In a significant legal and economic escalation, a group of small businesses and 24 US states, mostly led by Democrats, have asserted that US trade judges must overturn the latest global tariffs imposed by US President Donald Trump. This lawsuit rests on a strong legal argument that these tariffs were unlawfully imposed, based on legislation that became outdated decades ago when the United States abandoned the gold standard.
Historical context: The Trade Act of 1974 and the gold standard
To understand the roots of this conflict, one must return to the historical context of the American economy. The new issue concerns Trump's use of Section 122 of the Trade Act of 1974, a rarely used provision that has never been invoked in modern history. This law was enacted in an era when global economies relied on different mechanisms for valuing currencies. Experts have explained that Congress in 1974 defined a "balance of payments deficit" using economic indicators that are no longer relevant today, as they applied only to a fixed exchange rate system like the gold standard, which President Richard Nixon effectively ended in 1971 in what became known as the "Nixon Shock.".
Details of the lawsuit in the International Trade Court
During a crucial hearing at the U.S. Court of International Trade in Manhattan, lawyers representing states and companies urged the judges to immediately suspend President Trump's February 24th executive order. This order imposed a 10% tariff on global imports, with Trump announcing his intention to raise it to 15%. The states argue in their new lawsuit that the president is using an obscure provision of law, not intended by Congress, to impose sweeping tariffs.
In this context, Oregon Attorney General Brian Marshall, who is leading the lawsuit along with other states, stated, “Section 122 allows the president to impose only limited tariffs to address a balance of payments deficit.” He pointed out that Trump is incorrectly conflating this technical term with the overall U.S. trade deficit to justify using the law. Marshall added before the three-judge panel, “All of these indicators relate to the United States’ ability, from a central bank perspective, to hold sufficient reserves to maintain a fixed exchange rate, something Washington hasn’t done for over 50 years, and gold reserves are no longer relevant in this context.”.
Legal precedents and expected economic repercussions
This legal move comes after a previous blow to the Trump administration's policies. The tariffs were imposed under Section 122 after the Supreme Court struck down a previous set of global tariffs on February 20th. These earlier tariffs had been imposed under a different law, the International Emergency Economic Powers Act (IEPA). The justices ruled that this law did not grant the president the authority to impose tariffs. A parallel dispute is currently underway in the same court regarding the possibility of refunding up to $170 billion in tariffs paid to affected companies.
On the economic front, experts warn that these tariffs have far-reaching consequences. Domestically, small and medium-sized enterprises (SMEs) bear the brunt of the increased costs of imported raw materials, inevitably leading to higher consumer prices and increased inflation. Regionally and internationally, these protectionist policies raise concerns about the outbreak of new trade wars, as affected countries may resort to imposing retaliatory tariffs on US exports, threatening the stability of global supply chains and violating the principles of the World Trade Organization.
