In a previous post, I previewed the consolidated cases, Burlap and Barrel, Inc. v. Trump and Oregon v. Trump, in which a set of private plaintiffs and state plaintiffs sued the Trump administration over its invocation of section 122 in rolling out 10% baseline tariffs on (nearly) all imports into the United States following the administration’s loss in Learning Resources. The lawsuit was heard by a three-judge panel in the Court of International Trade (CIT), which ruled 2–1 in favor of the challengers, though the relief granted was only to those plaintiffs who had standing (i.e., who were liable for actually paying the tariffs). The Trump administration has appealed the case to the Federal Circuit.¹

In this post, I wanted to pull back the curtain of the CIT’s decision, since it sits at the intersection of statutory interpretation, tax policy, and trade law.

When the section 122 tariffs were originally announced, commentators were split on their lawfulness. On one hand, some simply averred that there was no balance of payments deficit at all (presumably reflecting the understanding of a balance of payments from economics), rendering the tariffs illegal. On the other hand, others (including myself) felt that, at the very least, the President was on firmer footing than the IEEPA tariffs ruled unlawful in Learning Resources, given that he was relying on a statute that expressly granted power to impose tariffs.

The CIT produced an opinion that, despite being highly technical, nevertheless attempts to do what judges ought to be doing: It sought to interpret what a legal provision means and applied that interpretation to the President’s stated rationales for the section 122 tariffs. For that reason, it is worthwhile to walk through the CIT’s analysis to understand how the arguments might be framed as the case gets argued on appeal. 

Summary of the CIT Litigation

Section 122 of the Trade Act of 1974 says, in relevant part, that: 

Whenever fundamental international payments problems require special import measures to restrict imports . . . to deal with large and serious United States balance-of-payments deficits . . . , the President shall proclaim, for a period not exceeding 150 days (unless such period is extended by Act of Congress) . . .  a temporary import surcharge, not to exceed 15 percent ad valorem.

In other words, the statutory prerequisites for section 122 tariffs are (1) “fundamental international payments problems” and (2) “large and serious United States balance-of-payments deficits” existing². While the CIT suggested that both prerequisites are required in order to impose tariffs,³ it only addressed the latter and held that since Proclamation No. 11012, the proclamation enacting the tariffs, failed to “identify balance-of-payments deficits within the meaning of Section 122 as it was enacted in 1974 . . . . Proclamation No. 11012 is invalid, and the tariffs imposed on Plaintiffs are unauthorized by law.”⁴

In other words, the CIT found that the term “balance-of-payments deficits” is a legal term of art, not a question of fact. Thus, while the President is given wide latitude in fact-finding, it is the province of the judiciary to say what the law is—in this case, to provide a definition of a term that is not separately defined in the statute and, on the basis of that definition, to determine whether or not the President’s asserted facts fit within that definition.

Defining “Balance-of-Payments Deficits”

The problem with the term “balance-of-payments deficit” is that it does not invite easy defining. When used in contemporary economics discussions, the term “balance of payments” refers to the U.S. international transactions accounts, which are designed to capture the full scope of cross-border transactions, and comprise the current account, capital account, and financial account. As an accounting identity, these accounts balance to zero: The sum of current account and capital account is equal to the financial account.⁵ In economic terms, the current account is the net cross-border flow of non-financial economic activity: Exports such as the provision of goods and services will push the current account upwards for a given period, and imports will push the current account downwards. Because these cross-border flows need to be financed, the financial account represents the net acquisition of foreign financial assets by U.S. residents less net liabilities incurred by U.S. residents to foreign residents.⁶

As the CIT pointed out, however, that is not especially helpful legally, because if the balance of payments is always zero, there can be no balance-of-payments deficit, rendering that portion of the statute a nullity. To define the term, then, the CIT sought to understand what the term was understood to communicate when the statute was enacted in 1974, concluding that, as used in the statute, “balance-of-payments deficits” refers to “deficits in (1) liquidity, (2) official settlements, or (3) basic balance.”⁷

In making this determination, the CIT drew from the legislative history leading up to the passage of the Trade Act of 1974. Legislative history has, in some ways, become something of a dirty word among those who call themselves originalists and textualists (a group that includes a majority of the Justices who may ultimately rule on the lawfulness of these tariffs) on the theory that, unlike the enacted text, the legislative history contained in committee reports cannot reflect any particular purpose of the enacting legislature.⁸ Nonetheless, this case demonstrates a limited use case for legislative history, even amongst those originalists and textualists, for it can help reveal how a term of art was understood at the time of enactment.⁹ Justice Scalia, despite quite famously disparaging the use of legislative history in discerning any legislative purpose, nonetheless said that “[i]f you want to use [legislative history] just to show that a word could bear a particular meaning—if you want to bring forward floor debate to show that a word is sometimes used in a certain sense—that’s okay.”¹⁰ After all, what judges are trying to do is “to ascertain how a reasonable person uses language, and the way legislators use language is some evidence of that, though perhaps not as persuasive evidence as a dictionary.”¹¹

Using the legislative history, then, the CIT determined that a liquidity deficit would arise from a deterioration in the relative position of the United States’ official reserve assets to U.S. liquid liabilities to foreign holders. In practical terms, if such liquid foreign claims against U.S. residents or institutions were rising faster than official reserves, for example, the United States would have a liquidity deficit. A deficit in official settlements, according to the CIT’s opinion, is similar, but is narrowed to those liquid and certain nonliquid liabilities to foreign official agencies (like a foreign central bank). In other words, a deficit in official settlements might arise if the relative position of the United States’ official reserve assets to U.S. liabilities held by foreign official agencies were to deteriorate.¹²

