Section 122 Tariffs Struck Down: What the Ruling Means for Your Refund

On May 7, the Court of International Trade declared the administration's 10% global tariff unlawful — the second tariff program struck down in three months. But if you're not one of the three plaintiffs who got an injunction, your duties are still being collected. Here's exactly what happened, why it matters, and what you need to do before the appeal window closes.

Burlap & Barrel is a small spice importer in New York. Basic Fun! makes toys. Neither company set out to reshape American trade law. But on May 7, 2026, these two businesses — alongside 24 state attorneys general — handed the Trump administration its second major tariff defeat in three months when the U.S. Court of International Trade ruled that the 10% global tariff imposed under Section 122 of the Trade Act of 1974 exceeds presidential authority.

The stakes are staggering: an estimated $25 billion collected from importers in just 72 days. And yet, for the vast majority of businesses paying these duties, the ruling changes nothing — at least not yet.

Here's why that gap between "unlawful" and "refunded" matters, and what you should be doing about it right now.

The Timeline: From IEEPA to Section 122

To understand the Section 122 ruling, you need the full sequence:

• April 2025: President Trump imposes sweeping tariffs on virtually all imports using the International Emergency Economic Powers Act (IEEPA) — an unprecedented use of emergency powers for trade policy.
• February 20, 2026: The U.S. Supreme Court strikes down IEEPA tariffs in Learning Resources v. Trump, ruling the statute doesn't authorize broad import duties.
• February 20, 2026 (same day): The administration issues Proclamation 11012, invoking Section 122 of the Trade Act of 1974 to impose a 10% surcharge on nearly all imports, effective February 24.
• February 21, 2026: The President posts on social media that the rate will increase to the 15% statutory cap. No implementing order is ever issued.
• March 2026: USTR launches two Section 301 investigations (forced labor and excess capacity) as a long-term replacement strategy.
• May 7, 2026: The CIT rules Section 122 tariffs unlawful in a 2-1 decision.
• May 8, 2026: The government files its appeal.

The pattern is clear: each time a tariff authority falls, the administration pivots to the next available statute. Understanding this sequence is critical for planning your compliance strategy.

What Section 122 Actually Authorizes

Section 122 of the Trade Act of 1974 is a narrow, Nixon-era provision designed for currency emergencies. It authorizes the President to impose temporary import surcharges of up to 15% for no more than 150 days when "fundamental international payments problems require special import measures."

The key statutory requirements:

• There must be "large and serious" U.S. balance-of-payments deficits — a specific economic concept from the Bretton Woods era
• The measure must be temporary (150-day hard cap)
• It's designed for currency crises and payment emergencies, not general trade policy

The statute had never been used for broad modern tariff policy. Its last significant invocation was by President Nixon in 1971 during the collapse of the gold standard — a genuine balance-of-payments crisis triggered by foreign governments demanding gold for their dollar reserves.

The Court's Reasoning: Trade Deficits Are Not Payment Deficits

The CIT's majority opinion, in State of Oregon et al. v. Trump and the consolidated Burlap & Barrel, Inc. v. Trump, focused on a critical distinction: a trade deficit is not the same thing as a balance-of-payments deficit.

The court held that Section 122 requires the President to identify "large and serious" balance-of-payments deficits as that term was understood and measured when Congress enacted the statute in 1974. In the 1970s, a balance-of-payments deficit referred specifically to a shortfall in international monetary reserves — the kind of crisis where a country literally cannot meet its international payment obligations.

The administration argued that America's large goods trade deficit (importing more than we export) justified the tariffs. The court disagreed, finding that:

1. A trade deficit in goods is a different economic concept than a balance-of-payments deficit
2. The U.S. has not experienced a fundamental international payments crisis
3. Broader economic concerns like manufacturing decline or job losses, while legitimate policy concerns, don't trigger Section 122 authority

The dissent argued for a broader reading of presidential discretion, but the 2-1 majority held firm: the statute means what it meant in 1974.

Why the Injunction Is So Narrow

Here's the critical detail most importers are missing: the court did not issue a nationwide injunction. The permanent injunction halting collections applies only to:

• Burlap & Barrel, Inc. (spice importer)
• Basic Fun! (toy company)
• The State of Washington (as an importer itself)

The 24 states that challenged the tariffs on behalf of their residents? The CIT dismissed those claims, ruling that states lack standing to bring trade challenges on behalf of private importers — only the states' own direct imports qualify.

For everyone else — which is virtually every importer in the country — CBP continues to collect the 10% Section 122 surcharge while the appeal plays out.

