Trade Court Deals Second Blow to President's Trade Agenda, Invalidating Section 122 Tariff
On May 7, 2026, the U.S. Court of International Trade (CIT) ruled in two companion cases that the tariff imposed by President Trump under Section 122 of the Trade Act of 1974, 19 U.S.C. § 2132, was unlawful. However, the Court limited its grant of the permanent injunction against collection of the duties and refund order to certain parties in the Oregon v. United States and Burlap and Barrel, Inc. v. United States cases, leaving open for the moment whether, and how, other importers will be able to benefit from the ruling. The government has already appealed and been granted a temporary stay of the injunction by the Federal Circuit.
Background
As we have advised, in the wake of the U.S. Supreme Court's Learning Resources, Inc. v. Trump decision invalidating the tariffs President Trump imposed under the International Emergency Economic Powers Act of 1977 (IEEPA), the president issued Proclamation 11012, which imposed a new 10% Section 122 tariff on nearly all imported products, effective February 24, 2026. Section 122, which had never before been invoked, authorizes a tariff of up to 15% for up to 150 days to address a "balance-of-payments deficit," among other things. As the CIT described it, the president identified various measures as components of the imbalanced "payments"—specifically, the overall U.S. trade deficit (also the basis of some IEEPA tariffs), current account deficit, and negative net international-investment position. The Administration has explained that it intends to replace the IEEPA tariffs with new tariffs under Section 301 of the Trade Act of 1974, 19 U.S.C. § 2411, using the Section 122 tariff as a bridge.
Decision, Dissent, and Relief
Two dozen states sued the government in Oregon, joined later by two small businesses in Burlap and Barrel, all arguing primarily that "balance-of-payments deficits cannot occur in a floating exchange rate system," which the United States adopted at around the time of Section 122's enactment in 1974. The government countered that the deficits identified constitute a balance-of-payments deficit within the meaning of the statute. Unlike Learning Resources, where the question was whether IEEPA authorized the president to impose tariffs at all, the question here was whether the president properly asserted the conditions that Section 122 requires to exist to support a tariff action to address a "balance-of-payments deficit." But like the Supreme Court in Learning Resources, the CIT used the "ordinary tools of statutory interpretation" to determine the parameters of Section 122.
Reframing the matter, the two-judge majority of the Court—both Obama appointees—looked to the legislative history of the Trade Act, which states that "balance-of-payments" at the time of enactment could refer to liquidity, official settlements, or the basic balance, and rejected the government's argument that the term should be reinterpreted in the context of today's floating exchange rate system to encompass metrics, such as the trade balance, to which the president referred. In other words, the Court said a trade deficit is not a balance-of-payments deficit, and in the absence of the identification of a balance-of-payments deficit, the tariff could not stand. In dissent, Judge Timothy C. Stanceu—a George W. Bush appointee—hesitated to fix the meaning of Section 122 to that at the time of enactment in 1974, and stated that the trade balance should be considered a valid measure justifying Section 122 duties. Judge Stanceu also believed that material factual disputes were present to render summary judgment inappropriate.
In crafting relief, the majority held that all parties that did not allege they were direct importers—namely all of the states aside from Washington, which imported through its university system—could not establish standing based on speculative downstream harm to their economies. The direct importers, however, had met the requirements for a permanent injunction and an order for refunds of the Section 122 duties they already paid. The Court declined to issue a universal injunction, reasoning that the parties with standing had not requested one.
Impact on Importers
Although the Section 122 tariff has now been held unlawful, because the injunction is limited to prevailing parties at the CIT, other importers must continue to pay the Section 122 duties until the courts or the Administration direct otherwise. While the reasoning and specific relief of Oregon and Burlap and Barrel differ from those in the IEEPA cases, the legal framework regarding relief, including refunds, remains the same as it did for IEEPA tariffs before Learning Resources was decided. Because the Section 122 tariff is imposed by the president, CBP lacks discretion over whether to collect and to assess the duties; and where CBP is not the decisionmaker, a liquidation is non-protestable. Nor in the absence of a universal refund order is CBP likely to accept a post-summary correction on the issue, as it does not for IEEPA duty refunds.
Therefore, in order to obtain the relief granted to the three plaintiffs in these cases, an importer at this point must file its own case in the CIT within two years of entry under 28 U.S.C. § 1581(i), citing Oregon and Burlap and Barrel. Parties considering litigation of their own should keep in mind, however, that refunds, if any, may very well be administered through the CAPE system created for the IEEPA duty refunds, rendering priority concerns moot, and that the Section 122 tariff is scheduled to lapse on July 24 in any event. For lower-volume importers and those unburdened with cash flow concerns for the duration, the best course of action for now may be to pay the Section 122 duties where no exemption is available, to monitor appellate proceedings for developments, and to maintain records to be used in a future claims system.
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Burt Braverman is a partner and Russell Semmel is an attorney in the international trade, investment & national security group in the Washington, D.C. office of DWT. If you have any questions or need assistance, please contact the authors or another member of our international trade, investment & national security team. Our team can assist importers and nonimporters alike in evaluating their options to preserve Section 122 duty refund or reimbursement rights. To stay informed, sign up for our alerts.