Hours after the Supreme Court struck down IEEPA tariffs, the President invoked a statute that's never been used before. Here's what Section 122 means for importers, why legal experts say it's vulnerable, and what happens when the 150-day clock runs out.
The ink on the Supreme Court's IEEPA ruling was barely dry when the administration's Plan B went live.
On the evening of February 20, 2026 — the same day the Court ruled 6-3 that IEEPA does not authorize tariffs — President Trump signed an executive order invoking Section 122 of the Trade Act of 1974. Within 24 hours, he raised the rate to 15%, the statutory maximum.
Effective February 24, 2026, a new 15% surcharge applies to most imports entering the United States.
If you are an importer, customs broker, or trade compliance professional, you need to understand what this statute actually says, where the legal vulnerabilities are, and what happens on July 24 when the 150-day clock expires.
What Is Section 122?
Section 122 of the Trade Act of 1974 (19 U.S.C. § 2132) is a rarely discussed statute that allows the President to impose temporary import duties when the United States faces a "large and serious balance-of-payments deficit" or when the dollar faces "imminent and significant depreciation."
Key statutory constraints:
| Constraint | Detail |
|---|---|
| Maximum rate | 15% ad valorem (or equivalent) |
| Maximum duration | 150 days without Congressional approval |
| Prerequisite | "Large and serious" balance-of-payments deficit |
| Congressional review | Congress can extend beyond 150 days by joint resolution |
| Prior use | Never invoked by any President — until now |
This is not a tariff authority that trade lawyers expected to see used. Section 122 was written in the context of the 1970s fixed exchange rate system, when balance-of-payments crises were a genuine concern. It has sat dormant for over 50 years.
What Does Section 122 Cover?
Subject to the 15% Surcharge
The surcharge applies broadly to most imported goods. If your products do not fall into one of the exempt categories below, they are subject to the 15% duty, effective February 24, 2026.
The duty is assessed through a new HTSUS subheading: 9903.03.01.
Exempt From Section 122
The executive order carves out several categories:
- Energy products: Crude oil, LNG, coal, refined petroleum
- Critical minerals: Lithium carbonate, cobalt, rare earth elements, Chapter 26 concentrates
- Pharmaceuticals: Finished drugs, APIs, certain excipients
- Agriculture: Beef, fresh tomatoes, fresh oranges, other specified items
- Aerospace: Commercial aircraft and large aircraft components
- USMCA-qualifying goods: Products with valid certificates of origin under the United States-Mexico-Canada Agreement
Not Stacked With Section 232
Products already subject to Section 232 tariffs — steel (25%), aluminum (25%), copper, lumber, automobiles, and auto parts — are excluded from the Section 122 surcharge. There is no double-stacking. Section 232 rates continue to apply as before.
Stacked With Section 301
Section 301 China tariffs remain in full force and operate independently from Section 122. If you import goods subject to Section 301 duties from China, the Section 122 surcharge stacks on top — unless the goods are also covered by Section 232.
The "Goods on the Water" Exemption
There is a transitional provision: goods loaded onto a vessel before February 24, 2026 and entered into the United States before February 28, 2026 are exempt from the Section 122 surcharge.
If you have shipments currently in transit, document the loading date with your carrier immediately. You will need a bill of lading showing the vessel departure date to support the exemption.
Is Section 122 Legal? The Emerging Legal Challenges
Multiple legal experts have already flagged serious vulnerabilities in the administration's use of Section 122. Here are the key arguments:
1. There Is No Balance-of-Payments Crisis
Section 122 requires a "large and serious" balance-of-payments deficit as a prerequisite. The problem: it is far from clear that the United States has one.
A balance-of-payments deficit is not the same as a trade deficit. The U.S. runs a large trade deficit in goods, but the overall balance of payments — which includes services, investment flows, and financial transactions — tells a different story. The U.S. consistently runs a large capital account surplus as foreign investors pour money into American assets.
Multiple economists have pointed out that the balance-of-payments framework Section 122 was designed for — the Bretton Woods fixed exchange rate system — no longer exists. Under floating exchange rates, balance-of-payments deficits in the 1970s sense do not occur.
2. The Administration's Own Prior Arguments
During the IEEPA litigation, the government's lawyers argued that Section 122 was not a substitute for IEEPA's tariff authority, precisely because balance-of-payments problems are "conceptually distinct" from trade deficits and the national emergencies that IEEPA addresses.
Critics have noted the contradiction: the administration argued Section 122 was too narrow to address their concerns when defending IEEPA, then immediately pivoted to using it.
3. The Rate and Scope May Exceed Statutory Authority
Section 122 was designed for targeted, temporary interventions. Imposing the maximum 15% rate on virtually all imports from all countries — as a direct replacement for a tariff regime the Supreme Court just struck down — may exceed the statute's intended scope.
