Trade Court Holds the Administration's Section 122 Tariffs To Be Unlawful

On May 7, 2025, in State of Oregon, et al. v. United States and Burlap and Barrel, Inc. v. Trump, the US Court of International Trade (CIT) held that the Trump administration's imposition of a 10% tariff pursuant to Section 122 of the Trade Act of 1974 was unlawful because the Administration's interpretation of the statute was overly "expansive." 

Section 122 authorizes the President to impose temporary surcharges, via tariffs of up to 15% ad valorem for up to 150 days, when "fundamental international payment problems" exist, such as "large and serious" balance-of-payment deficits. On February 20, 2026, following the Supreme Court's decision striking down the administration's tariffs under the International Emergency Economic Powers Act (IEEPA), President Trump issued Presidential Proclamation 11012, imposing a 10% surcharge on all imports from all countries, other than certain specified products, effective February 24, 2026 through July 24, 2026 (unless extended by Congress).

In early March, two private importers (Burlap and Barrel, Inc. and Basic Fun, Inc.) and 24 states, led by the State of Oregon, filed suit at the CIT challenging the Section 122 tariffs as an unconstitutional exercise of authority. The Government contested the standing of all states except for Washington State, on the basis of the argument that these 23 states did not allege that they have been, or will soon be, required to pay duties under Section 122.

Court's Decision and Rationale

Because the case raises a constitutional challenge, it was heard by a three-judge panel, consisting of Chief Judge Mark A. Barnett, Judge Claire R. Kelly, and Judge Timothy C. Stanceu. As an initial matter, the panel agreed with the Government regarding standing, finding that the standing of the 23 states other than Washington was based on mere "allegations of possible future injury" and dismissed all claims made by these states without prejudice.

In interpreting Section 122, a majority of the panel, consisting of Chief Judge Barnett and Judge Kelly, focused its analysis on what Congress meant by "balance-of-payments deficits" in 1974, namely whether the balance-of-payments deficits identified by Proclamation 11012, are "large and serious" as measured by liquidity, official settlements, and the basic balance. The majority held that the Proclamation's identification of a trade deficit, a current account deficit, and a net negative US international investment position, did not constitute a balance-of-payments deficit under the statute.

Responding to the plaintiff's arguments that balance-of-payments deficits cannot occur in a floating exchange rate monetary system, the majority explained that even if it is unlikely that "large and serious balance-of-payments deficits" within the meaning of Section 122 could occur today (in light of the floating exchange rate system), the other provisions of Section 122 remain operative. Under these other operative provisions, according to the majority, the President is empowered to act "to prevent an imminent and significant depreciation of the dollar" or "to cooperate with other countries in correcting an international balance-of payments disequilibrium." Although Proclamation 11012 links the US trade deficit to a broader balance-of-payments imbalance, the Court held that it does not identify any balance-of-payment deficits that fall within the statute's definition (in accordance with the Court's interpretation), thereby rendering Proclamation 11012 ultra vires.

The majority further found that the importers had satisfied the requirements for a permanent injunction, preventing the collection duties under Section 122 for their entries alone. The Court further held that the requirements for a universal injunction, applicable to all entries subject to Section 122 duties, was not satisfied in this circumstance. Consequently, the injunction resulting from this decision is currently limited only to the importer plaintiffs, the Washington State, Burlap and Barrel, Inc., and Basic Fun, Inc. As discussed more below, the US Court of Appeals for the Federal Circuit (CAFC), the applicable appellate court of the CIT, issued an administrative stay on the implementation of this injunction on May 12, 2026, so the scope of this injunction is still subject to change by the CAFC.

Dissenting, Judge Stanceu disagreed with the majority's interpretation of the legislative history that liquidity, official settlements, or basic balance are the only methods to measure "balance-of-payments," explaining that had Congress intended to limit its measurement according to these factors, it would have been more explicit in doing so. Instead, Judge Stanceu explained that the statute, as written in 1974, did not limit the administration to such methods, such that Proclamation 11012 had adequately identified "reasonable understanding(s)" of the meaning of a balance-of-payments deficit in the context of section 122. Finally, Judge Stanceu stated that evaluating methods for measuring balance-of-payment deficits is not within the expertise of the judiciary, and the CIT should be hesitant to second guess the administration's factual findings.

Future Considerations

• Government Appeal: On May 8, 2026, the day after the CIT's opinion, the Government appealed the decision to the CAFC. On May 12, 2026, the CAFC granted the Government's motion for an immediate administrative stay such that the CIT's permanent injunction in these cases is temporarily stayed while the appellate court considers a more prolonged stay during the duration of the appeal.
• Continued Collection of Section 122 Duties: While the CAFC grapples with whether to issue a stay pending appeal for the CIT's injunction and judgment, Section 122 duties will continue to be collected on plaintiffs' entries (though this will ultimately depend on the outcome of the CAFC's ruling on the stay pending appeal) and non-plaintiff importers prior to the July 24^th expiration date.
  • The ruling, however, indicates that refund opportunities may be available in the future on a broader basis. Importers should continue to document and preserve their entry documentation, keep these entries organized for the applicable protest deadlines, and track the appeal process of these Section 122 duties.
• Pending Section 301 Tariffs: Although the administration implemented Section 122 tariffs following the Supreme Court's striking down of IEEPA tariffs, these are time-limited by law.
  • Consequently, the administration also initiated multiple investigations under Section 301 of the Trade Act of 1974, to serve as a future basis for tariffs on imports from dozens of countries, citing forced labor and industrial overcapacity as the bases for these Section 301 investigations.  
  • It is possible that the administration announces the results of the investigations prior to the July 24^thexpiration of Section 122 tariffs, but based on the Courts' scrutiny of prior tariff actions, importers could expect these investigations to face additional judicial scrutiny in the future.
  • Section 301 does not impose numerical or temporal limits on any tariffs that may result from a Section 301 investigation, so importers should expect to pay higher tariffs for a longer period of time.