Trump’s plan B to impose new tariffs is also illegal as a balance-of-payments deficit doesn’t exist, trade experts say

Just hours after the Supreme Court struck down President Donald Trump’s global tariffs on Friday, he signed an order to impose another package of levies under a different law that wasn’t affected by the court’s decision.

But economists and trade experts were quick to point out that Trump’s plan B for his tariff regime also has no legal basis.

For the first time ever, the U.S. is invoking Section 122 of the 1974 Trade Act, which allows tariffs of up to 15% for as long as 150 days to quickly address international payments problems.

On Saturday, Trump hiked his new tariffs to 15%, less than 24 hours after setting them at 10% in an executive order. That’s after the Supreme Court ruled the president has no authority to apply tariffs under the International Emergency Economic Powers Act.

In a briefing with reporters Friday, Trump claimed the court endorsed his ability to use other means to carry out his trade agenda.

“The good news is that there are methods, practices, statutes and authorities as recognized by the entire court in this terrible decision and also is recognized by Congress which they refer to that are even stronger than the IEEPA tariffs available to me as president of the United States,” he said.

But the actual language of the Trade Act lists requirements that don’t exist today, including a “large and serious” balance-of-payments deficit.

While the U.S. has run a trade deficit for decades, it’s been offset by capital inflows as foreign investors pour billions into financial markets, resulting in a net balance of zero.

“Section 122 of the 1974 Trade Act, on which Trump’s 10% tariff is based, does not apply in the current macro environment,” said Peter Berezin, chief global strategist at BCA Research, in post on X on Friday. “A balance of payments deficit is not the same thing as a trade deficit. You cannot have a balance of payments [deficit] if you have a flexible exchange rate, as the US currently does.”

Similarly, economist Alan Reynolds, a senior fellow at the Cato Institute, pointed out that the trade deficit is fully funded by the capital account surplus, adding that there is no overall balance-of-payments deficit to justify Trump’s newest tax on imports.

Bryan Riley, director of the National Taxpayers Union’s Free Trade Initiative, wrote in a blog post last month that Section 122 only makes sense under a fixed exchange rate, which hasn’t existed in the U.S. in more than 50 years.

Back then, when the dollar was pegged to gold, there was still a risk that the U.S. could suffer from shortages of reserves needed to cover international obligations.

But by the time the Trade Act was introduced in late 1973, the U.S. had already adopted a floating exchange rate system that was self-adjusting, eliminating the need for reserves to maintain a fixed dollar value. The bottom line is that “Section 122 was effectively rendered obsolete,” Riley explained.

“Section 122 only authorizes tariffs in the presence of a fundamental international payments problem,” he added. “Because the United States does not face such a problem, Section 122 cannot legally be used by President Trump to impose new tariffs.”

This story was originally featured on Fortune.com