U.S. Court of International Trade Invalidates Section 122 Tariffs

In a significant decision with immediate implications for U.S. importers, the U.S. Court of International Trade (CIT) issued a divided opinion on May 7, 2026 holding that the 10% “temporary global tariff” imposed under Section 122 of the Trade Act of 1974 was unlawful. The court concluded that the statutory conditions required to invoke Section 122 were not satisfied and that the presidential proclamation used to impose the tariffs reflected an overly expansive interpretation of the authority delegated by Congress in the applicable law.

The 2-1 decision results in a permanent injunction prohibiting the collection of Section 122 duties — but only with respect to the prevailing plaintiffs: Burlap & Barrel, Inc., Basic Fun, Inc., and the State of Washington. Broader implications for other importers remain uncertain and will depend on further litigation and potential appellate review. On May 11, the Trump administration filed an emergency motion to stay the order of the U.S. Court of International Trade.

Background: Section 122 and the 10% Global Tariff

On February 20, 2026, President Trump issued Proclamation No. 11012, imposing an additional 10% ad valorem duty on most imports into the U.S. effective February 24, 2026. The action relied on Section 122 of the Trade Act of 1974, a provision authorizing temporary import surcharges of up to 15% ad valorem where specified international payments conditions exist, including “large and serious United States balance of payments deficits.” No U.S. president had previously invoked this statute since it became law in 1974.

The tariffs are intended to remain in effect for up to 150 days, i.e., through July 24, 2026 absent congressional reauthorization. As with other trade remedy tariffs, a new tariff item in Chapter 99 of the Harmonized Tariff Schedule of the United States (HTSUS) must be reported for all imports (with some exceptions): 9903.03.01. U.S. Customs and Border Protection (CBP) issued implementing guidance on February 23, 2026, and multiple states and private importers filed legal challenges shortly thereafter.

CIT Holding: Statutory Preconditions Not Fulfilled

The CIT emphasized that Section 122 represents a narrow delegation of authority from Congress to the Executive Branch and does not permit the imposition of tariffs based on broadly defined economic conditions, such as general trade or current account deficits.

Key aspects of the court’s analysis include:

• “Balance of payments deficits” is a specific statutory concept: The CIT rejected the government’s position that a large trade deficit or current account deficit satisfies Section 122. Relying on statutory text and legislative history, the court found that Congress intended the term to refer to specific historical measures, e.g., liquidity or official settlements balances involving the U.S. currency vis-à-vis foreign currencies, rather than modern current account metrics.
• Trade deficits are not interchangeable with balance of payments deficits: The CIT observed that Congress distinguished between balance of payments concerns and trade-related measures elsewhere in the statute. Substituting one for the other would improperly expand presidential authority beyond what Congress authorized.
• Potential constitutional concerns: The court noted that adopting the government’s interpretation could raise nondelegation and separation of powers concerns, because it would allow tariffs to be imposed based on broadly-defined and discretionary economic indicators.

Scope of Relief: Limited to Named Plaintiffs

The CIT granted a permanent injunction preventing CBP from collecting Section 122 duties from the plaintiffs in the case:

• Burlap & Barrel, Inc.
• Basic Fun, Inc.
• The State of Washington (as the importer of record)

The court declined to issue a nationwide injunction, concluding that most state plaintiffs lacked “Article III standing” (i.e., the requirement derived from Article III of the U.S. Constitution that limits federal court jurisdiction to actual "cases" or "controversies") because they were not importers of record and alleged only indirect economic harm. As a result, the ruling does not automatically extend relief to other importers.

However, the court’s reasoning applies broadly to the Section 122 tariffs and is likely to influence future litigation and administrative actions, and appellate proceedings. Most expect a quick appeal on the merits by the Justice Department to the U.S. Court of Appeals for the Federal Circuit, and also to seek a stay of the injunction. After a final appeals court decision, the U.S. Supreme Court may want to take the case for the final decision.

Practical Considerations for Importers

Although relief is currently limited, the decision presents important considerations for potentially affected importers:

• Identify impacted entries and confirm importer-of-record status, brokers involved, and entry/filing details;
• Assess liquidation status and monitor entries that have liquidated or are approaching liquidation deadlines (noting that with the illegal IEEPA tariffs, CBP liquidated entries much earlier than the normal 314-day post-entry cycle – sometimes within 60-90 days after entry);
• Track potential relief mechanisms for non-party importers, which may depend on CBP guidance, further litigation, or appellate outcomes;
• Monitor protest and administrative deadlines, as preserving rights may be critical depending on how the legal landscape evolves; and 
• Evaluate exposure and strategy, particularly in light of the court’s willingness to narrowly interpret delegated tariff authorities.

Other trade measures (including Section 232, Section 301, antidumping and countervailing duties, and quotas) are not affected by this decision.