The final way a balance of payments deficit can arise is as a deficit in the basic balance, which is “[t]he balance on current account and long-term capital.” Again, the current account simply represents the net cross-border flow of non-financial economic activity, including goods, services, income, and current transfers. Long-term capital refers to durable cross-border capital flows (e.g., a foreign company investing in a U.S. factory, a U.S. bank extending a long-term loan to a foreign company, etc.). In a sense, then, the basic balance is meant to capture the underlying external position of the United States by combining cross-border non-financial economic activity with long-term investment flows. In a given period, then, a deficit in the basic balance would arise if that combination were negative during the relevant period. Broadly speaking, such a deficit would exist if net cross-border capital investment into the United States does not offset deficits in the current account, or if surpluses in the current account do not offset net long-term capital outflows from the United States. 

Application to the Proclamation

The problem with any of these definitions is that the government has long ago stopped tracking some of the numbers necessary for determining whether or not the definition has been satisfied. In a post–Bretton Woods world (i.e., in a floating exchange rate monetary system), any deficits (or surpluses) in liquidity and official settlements poses a much less significant danger to the U.S. economy on account of the lack of convertibility into gold or other reserves. Moreover, dollar pressure today is manifest through changes to the exchange rate or interest rates—phenomena that may be economically significant, but bear little relationship to any sort of balance-of-payments deficits contemplated by the legislators enacting section 122. 

The Trump administration tried another approach. Rather than relying on a deficit in the basic balance, it claimed that the term “balance-of-payments deficit” need not be fixed in 1974; instead, it should be understood as a malleable term adaptable to the modern economic realities. Furthermore, because some of the older measures—such as liquidity and the basic balance—are no longer commonly used and therefore are not replicated in modern government reporting, the administration argued that a current account deficit, together with its constituent components (such as a trade deficit), should be able to serve as a “balance-of-payments deficit.” The dissent, while not entirely adopting the government’s argument, nonetheless would have granted more flexibility to the President to determine whether or not a balance-of-payments deficit existed.

The CIT rejected the administration’s argument. While acknowledging the possibility that in the modern economy, it may be difficult to determine whether or not a balance-of-payments deficit exists as legislators understood the concept in 1974 (which may have the effect of obsoleting the statute), it declined to adopt that as justification for the government’s position. Moreover, in the CIT’s view, accepting the President’s rationale would open the door to rendering section 122’s carefully constructed statutory prerequisites little more than a dead letter. After all, in the most aggressive reading of the government’s argument, a deficit in any component of the current account (which is almost certainly bound to occur) would allow for section 122 tariffs, giving the President the option to turn to section 122 whenever he chooses. Such an expansive reading would, as the CIT pointed out, raise a nondelegation question, and the CIT opted to interpret the statute in a way that avoids the constitutional question.

Ultimately, the CIT made no judgment on the wisdom of the President’s policy, nor did it foreclose the possibility that section 122 could, at some point, be available as a tool at the President’s disposal. And while it made use of legislative history, it did not use the legislative history as a sort of divining rod to understand the congressional purpose behind section 122; rather, it sought to use the legislative history to elucidate how a technical term of art was used at the time that the statute was enacted so as to understand whether the President’s rationales for his section 122 tariffs withstand scrutiny. When the case is argued at the Federal Circuit, the court will have to determine whether the meaning of “balance of payments deficits” was fixed in 1974 and, if so, whether the CIT’s determination of the meaning was correct. 

1. In many ways, the stakes of this litigation are far lower than for the IEEPA litigation, since section 122 does not permit tariffs to be extended beyond July 24, 2026, absent action by Congress. Presumably a whole new round of tariffs under other authorities will be in place by then. ↩︎
2. As a technical matter, situations where import restrictions are needed to “prevent an imminent and significant depreciation of the dollar in foreign exchange markets” or “to cooperate with other countries in correcting an international balance-of-payments disequilibrium” would also qualify under the statute. The Trump administration did not make a claim that either applied. ↩︎
3. Oregon v. Trump, slip op. at 31 n.25. ↩︎
4. Id. at 46. ↩︎
5. See Bureau of Econ. Anal., U.S. International Economic Accounts: Concepts and Methods 298, 304, 189 (Sept. 2025). ↩︎
6. As a technical matter, the overall balance of payments also takes into account the capital account, which generally is small but represents cross-border capital transfers and transactions in nonproduced, nonfinancial assets. Moreover, in the real world, there will often be statistical discrepancies and timing differences that may show up in any published accounting of the balance-of-payments. ↩︎
7. Oregon v. Trump, slip op. at 33. The CIT also pointed out that, as a textualist matter, the term “balance-of-payments deficit” cannot mean the same thing as a “trade deficit,” since section 122 explicitly refers to a “balance-of-trade surplus” elsewhere.  Id. at 42. ↩︎
8. See Antonin Scalia & John Manning, A Dialogue on Statutory and Constitutional Interpretation, 80 Geo. Wash. L. Rev. 1610, 1612 (2012) (Scalia). ↩︎
9. This is different from using legislative history to try and discern the purpose behind section 122 and attempting to measure the President’s actions against such purpose. ↩︎
10. Scalia & Manning at 1616 (Scalia). ↩︎
11. Id. ↩︎
12. In both cases, the deficit (or surplus) for any given period is measuring the change in position for that period. ↩︎