With IEEPA Power Curbed, Trump Faces Risky Choices Under Trade Act of 1974

By Krishnanand

Hyderabad: After the U.S. Supreme Court ruled that President Donald Trump lacked authority under the International Emergency Economic Powers Act (IEEPA) to impose sweeping tariffs, the Trump Administration faces a narrow but still significant set of trade tools grounded in congressional law. The decision marks a sharp boundary between emergency economic powers and tariff authority, pushing the White House back toward trade-specific laws, particularly the Trade Act of 1974.

The US Supreme Court ruling, authored by Chief Justice John Roberts for the majority of the judges, did not strip the US President’s tariff-related power altogether. Instead, it clarified that those tariffs — constitutionally rooted in Congress’s Article I authority to “lay and collect Taxes, Duties, Imposts and Excises” — must be clearly delegated by statute. IEEPA, according to the US Supreme Court's judgement delivered last week, authorizes the regulation of transactions and blocking of property during national emergencies, but does not explicitly authorize the imposition of import duties. That distinction now shapes the Trump Administration’s options for managing the country's trade relations with other countries.

Two Primary Paths Under the Trade Act of 1974

With IEEPA foreclosed as a tariff mechanism, the most immediate alternatives available to the Trump Administration were Sections 301 and 122 of the Trade Act of 1974. However, each one of them offers a different legal foundation, procedural structure, and risk profile to the US President.

Section 301 — Targeted Retaliation for Unfair Trade Practices

Section 301 Trade Act of 1974 authorizes the US President, through the U.S. Trade Representative (USTR), to impose tariffs or other import restrictions if a foreign country’s acts, policies, or practices are found to be unjustifiable, unreasonable, or discriminatory and a burden on U.S. commerce.

This was the legal backbone of the U.S.–China tariff measures during Trump’s first term. Unlike IEEPA, Section 301 explicitly contemplates tariffs as a remedy.

However, it also requires a formal investigation by USTR, which also means issuing public notice and inviting comment and a finding that supports the use of unfair trade practices by another country and a determination of appropriate action by the USTR.

As a result, it also offers certain advantages. First, Section 301 provides a clear statutory delegation of tariff authority. Because Congress expressly authorized the imposition of duties under defined circumstances, tariffs imposed through this route rest on firmer constitutional ground than those attempted under IEEPA.

However, Section 301 is not a blank check. It requires a documented investigation and findings tied to specific foreign practices. Broad, across-the-board reciprocal tariffs could face challenges if they are not clearly linked to identifiable unfair conduct.

Moreover, it may also lead to retaliation from trading partners of the USA. And it could also lead to trade disputes at the global trade regulatory body, the World Trade Organization (WTO).

In addition to the disputes at the WTO, domestic industries dependent on imports may challenge the scope or economic impact, as was the case with Learning Resources Inc. Vs Trump, the lawsuit that resulted in the US Supreme Court holding that Trump's reciprocal tariffs under IEEPA did not have constitutional backing.

In essence, Section 301 is a powerful tool in the hands of the US President, but it entails an intensive procedure and is prone to international trade disputes brought before the WTO. It favours targeted enforcement rather than generalized tariff regimes.

The second option before the US President is invoking Section 122 of the Trade Act of 1974, which involves temporary measures known as balance-of-payment tariffs.

Section 122: Temporary tool with strict 150-day limit

Section 122 of the Trade Act of 1974 provides a more immediate, though temporary, mechanism. It allows the US President to impose an import surcharge of up to 15 per cent ad valorem — or quotas — if necessary to address large and serious U.S. balance-of-payments deficits or to prevent significant currency reserve declines.

The provision explicitly states that the surcharge takes the form of duties, meaning it explicitly authorizes tariffs. However, it is limited to 150 days unless the US Congress approves its extension beyond 150 days.

The second option, though limited only to 150 days in the first instance, offers certain advantages to the US President to reset the US trade with other countries. First, it gives the choice of rapid implementation with a clear statutory language authorizing up to a 15 per cent tariff.

Second, there is no requirement for the kind of unfair-practice investigation that has been mandated by Section 301.

However, Section 122 has its own risks and constraints. For example, there is a strict 150-day limit without congressional approval. Second, it must be justified on balance-of-payments grounds, and cannot be invoked on the grounds of general trade fairness or reciprocity.

Moreover, it could trigger financial market volatility if the stock markets treat it as an indicator of a macroeconomic crisis.

Therefore, Section 122 appears to be well-suited for short-term leverage or economic stabilization efforts but cannot serve as a durable long-term tariff regime without legislative support.