In Depth - US Trade Court Rules Against Temporary 10% Import Surcharge, Appeal Filed

Background

Section 122 permits temporary import measures under specified statutory conditions, including "to deal with large and serious United States balance-of-payments deficits." On 20 February 2026, President Trump issued Proclamation 11012, imposing a temporary 10% global tariff for 150 days, effective 24 February 2026, on most US imports. The Proclamation states that the surcharge was necessary to address "large and serious" US balance‑of‑payments deficits. It identifies several indicators of this imbalance:

• persistent US deficits in trade in goods and services;
• the primary income balance turning negative in 2024 for the first time since at least 1960;
• a continuing decline in the US net international investment position; and
• a persistent secondary‑income deficit since the 1960s.

This action, a rare modern use of section 122, raised questions about the meaning of "balance-of-payments deficits" as it is used in the statute. Plaintiffs - which include Burlap & Barrel, Inc., Basic Fun, Inc., the State of Washington, and several other states - filed their respective complaints in March 2026.

Decision

In a 2-1 decision, the Court of International Trade held that Proclamation No. 11012 is unlawful because the President exceeded the statutory limits of section 122. Accordingly, the surcharge could not be enforced against the importer plaintiffs (Burlap & Barrel, Inc. and Basic Fun, Inc.) and to the State of Washington.

The Court granted summary judgment in favor of those plaintiffs specifically and entered a permanent injunction barring enforcement of the surcharge against them. The remaining state plaintiffs were dismissed for lack of standing because they were not importers and could not demonstrate a cognizable injury traceable to the surcharge.

Reasoning

The Court reasoned that section 122 is a limited and exceptional delegation of authority that permits temporary import surcharges only when the specific type of balanceofpayments deficits contemplated by Congress in 1974 exist.

The President's findings in Proclamation 11012 did not satisfy the statutory prerequisites because they relied on modern macroeconomic indicators (i.e. trade deficit, current account deficit, negative net international investment position) rather than the balance-of-payments measures Congress had in mind when enacting section 122 in 1974. The Court therefore held that the proclamation exceeded the President's statutory authority.

Having reached that conclusion, the majority did not need to definitively resolve additional arguments concerning whether the surcharge was sufficiently tailored or whether the proclamation's product-specific exceptions complied with the statute.

Dissenting Opinion

A dissenting judge argued that section 122 should be read broadly as a delegation of congressional power, not a narrow emergency tool. The dissent maintained that the President satisfied the statute and that courts should defer to the Executive in foreign economic matters. Therefore, the surcharge was lawful, and the majority improperly imposed limits not found in the text.

Next steps

On 8 May 2026, Defendants filed a Notice of Appeal with the US Court of Appeals for the Federal Circuit.

IBFD will continue to monitor developments and report further as information becomes available.