Trump cites "payment crisis" to push for 15% global tax, economists: no crisis exists, legal challenges already underway

By introducing new global tariffs, U.S. President Trump is not only attempting to repair trade policies invalidated by the Supreme Court’s rejection but also declaring that the world’s largest economy is facing a profound balance of payments crisis.

According to IQian Finance APP, the core issue with the Trump administration’s argument is that many economists and financial markets have not seen the United States teetering on any such precipice. This suggests that his latest import tariffs are very likely to trigger another legal challenge and bring more uncertainty to trade partners, businesses, consumers, and investors.

To implement a 10% tariff (which Trump later raised to 15%) to replace the tariffs declared invalid last Friday in a landmark Supreme Court ruling, Trump cited Section 122 of the Trade Act of 1974. This regulation allows the U.S. president to impose tariffs for up to 150 days “in the event of fundamental international payment problems.” Such situations include “large and serious U.S. international balance of payments deficits” and “the imminent significant devaluation of the dollar.”

Treasury Secretary Scott Bessent said in an interview on Sunday that the new tariffs would be temporary, aimed at ensuring continued revenue flow into the Treasury, and would eventually be replaced by tariffs imposed under other authorities “which have been challenged over 4,000 times since the president’s first term.”

Short-term “Bridge”

“We’ll see what Congress does, but Section 122 might be a five-month bridge, during which investigations under Section 232 and Section 301 will be completed,” Bessent said, referring to other tariff authorities that require investigation before implementation. “So, it’s more like a bridge than a permanent solution.”

He added that Section 122 is “a very powerful authorization.” Bessent did not indicate that the new tariffs are necessary to address specific payment crises. The Treasury Department did not respond to requests for comment on Sunday.

The executive order signed by Trump on Friday, announcing the new import tariffs, views the U.S. trade deficit and other capital flows as evidence of “large and serious” international balance of payments deficits.

One of the issues Trump pointed out is that the U.S. net international investment position, which is the difference between U.S. investments abroad and foreign investments in the U.S., currently stands at a $26 trillion deficit.

He did not mention that his use of tariffs to pressure U.S. and foreign companies to increase investment in the U.S. will further inflate this figure. He also did not mention that the latest report from the Bureau of Economic Analysis in January on this position states that the soaring valuation of U.S. stocks, which Trump cheers, is a vote of confidence in the U.S., but it is also a major reason for the increase in U.S. negative investment positions.

Most economists see the problem as, despite the president’s statements, there is no evidence that the U.S. cannot pay its bills or fulfill its obligations to international investors. If such a situation truly existed, financial markets would sell off U.S. assets, and the dollar would collapse due to loss of confidence in the U.S. economy and its primary reserve currency.

“As a former IMF official, I want to say that the U.S. does not have a fundamental international payment problem,” former IMF First Deputy Managing Director Gita Gopinath posted on social media on Sunday.

She added that “a 150-day tariff will not sustainably reduce the trade deficit. It will mainly cause fluctuations in trade figures because importers will try to time their purchases to avoid tariffs.”

Jay Shambaugh, who served as the top international official at the U.S. Treasury during the Biden administration, said in an interview that despite Trump’s statements, there is no evidence that the U.S. faces any international balance of payments crisis.

“That would be a situation where there isn’t enough capital flowing into the country to offset all outflows,” Shambaugh said. But the reality is different because inflows of financial capital balance the trade deficit. If that were not the case, the dollar would “rapidly depreciate due to a lack of willingness to invest in the U.S. to cover outflows.”

Another former senior Treasury official, Mark Sobel, said the entire premise is based on an outdated view of the U.S. economy and remnants of the Bretton Woods fixed exchange rate and gold standard that have long since disappeared. He also believes Trump is targeting the wrong issue.

“The president should be more concerned about fiscal prospects. Many estimates suggest that our fiscal deficit over the next decade will average 6% of GDP annually, and it could be much higher,” Sobel said. “This is a huge amount of government debt issuance that the global markets will have to digest, potentially pushing up interest rates.”

The last time a U.S. president imposed tariffs to address an international payments issue was in 1971, when Richard Nixon introduced a 10% tariff that lasted only a few months, aiming to force other countries to renegotiate fixed exchange rates and address the overvaluation of the dollar. The fundamental payment problem at that time was that the U.S. lacked enough gold reserves to back the dollar’s value, prompting speculators to attack the dollar.

In fact, Section 122 is part of a law passed by Congress in response to Nixon’s tariffs, designed to limit the future president’s use of such measures.

Some economists believe there is some merit to Trump’s invocation of the international payments crisis to justify tariffs.

Brad Setzer, who has worked in the Treasury and Trade Departments and now works at the Council on Foreign Relations, said that the U.S. current account deficit of about 3%-4% of GDP is significant enough to be considered “large and serious.”

But whether the U.S. faces a “fundamental international payments problem” is “a more difficult question,” he wrote in a series of social media posts on Sunday. “The deficit is large,” Setzer said. But he added that the portfolio investments flowing into the U.S. in 2025 remain strong enough to fund a $500 billion external deficit, “and the dollar is currently quite strong.”

Some trade experts believe that Trump’s invocation of the international balance of payments crisis to justify tariffs could lead the U.S. or other countries to report these measures to the World Trade Organization, potentially prompting the IMF to intervene and be asked to rule whether the U.S. is facing a crisis sufficient to justify the tariffs.

Trump’s latest tariffs and their justification could ultimately end up back before the Supreme Court.

“I’m not sure whether he meets the conditions of Section 122, nor whether the rationale for that law still exists, since the U.S. has abandoned the gold standard,” said Jennifer Hillman, a former senior trade lawyer and judge at the U.S. Court of International Trade, now at Georgetown University Law Center.

She noted that such a case would be less clear-cut than the one Trump lost last Friday, where the Supreme Court found that the 1977 regulation he initially relied on did not even mention “tariffs.”

Famous lawyer Neil Katyal, who defended the Supreme Court case against Trump’s global tariffs last weekend, said that if Trump’s new tariffs are challenged, one problem he might face is that his own lawyers previously argued that Section 122 does not apply in this case.

In a government filing last year, lawyers wrote: “(Section 122) is also not obviously applicable here, because the concerns identified by the president when declaring an emergency stem from trade deficits, which conceptually differ from balance of payments deficits.”

Setzer believes this may be of little practical significance.

While he is confident that the rationale for Trump’s tariffs will ultimately be submitted to the courts, “more importantly, I think lawsuits about the fundamental meaning of payments problems and the balance of payments deficit will not be resolved within 150 days,” he wrote. “So, my guess is that before the courts rule, the tariffs will expire.”