US Implements New 10% Tariffs Amidst Economic and Legal Scrutiny
Washington's new 10% import duties officially took effect on Tuesday, following last week's US Supreme Court decision that dismantled President Donald Trump's previous illegal tariff framework. The administration has introduced these tariffs under Section 122 of the Trade Act of 1974, with President Trump threatening to further raise the rate to 15% in the near future.
Administration's Rationale and Economic Counterarguments
The White House has labeled this move as a necessary measure to address what it describes as a significant US balance of payments deficit. However, prominent economists have strongly contested this justification, arguing that the United States is not experiencing a balance-of-payments crisis.
Former IMF first deputy managing director Gita Gopinath told Reuters, "We can all agree that the U.S. is not facing a balance of payments crisis, which is when countries experience an exorbitant increase in international borrowing costs and lose access to financial markets." She dismissed the White House claim that the negative primary income balance—first seen since 1960—constitutes evidence of a major payments problem. Instead, she attributed this phenomenon to increased foreign investment in US equities and other risky assets over the past decade.
Mark Sobel, a former US treasury and IMF official, added that balance-of-payments crises typically occur in countries with fixed exchange rates. He noted that the floating-rate dollar has remained stable, 10-year Treasury yields are steady, and stock markets have performed well, contradicting crisis indicators.
Josh Lipsky, chair of international economics at the Atlantic Council, emphasized the fundamental difference between a trade deficit and a balance-of-payments crisis: "A balance of payments crisis occurs when a country cannot pay for what it is importing or is unable to service foreign debt."
Supporting Perspectives and Legal Challenges
Meanwhile, some experts see merit in the administration's argument. Brad Setser, a currency and trade expert at the Council on Foreign Relations, wrote on X that the current account deficit is larger than when President Nixon implemented tariffs in 1971, and the US net international investment position is weaker. "This gives the administration a real argument," he stated.
Legal questions surround the use of Section 122. The Justice Department previously stated that the statute was not appropriate for addressing trade deficits, observing in court filings that it has "no obvious application here, where the concerns the president identified in declaring an emergency arise from trade deficits, which are conceptually distinct from balance-of-payments deficits."
Neal Katyal, who represented plaintiffs challenging the previous IEEPA tariffs at the Supreme Court, told CNBC, "I'm not sure it will necessarily even need to get to the Supreme Court, but if the president adheres to this plan of using a statute that his own Justice Department has said he can't use, yeah, I think that's a pretty easy thing to litigate."
Implementation and Future Implications
It remains unclear who might lead any legal challenge to the new tariffs. Sara Albrecht, chair of the Liberty Justice Center, which represented small businesses against the IEEPA duties, said her group will monitor developments closely. "Our immediate focus is simple, making sure the refund process begins and that checks start flowing to the American businesses that paid those unconstitutional duties," she told Reuters.
Trump's latest 10% tariff took effect just after midnight on Tuesday, according to customs authorities. The US President's executive order so far only formalizes the initial rate. Section 122 allows the president to impose tariffs of up to 15% for 150 days on imports from any country to tackle "large and serious" balance-of-payments issues.
The ongoing debate highlights the complex intersection of economic policy, legal authority, and international trade dynamics as the administration moves forward with its tariff strategy.
