision anyway in 1974 because a floating-exchange system was so new it wasn’t obvious that worries about stability no longer applied.

This is also a note of caution that Section 122 tariffs may get a legal challenge. Perhaps the courts will defer to the President’s false definition of a “balance-of-payments deficit,” or perhaps not. But since the new tariffs expire after 150 days without Congressional approval, the Section 122 tariffs may be moot before the courts can decide.

***

The larger reality is that Mr. Trump is so bull-headed about tariffs that he’s going to re-impose them any way he can. Along with Section 122, he’ll fire up more Section 201, 301 and 232 (national security) studies and tariffs. But as our friend Don Luskin points out, these are pea shooters compared to the IEEPA tariffs the Court struck down. They are limited in scope and duration.

That isn’t to say they won’t do harm. They’ll create more uncertainty for business, at least for a while. And with the midterm elections coming soon, this timing is fraught for Republicans. Amid an “affordability” panic, Mr. Trump says he is going to impose more border taxes on enough imports to make up for his lost emergency tariffs. Democrats must be thrilled at their dumb luck.

Friday’s Supreme Court ruling should be a $150 billion tax cut as businesses apply for refunds from illegal tariffs. In its statements to the Court, Trump lawyers said the refund process would be a legal breeze. But now the Administration is suggesting it will fight refund requests in court. This is a political bait and switch, and it also delays refunds that could go to more productive economic uses.

Mr. Trump is so ideologically fixated on tariffs that he is willing to bet his Presidency on them. This looks increasingly like a losing wager for Republicans.