Tariff Alert: CIT Invalidates Global Section 122 Tariffs In Major Decision

Overview

On May 7, 2026, the United States Court of International Trade (CIT) issued a significant decision in State of Oregon et al. v. United States and Burlap and Barrel, Inc. et al. v. United States, invalidating the Administration’s February 2026 “emergency” 10% tariffs under Section 122 of the Trade Act of 1974. Clients that have paid Section 122 tariffs should evaluate their options for pursuing a refund of such sums promptly.

The court concluded that the President lacked statutory authority to impose the tariffs because the conditions required by Section 122 were not properly satisfied. It therefore granted summary judgment to certain plaintiffs and enjoined enforcement of the tariffs against them.

Key background

Section 122 of the Trade Act of 1974 authorizes the President to impose temporary import surcharges of up to 15% for a period not exceeding 150 days when specified economic conditions exist. Those conditions include situations in which fundamental international payments problems require action to address large and serious balance of payments deficits.

On February 20, 2026, the president invoked this authority and issued Proclamation No. 11012, which imposed a 10% duty on most imported goods. The Proclamation relied on a range of economic indicators, including a substantial goods trade deficit, a current account deficit, a negative net international investment position and deficits in both primary and secondary income accounts.

Following the issuance of the Proclamation, a group of importers and several states filed lawsuits in the CIT challenging the legality of the tariffs. See Twenty-four US states file lawsuit to stop Trump’s latest global tariffs | Reuters. The plaintiffs argued that the economic conditions cited by the administration did not meet the statutory threshold required under Section 122 and that the president had exceeded the authority delegated by Congress. Because the tariffs were already in effect and directly increasing costs for importers, the plaintiffs generally sought declaratory and injunctive relief to prevent their continued enforcement. See US trade court challenges Trump’s basis for 10% global tariffs | Reuters.

The key issue before the court was whether the economic indicators identified in the Proclamation satisfied the statutory requirement that the United States be experiencing large and serious balance of payments deficits.

Standing issue

The court first addressed standing. It found that the importer plaintiffs had standing because they were directly subject to the tariffs and faced actual or imminent liability for duties.

It also found that the State of Washington had standing based on direct tariff payments by a state instrumentality. In contrast, the remaining state plaintiffs relied on indirect economic harms such as increased costs passed through by third parties, which the court held were too speculative and insufficiently traceable to establish standing.

As a result, the court dismissed the claims of states that could not show direct injury, and allowed the case to proceed only as to plaintiffs with concrete, tariff-based harm.

Statutory interpretation issue

The central issue in the case was how to interpret the phrase “balance of payments deficits” in Section 122. The court treated the phrase as a term of art whose meaning must be determined by reference to congressional intent at the time of enactment in 1974.

Examining the statutory text and legislative history, the court concluded that Congress used the phrase “balance of payments deficits” as a term of art referring to specific types of deficits understood at the time of enactment, including concepts such as liquidity, official settlements and basic balance. The international monetary and payments system functioned quite differently at the time of the enactment of Section 122.

The Government argued that modern economic measures, particularly the current account deficit and related indicators, should qualify under the statute. The court rejected that argument, reasoning that allowing the executive to redefine the statutory term based on contemporary economic concepts would undermine the limits Congress placed on the delegation of authority.

The court also emphasized separation of powers concerns, noting that Congress deliberately constrained the delegation of tariff authority and that courts must enforce those limits as written rather than permit their expansion through evolving economic definitions.

Application to Proclamation No. 11012

Applying its interpretation, the court found that the Proclamation did not identify “balance of payments deficits” within the meaning intended by Congress in 1974. Instead, it relied on modern economic indicators such as trade deficits and current account deficits, which the court viewed as distinct from the statutory concept of a balance of payments deficit. It therefore failed to satisfy the necessary statutory precondition for invoking Section 122.

Because the statutory requirement of a balance of payments deficit was not met, the court held that the Proclamation was beyond the scope of the authority delegated by Congress and that the imposed tariffs were unlawful.

Prescribed relief

The court granted summary judgment to the importer plaintiffs and entered a permanent injunction prohibiting the collection of Section 122 duties from those parties.

It concluded that the plaintiffs would suffer irreparable harm from continued payment of allegedly unlawful duties and that available remedies at law were inadequate.

However, the court declined to issue a universal injunction. Because only certain plaintiffs demonstrated standing, the injunction was limited to those parties, and the court did not extend relief more broadly.

Dissent and other issues

The court also rejected a challenge to guidance issued by U.S. Customs and Border Protection (CBP), concluding that the plaintiffs failed to identify a reviewable final agency action under the Administrative Procedure Act. The court found that the plaintiffs did not adequately establish that the guidance constituted final agency action or independently determined legal rights or obligations.

Judge Timothy C. Stanceu dissented. He disagreed with the majority’s interpretation of Section 122, arguing that the statute does not limit the President to specific historical measurement frameworks for assessing balance of payments deficits. In his view, the statute permits consideration of modern economic indicators and the majority improperly constrained executive authority by tying the analysis too closely to 1974-era concepts.

Key takeaways

The decision significantly limits the use of Section 122 by requiring adherence to its original 1974 meaning rather than to modern economic concepts. If it is upheld on appeal, it raises the prospect of a further round of U.S. tariff refund litigation, similar to the process now playing out following the U.S. Supreme Court’s invalidation of the Administration’s 2025 International Emergency Economic Powers Act–based “Liberation Day” tariffs. Companies that have paid Section 122 tariffs since February of this year should assess the prospects for pursuing a refund of such sums and ensure that such claims are preserved in the CBP administrative process.

The ruling reinforces that only plaintiffs with direct economic injury are likely to succeed in bringing trade challenges and obtaining relief. It also confirms that remedies will be narrowly tailored to those parties rather than broadly applied. Such plaintiffs likely will need to file a claim in the court of international trade to obtain relief, or, to the extent they are one of the several thousand importers who already have filed IEEPA- related tariff lawsuits, amend their complaints to include a claim for recovery of tariffs improperly imposed pursuant to Section 122.

The case raises important separation of powers considerations and introduces uncertainty for future reliance on legacy trade statutes. Whether this interpretation is upheld on appeal will be critical in shaping the scope of future executive trade actions.

We will continue to monitor developments in this area and encourage you to subscribe to be kept informed of the latest developments. Please contact the authors or your usual Herbert Smith Freehills Kramer contact(s) for more information.

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