Cato Institute this week released a new policy brief arguing that the Trump administration’s invocation of Section 122 of the Trade Act of 1974 to impose a 10 percent global tariff is legally and economically flawed, because a goods trade deficit does not constitute a balance-of-payments deficit as the statute intended.
The policy brief states that Section 122 was designed to address the specific monetary crises of the Bretton Woods era, and the conditions that justified such emergency tariffs ceased to exist when floating exchange rates replaced fixed ones more than 50 years ago.
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In other words, the committee specifically contemplated a scenario in which the balance of payments and the balance of trade pointed in opposite directions—a payments surplus alongside a trade deficit—and concluded that they required different policy responses. That was the opposite of the administration’s position, which treated a trade deficit as though it automatically creates a BoP problem that justifies import restrictions.
Read the full policy brief: Section 122: Trump administration’s illegal stopgap