4. Expert Consensus
The Cato Institute has stated the Section 122 tariffs "almost certainly violate the law." Constitutional lawyer Ilya Somin — who successfully challenged the IEEPA tariffs — has said there are "additional reasons why the new Section 122 tariffs are illegal."
Legal challenges are expected. However, given the 150-day statutory limit, the tariffs may expire before any challenge reaches a final judgment.
What Happens on July 24, 2026?
This is the question every importer should be planning for. Section 122 tariffs expire automatically after 150 days unless Congress acts to extend them. That puts the expiration date at July 24, 2026.
Here are the scenarios:
Scenario 1: Tariffs Expire (Most Likely)
Both the House and the Senate passed bills disapproving of the IEEPA tariffs. Congressional appetite for extending tariff authority is low. If Congress does not act, the Section 122 surcharge simply ends on July 24.
Scenario 2: Administration Pivots to Section 232 and Section 301
The administration has already announced plans to initiate new investigations under Section 301 (unfair trade practices) and Section 232 (national security) covering "most major trading partners." These investigations take months but could result in new, durable tariffs under authorities the Supreme Court did not challenge.
Section 122 is the bridge. Sections 232 and 301 are the longer-term play.
Scenario 3: Congress Extends the Tariffs
Congress could pass a joint resolution extending the Section 122 surcharge beyond 150 days. Given current political dynamics, this is considered unlikely — but not impossible if trade conditions change significantly.
Scenario 4: New Legislation
The Supreme Court's ruling explicitly stated that tariff authority belongs to Congress. Congress could pass new legislation explicitly authorizing tariffs similar to the IEEPA regime. This would be the most durable solution but faces significant political obstacles.
What Importers Should Do Now
1. Update Your Landed Cost Models
Replace IEEPA duty rates with the 15% Section 122 surcharge in your cost calculations. For many importers, this actually represents a reduction — IEEPA tariffs ranged from 10% to 145% depending on the country and program. The flat 15% rate is lower than what many were paying.
2. Review USMCA Eligibility
Goods qualifying under USMCA are exempt from Section 122. If you import from Canada or Mexico, verify your certificates of origin. Products that were paying 25% under IEEPA fentanyl tariffs may now enter at 0% if they qualify under USMCA.
3. Check Section 232 Coverage
Products covered by Section 232 are excluded from Section 122. Confirm which of your imports fall under 232 to avoid overpayment.
4. Model the July 24 Expiration
Build financial models for both scenarios: Section 122 expiring as scheduled, and some form of replacement tariff taking effect. Your supply chain decisions in the next 150 days should account for both possibilities.
5. Monitor Section 301 and 232 Investigations
The administration's stated plan is to launch new Section 301 and 232 investigations as a follow-on to Section 122. Monitor Federal Register notices for initiation of investigations covering your product categories.
6. Preserve IEEPA Refund Rights
Do not let the Section 122 transition distract you from claiming IEEPA refunds. The protest and PSC windows are running now. See our complete guide to IEEPA tariff refunds for step-by-step instructions.
Section 122 vs. IEEPA: Key Differences
| Feature | IEEPA Tariffs (Struck Down) | Section 122 Tariffs (Current) |
|---|---|---|
| Legal authority | IEEPA (50 U.S.C. § 1702) | Trade Act of 1974, § 122 |
| Maximum rate | No statutory cap | 15% |
| Duration | Indefinite | 150 days without Congressional approval |
| Country targeting | Varied by country (10%-145%) | Universal 15% |
| USMCA exemption | No | Yes |
| Prior use | Never for tariffs | Never at all |
| Supreme Court status | Struck down | Pending legal challenges |
| Congressional support | Disapproved by both chambers | Extension considered unlikely |
The Bigger Picture
The shift from IEEPA to Section 122 is more than a legal technicality. It represents a fundamental rebalancing of tariff authority between the executive and legislative branches.
The Supreme Court said the President cannot use emergency economic powers to impose tariffs without explicit Congressional authorization. The administration responded by finding the narrowest remaining statutory authority available — one with a hard expiration date and a rate cap.
For importers, the practical impact is a 150-day window of relative clarity. The rate is 15%, the exemptions are defined, and the clock is ticking. Use this window to pursue your IEEPA refunds, optimize your supply chain, and prepare for whatever comes next.
TariffLens helps importers and customs brokers maintain classification accuracy as tariff regimes shift. Whether you're navigating Section 122, preparing for new Section 301 actions, or auditing your HTS codes for refund eligibility, accurate classification is the foundation. See how TariffLens can help.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Tariff regulations change frequently; verify current requirements with CBP official guidance and qualified trade counsel before making compliance decisions.