Section 122 Legal Challenges: What Importers Need to Know About the 24-State Lawsuit
Twenty-four states have sued to strike down Section 122 tariffs, arguing they were designed for balance-of-payments crises — not trade deficits. Here's what importers need to know about the legal challenge, the July 23 expiration, and how to plan.
On March 5, 2026, attorneys general from 24 states filed a landmark lawsuit in the U.S. Court of International Trade (CIT) challenging the Trump administration's use of Section 122 of the Trade Act of 1974 to impose a 15% global surcharge on most U.S. imports. This case could reshape the tariff landscape once again — just weeks after the Supreme Court struck down IEEPA tariffs.
If you're an importer, this is the next legal battle you need to track.
What Is the Lawsuit About?
The 24-state coalition argues that the administration is misusing Section 122 by applying it to address trade deficits, when the statute was designed for a very different purpose: responding to balance-of-payments deficits.
This distinction is not academic. A trade deficit measures the difference between goods and services a country imports versus exports. A balance-of-payments deficit is a broader macroeconomic concept that includes the trade balance plus capital flows, investment income, and financial transfers.
The plaintiffs' core argument: The United States does not currently have a balance-of-payments deficit. While the U.S. runs a large trade deficit in goods (approximately $1.2 trillion in 2025), foreign investment flowing into the U.S. more than offsets this, meaning the overall balance of payments is not in deficit.
The Legal Constraints of Section 122
Section 122 was enacted in 1974 and has significant built-in limitations that make it unusual as a tariff authority:
Rate Cap
Section 122 limits tariffs to 15% ad valorem — the administration is already at the statutory maximum. Unlike IEEPA, which the administration used to impose rates up to 145%, Section 122 has a hard ceiling.
Duration Limit
Tariffs imposed under Section 122 are limited to 150 days unless Congress acts to extend them. The current Section 122 tariffs took effect on February 24, 2026, which means they expire on July 23, 2026 — unless Congress passes legislation to continue them.
Purpose Restriction
The statute authorizes tariffs only to address "large and serious" balance-of-payments deficits. The plaintiffs argue this means the traditional IMF definition of balance-of-payments problems, not simply a trade deficit in goods.
Who Filed the Lawsuit?
The 24 states span the political spectrum but share concerns about the economic impact of tariffs on their industries and consumers. The coalition includes states with major ports (California, New York), agricultural exporters (Iowa, Nebraska), and manufacturing hubs (Michigan, Ohio) that are particularly vulnerable to tariff-driven supply chain disruption.
The case is being watched closely by trade attorneys, customs brokers, and importers across every sector.
The Cato Institute Policy Forum
The Cato Institute is hosting a policy forum on March 26, 2026 dedicated to the Section 122 legal questions. Panelists include former USTR officials, constitutional law scholars, and trade attorneys who litigated the IEEPA cases. The forum will examine whether Section 122 can survive judicial scrutiny and what alternatives the administration has if it is struck down.
This event signals the seriousness of the legal challenge — when major think tanks convene dedicated forums, it reflects broad consensus that the legal questions are substantial.
What Happens If Section 122 Is Struck Down?
This is the critical question for importers. If the CIT rules that the Section 122 tariffs are unlawful, several scenarios could unfold:
Scenario 1: Tariffs Enjoined, No Replacement
The court issues an injunction halting Section 122 tariffs. With IEEPA already struck down, the administration would have no broad tariff authority beyond existing programs (Section 232 on steel/aluminum, Section 301 on China). General tariff rates would drop to MFN levels — typically 0-10% for most goods.
Scenario 2: Tariffs Expire Naturally (July 23, 2026)
Even without a court ruling, Section 122 tariffs expire after 150 days. The administration would need Congress to pass new tariff legislation — a significant political lift given the current Senate composition.
Scenario 3: Congress Acts to Extend
Congress could pass legislation extending or replacing Section 122 tariffs, but this would require navigating intense lobbying from both protectionist and free-trade factions. The timeline is tight — the 150-day clock is already running.
Scenario 4: Negotiated Trade Agreements
The administration accelerates bilateral trade negotiations (similar to the EU-US framework with its 15% cap) to replace unilateral tariffs with reciprocal agreements.
What Importers Should Do Now
1. Plan for Multiple Scenarios
Don't assume any single outcome. Build financial models for both "tariffs continue" and "tariffs end" scenarios. If your margins are thin at 15%, you need to know what happens in either direction.
2. Track the July 23 Expiration
Regardless of the lawsuit, Section 122 tariffs have a hard expiration date. Use our Section 122 Countdown Tool to track the days remaining and model different scenarios.
3. Review Your Supply Chain Flexibility
If tariffs drop suddenly, you may want to shift sourcing back to lower-cost countries. If they continue or increase under new authority, you need alternatives. Map your options now.
4. Monitor the Litigation
The CIT typically moves faster than other federal courts on trade cases. Expect preliminary rulings within weeks, not months. Follow the case on PACER or through our news updates.
5. Consult Your Customs Broker
Your broker should be advising you on contingency planning. If they're not raising this issue, ask them directly about their strategy for a post-Section-122 world.
The Bigger Picture
This lawsuit represents the second major legal challenge to the Trump administration's tariff strategy in less than a month. The pattern is clear: courts are scrutinizing executive tariff authority more aggressively than at any point in modern history.
The Supreme Court's February 20 IEEPA ruling established that emergency economic powers have limits. The Section 122 challenge asks whether non-emergency trade authorities also have boundaries the administration has overstepped.
For importers, the message is the same either way: build flexibility into your operations. The tariff landscape is shifting faster than at any point in decades, and the businesses that survive will be those prepared for multiple outcomes.
How TariffCenter.AI Can Help
Our platform helps you navigate this uncertainty:
- Section 122 Countdown & Scenario Planner — Track the 150-day clock and model cost impacts under different outcomes
- AI Chat — Ask questions about how the lawsuit could affect your specific products
- Tariff Rate Lookup — Check current rates and see which tariff programs apply to your goods
Start with a free HS Code Lookup to understand your current tariff exposure.