Why Trump’s Critics Are Wrong About “Balance of Payments” and Tariff Authority
The Trump administration’s use of Section 122 of the Trade Act of 1974 to impose temporary tariffs has drawn sharp criticism from a gaggle of anti-Trump economists and self-styled trade experts. Former IMF chief economist Gita Gopinath argued on X that the United States doesn’t have a “balance of payments problem.” Others contend that balance-of-payments deficits are “impossible” under floating exchange rates, making the statute legally inoperative.
But the critics are wrong. The authority exists, it’s solid, and the administration knows it.
This isn’t a hasty improvisation. The administration has been preparing the Section 122 framework for months, building the case that the statute provides clear authority for temporary tariffs in response to America’s deteriorating external position. A close examination of the statute’s text and legislative history shows Section 122 does what the administration says it does: it authorizes temporary import surcharges when the United States faces fundamental international payments problems.
What Section 122 Actually Says: Tariff Authorization
Section 122 authorizes the president to impose temporary import surcharges or quotas when “fundamental international payments problems” require special import restrictions. The statute lists three triggers: addressing “large and serious” U.S. balance-of-payments deficits, preventing imminent and significant dollar depreciation, or cooperating in correcting international balance-of-payments disequilibrium.
And this is not a blank check. There are serious limits: the measures imposed by the President are supposed to last no more than 150 days unless Congress extends them. The tariff are capped at 15 percent. Quotas can be used only if consistent with international agreements and only if a surcharge alone would not be effective. This design gives Section 122 the markings of a considered delegation of power by Congress to the president to impose temporary import restrictions.
The “Impossible Under Floating Rates” Argument Collapses
The viral critique holds that balance-of-payments deficits are “impossible” under floating exchange rates because the balance of payments is an accounting identity that always sums to zero. Current-account deficits are offset by capital inflows, so—this argument claims—there is no such thing as a balance-of-payments deficit anymore. On this view, a “BoP deficit” could only happen under a gold standard or a fixed-rate regime, when reserves might be depleted.
This argument has one fatal flaw: Congress enacted Section 122 after the United States had already moved to floating exchange rates.
The Bretton Woods system, established after World War II, tied major currencies to the dollar and the dollar to gold at a fixed rate. That system collapsed in the early 1970s. The Nixon Shock ending dollar-gold convertibility came in August 1971. Major currencies began floating in March 1973. The Trade Act of 1974 was signed into law on January 3, 1975.
If “balance-of-payments deficit” were meaningful only as a reserve-drain concept under a fixed-rate regime, then Congress would have enacted a trigger with no possible application to the United States from day one. Courts don’t interpret statutes that way. The canon against surplusage and the canon against absurdity both push against readings that render statutory provisions meaningless or inoperative in the world Congress was legislating for.
The more natural interpretation is the one used in the 1970s: balance-of-payments deficits as sustained external imbalances requiring adjustment—current-account deficits, debt accumulation, worsening external position—not a claim that the bookkeeping totals fail to balance.
The Legislative History Confirms Operability
So, what can we learn from the Senate Finance Committee report about the Trade Act? The committee emphasized the need for “explicit statutory authority” after the Customs Court ruled that a 1971 import surcharge imposed by Nixon lacked legal authorization. Section 122 was Congress’s solution: clear authority for future administrations to respond to external payments pressures without improvising legal theories after the fact.
The critique from the former-IMF economist and now Harvard professor Gita Gopinath is more sophisticated, but it’s also narrower. She says we don’t have a balance-of-payments problem—and therefore Trump lacks authority for the Section 122 tariffs—because that kind of problem only exists when a country is losing—or close to losing—market access, signaled by sharply rising borrowing costs. By that standard, the U.S. doesn’t have a payments problem because demand for U.S. debt and equities remains strong.
That is a reasonable way the IMF thinks about crisis cases today. It is not a good guide to what Congress meant in 1974. The IMF’s modern market-access framework matured after 1974 through later crises—Latin America in the 1980s, Mexico in 1994–95, Asia in 1997–98, and the “sudden stop” literature that followed. It’s a framework built to decide when countries need emergency IMF financing in modern sovereign debt markets—not to define the limits of a U.S. president’s statutory authority to impose a temporary import surcharge.
There’s also a practical problem with importing that standard into Section 122. If the trigger were truly “near loss of market access,” the powers of Section 122 would be odd remedies. IMF crisis playbooks focus on restoring financing and confidence, not imposing border surcharges or import quotas.
The Senate Finance Committee cited historical precedents for balance-of-payments surcharges: France in 1955, Canada in 1962, the United Kingdom in 1968, Denmark and the United States in 1971. These were not uniformly “can’t borrow” crises. They were episodes of external adjustment pressure: reserve concerns, exchange-rate stress, the need to compress imports, and deteriorating external positions.
That is the best reading of what Congress meant by balance-of-payments adjustment measures: tools for managing external payments stress, not exclusively catastrophic financing breakdowns. Congress used the term as it was used at the time: persistent external imbalance and worsening external position.
The argument that Section 122 is a nullity under floating exchange rates depends on reading Congress’s words as nonsense the moment they were enacted. The argument that Section 122 requires a market-access crisis reads backward a modern IMF operational framework that Congress did not adopt and that did not define the policy debate in 1974.
Section 122 is a real statute, written for the post–Bretton Woods world, structured as a temporary adjustment tool, and supported by legislative history showing Congress intended it to remain available even if rarely used. And it is very clear that the Trump administration has the authority to impose Section 122 tariffs.
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