Tariff Litigation Creates Friction

A federal trade court spent Friday asking a basic question with billion-dollar consequences: can a president call a long-running trade gap a legal emergency and put a 10% tax on nearly everything coming into the country? The tariff took effect on February 24, and the case was argued in the U.S. Court of International Trade in New York on April 10. (reuters.com) (pbs.org) This fight exists because the Supreme Court already knocked out an earlier tariff plan on February 20, 2026. In a 6-3 ruling, the justices said the International Emergency Economic Powers Act of 1977 does not let a president impose tariffs just by declaring a national emergency. (congress.gov) (scotusblog.com) Hours after that loss, the White House reached for a different law: Section 122 of the Trade Act of 1974. That law lets a president impose a temporary import surcharge of up to 15% for 150 days, but only for “large and serious” balance-of-payments problems or a threatened drop in the dollar. (reuters.com) (uscode.house.gov) (whitehouse.gov) That phrase matters because a trade deficit and a balance-of-payments deficit are not the same thing. A trade deficit is about goods bought versus goods sold, while a balance-of-payments problem is an older currency-and-capital-flow concept that grew out of the era when the dollar was tied to gold. (reuters.com) (pbs.org) (axios.com) The challengers are 24 mostly Democratic-led states plus two import-heavy businesses: Basic Fun, which sells toys including Care Bears and Lincoln Logs, and Burlap and Barrel, which imports spices. They argue Congress wrote Section 122 for short-term monetary stress, not as a replacement for tariffs the Supreme Court had just rejected. (reuters.com) (abcnews.go.com) (supplychaindive.com) The awkward part is that the government and the courts have both said different things about Section 122 in the last year. The Justice Department argued in earlier litigation that Section 122 had “no obvious application” to trade deficits, while the trade court itself suggested in a 2025 opinion that Section 122 was available as a narrower alternative to the older tariff theory. (pbs.org) (cit.uscourts.gov) Friday’s hearing did not look like a clean win for either side. Judges pressed the challengers on whether a trade imbalance can spill into international payments problems, and they also questioned whether the states had shown a direct enough injury to stay in the case. (abcnews.go.com) (politico.com) The businesses looked like the stronger plaintiffs because they could point to actual containers, actual invoices, and actual cash due at the border. That is the practical edge in tariff cases: courts can debate 1970s monetary language for hours, but importers still have to pay Customs on the next shipment. (abcnews.go.com) (supplychaindive.com) The clock is part of the story too. Section 122 only runs for 150 days without Congress, which puts the current tariff on track to expire on July 24 unless lawmakers extend it or the administration swaps in another legal theory first. (pbs.org) (uscode.house.gov) That is why the damage from this case starts before any ruling arrives. A tariff that might disappear in court, expire in July, or reappear under a different statute turns sourcing into a moving target, so companies are recalculating landed cost, delaying orders, and gaming out alternate suppliers country by country. (reuters.com) (supplychaindive.com) If the court blesses Section 122, presidents get a fast 150-day tariff weapon that Congress wrote half a century ago and almost nobody used. If the court rejects it, the message is narrower but just as important: even after the Supreme Court’s February ruling, there are still legal limits on how far the White House can go alone on trade. (reuters.com) (congress.gov)