The Appeal: What Happens Next

The administration filed its appeal on May 8, 2026, one day after the ruling. Here's what to expect:

Immediate timeline:

• The appeal goes to the U.S. Court of Appeals for the Federal Circuit
• Briefing will likely take 2-3 months
• A decision could come by late summer or early fall 2026

But here's the twist: the Section 122 tariffs have a hard statutory expiration of July 24, 2026 (150 days from February 24). So even if the appeal takes months, the tariffs expire on their own in mid-July — unless Congress extends them, which appears politically unlikely given bipartisan opposition.

This creates an unusual situation: the administration is appealing a ruling about tariffs that will expire before the appeal is likely decided. The real stakes are about refunds — if the ruling stands, importers who paid Section 122 duties may have grounds to recover them.

The Section 301 Replacement Strategy

The administration isn't just appealing — it's building replacement tariffs under Section 301 of the Trade Act of 1974, which authorizes retaliation against unfair foreign trade practices.

In early March 2026, USTR launched two investigations:

1. Forced labor practices — targeting countries with documented labor rights violations in manufacturing
2. Manufacturing excess capacity — targeting countries (primarily in Asia) that subsidize industrial overproduction

These investigations are proceeding on an accelerated timeline. USTR is soliciting comments, holding public hearings, and conducting the required consultations with target countries. Trade lawyers widely expect the investigations to conclude in time for new Section 301 tariffs to take effect before July 24 — creating a seamless transition from Section 122 to Section 301 authority.

The bottom line: even if the Section 122 tariffs fall permanently, expect replacement duties under Section 301 to arrive on a similar timeline.

What Importers Should Do Right Now

The ruling creates a narrow window for strategic action. Here's your playbook:

1. File protests on all Section 122 entries — Under 19 U.S.C. § 1514, you have 180 days from liquidation to file a protest with CBP. Don't wait for the appeal to resolve. Filing a protest preserves your right to a refund if the ruling is ultimately upheld. The cost of filing is minimal compared to the potential recovery.

2. Preserve all entry documentation — Keep copies of every entry summary, duty payment, and communication with CBP related to Section 122 duties. You'll need these for both protests and any future refund mechanism (like the CAPE portal used for IEEPA refunds).

3. Track your liquidation dates — Entries that liquidate without a timely protest lose refund eligibility permanently. Set calendar reminders for the 180-day window on each entry.

4. Consider joining existing litigation — The court's narrow injunction means new plaintiffs could potentially file their own cases and seek individual relief. Consult with a trade attorney about whether intervening or filing a separate action makes sense given your duty exposure.

5. Monitor the Section 301 investigations — If you import from countries targeted in the forced labor or excess capacity investigations, new tariffs could arrive as early as July. Review the Federal Register notices for comment deadlines and hearing schedules.

6. Don't stop paying — This is critical. The injunction does not apply to you unless you were a named plaintiff. Non-payment will result in penalties, liquidated damages, and potential bond forfeiture. Pay the duties, file the protest, seek the refund later.

The Bigger Picture: Three Tariff Programs in 15 Months

Step back and consider what importers have faced since early 2025:

• IEEPA tariffs (April 2025 – February 2026): Struck down by the Supreme Court. Refunds now processing through CAPE, with 11 million entries queued and the first payments going out in May 2026.
• Section 122 tariffs (February – July 2026): Ruled unlawful by the CIT. Appeal pending. Collections continue for non-plaintiffs.
• Section 301 tariffs (expected July 2026): New investigations launched. No statutory time limit. Likely the most legally durable authority.

Each program has its own rate structure, exemption categories, and refund process. The compliance burden is extraordinary — and it's compounding. Importers who didn't file protests on IEEPA entries missed their refund window. The same risk exists right now for Section 122.

What's Coming: Key Dates to Watch

• July 24, 2026: Section 122 tariffs expire by statute (150-day limit)
• Summer 2026: USTR expected to conclude Section 301 investigations and announce new tariff actions
• Fall 2026: Federal Circuit likely to hear the Section 122 appeal
• Ongoing: CBP processing IEEPA refunds through CAPE (separate from Section 122)

The interplay between these programs is where compliance teams are getting tripped up. An entry that owes both Section 232 duties (still valid) and Section 122 duties (potentially refundable) requires careful tracking to ensure you're protesting the right components.

Navigating the Uncertainty

The past year has demolished any assumption that presidential tariff authority is settled law. Two programs struck down, a third under legal threat, and replacement authorities being built in real time — this is the new normal for trade compliance.

The importers who come out ahead will be the ones who treat every tariff payment as potentially temporary: file protests systematically, preserve documentation meticulously, and monitor litigation actively. Tools like TariffLens can help automate the tracking of which entries fall under which authority and when protest deadlines hit — because when you're managing thousands of entries across three overlapping tariff programs, spreadsheets won't cut it.

This article is for informational purposes only and does not constitute legal, tax, or customs advice. Consult a licensed customs broker or trade attorney for guidance specific to your situation.