A group of 24 states has initiated legal action against the Trump administration, challenging the legitimacy of a newly enforced 10% global tariff under Section 122 of the Trade Act of 1974.
The lawsuit was lodged at the Court of International Trade, New York, on Thursday. The Democrat-ruled states, including Oregon, California, New York, Colorado, Minnesota, North Carolina, Michigan, and others, are contesting that President Donald Trump incorrectly used a 1974 law to enforce the new tariff, after the Supreme Court dismissed a prior set of levies.
The lawsuit was filed by 22 states with Democratic attorneys general, along with Pennsylvania and Kentucky, which have Democratic governors but Republican attorneys general.
White House did not immediately respond to Benzinga’s request for comments.
Dispute Around 1974 Trade Act
The lawsuit also disputes the administration’s understanding of the 1974 law, maintaining that it was designed to permit limited tariffs to address balance-of-payment deficits in a fixed-rate exchange system, like the gold standard. It highlights that the U.S. discontinued such an exchange system fifty years ago under former President Richard Nixon, rendering balance-of-payment issues irrelevant.
In a floating exchange rate system, a large balance-of-payments deficit does not persist because the currency’s exchange rate automatically adjusts, correcting the imbalance, according to the lawsuit.
Additionally, the lawsuit asked the court to block the new tariffs and require refunds for any tariff payments already collected under Section 122 authority. It reiterates that the power to enforce tariffs rests with Congress.
Section 122 To The Rescue?
Notably, immediately after the Supreme Court struck down tariffs imposed under the International Emergency Economic Powers Act (IEEPA) in February, Trump introduced a global tariff of 10% under Section 122, raising it to 15% the following day. He also signed an executive order formalizing the 10% rate.
Section 122 allows the president to impose tariffs of up to 15% for 150 days on all countries. Any extension beyond 150 days requires congressional approval.
Historically, Section 122 has never been invoked for tariffs since it was created in 1974.
Tariff Refund Risks
This legal action comes after the U.S. Court of International Trade ordered the government to potentially refund billions in tariffs to importers, stating that these tariffs were unlawfully collected.
A report by the Cato Institute said the $175 billion in tariff revenue held by the U.S. Treasury is earning interest, warning that if refunds to importers are delayed, taxpayers could face costs of about $700 million per month.
Meanwhile, Treasury Secretary Scott Bessent said that the global tariff, now at 10%, would increase to 15% “sometime this week.” Bessent also anticipated that by August, the tariff rates would revert to their original levels.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by a Benzinga editor.
Image via Shutterstock
Recent Comments