The U.S. Court of International Trade is conducting a judicial review of the Trump administration's latest round of tariff policies, with the core dispute centering on a fundamental question: whether a trade deficit can legally justify imposing tariffs. In February, the Supreme Court overturned, by a 6-3 ruling, tariffs set for 2025 that were levied by Trump under the International Emergency Economic Powers Act (IEEPA). The administration subsequently pivoted, invoking Section 122 of the Trade Act of 1974 to announce a new 10% tariff just hours after the Supreme Court's decision.
On Friday, April 10th, a three-judge panel at the U.S. Court of International Trade held a three-hour hearing regarding the comprehensive 10% import tariff order signed by Trump in February. The judges raised sharp questions about the legal basis cited by the government, suggesting that a trade deficit is not the same concept as the "balance of payments deficit" specified in the law, indicating significant flaws in the administration's legal argument. The lawsuit was filed by a coalition of 24 predominantly Democratic-led states and several small businesses. A government loss would not only invalidate these tariffs but could also force the federal government to refund duties already collected. This case represents the latest legal challenge to Trump's tariff policies.
Trade lawyer Timothy C. Brightbill stated before the hearing that the court is expected to be "skeptical" of Trump's authority to impose tariffs so broadly.
The central legal dispute is whether Section 122 of the 1974 Trade Act, invoked by Trump, applies to the current situation. This provision allows the President to impose tariffs of up to 15% on imported goods for no more than 150 days, but its application is strictly limited to addressing "large and serious" U.S. balance of payments deficits and "fundamental international payments problems." In his February executive order, Trump primarily cited the U.S. trade deficit, arguing it could "endanger the United States' ability to finance its spending, erode investor confidence, and disrupt financial markets."
However, the plaintiffs, including states like Oregon and small businesses, clearly pointed out that a trade deficit and a "balance of payments deficit" are distinct economic concepts, with the latter being virtually impossible in the 2026 economic environment. Senior Judge Timothy Stanceu, appointed by President George W. Bush, highlighted this contradiction during the hearing, stating, "We are not quite sure how to apply a 1974 concept to 2026, but we do know that a 'trade balance deficit' is not the same as a 'balance of payments deficit'."
Justice Department lawyer Brett A. Shumate maintained that the U.S. trade deficit is part of a broader balance of payments deficit, constituting a "large and serious" international payments problem. He argued that this judgment falls within the President's "discretionary authority," which the court cannot review. This argument was immediately met with a series of probing questions from the judges.
The plaintiffs further argued that the economic risks targeted by Section 122 are rooted in a historical context that has long vanished—the Bretton Woods system of the 1960s and 70s, when the U.S. dollar was pegged to gold. At that time, foreign holders could exchange dollars for gold stored at Fort Knox, Kentucky, creating a real risk of a large-scale run on gold. Oregon's lawyer, Brian Marshall, noted that the U.S. terminated the international convertibility of the dollar into gold in 1971, meaning there is no possibility of a "gold run" by foreign holders today. The specific economic risk scenario envisioned by Section 122 no longer exists. He argued that judges should interpret presidential power based on the understanding at the time the law was enacted in the 1970s.
Jeffrey Schwab, Legal Director of the Liberty Justice Center, representing small businesses, similarly emphasized that Congress intended to "address a very specific problem"—the unique risks associated with the gold standard—and that Trump's interpretation is "very, very broad." American Enterprise Institute senior fellow Stan Veuger, who joined dozens of experts in submitting an amicus brief supporting the plaintiffs, stated that the Trump administration's strategy is to "obtain the broadest possible legal tools."
The timing of a ruling remains uncertain, but the stakes are high. The Supreme Court's February decision to overturn the IEEPA tariffs has already triggered efforts by businesses to reclaim approximately $166 billion in illegally collected duties. If the 10% tariff is also ruled illegal, the government would face renewed pressure for refunds. The plaintiffs also expressed concern about potential strategies to circumvent legal limits. Marshall warned that if the administration continuously invokes different legal provisions to keep tariffs in effect, it could create a de facto permanent tariff system.
A White House spokesperson stated that the President is "lawfully exercising the executive authority granted by the Constitution," and the administration will "vigorously defend the legality of the President's actions." The judicial panel did not provide a timeline for a ruling at the end of the hearing. Trade lawyer Brightbill anticipates that legal proceedings could take months for a full resolution, by which time the Trump administration is already advancing alternative tariff plans. According to reports, the administration initially viewed the broad tariff as an interim measure to buy time for investigations into foreign trade practices under Section 301 of the same 1974 Trade Act, which could lead to more targeted tariffs. Veuger noted that tariffs imposed under Section 301 and other authorities are "more difficult to implement so broadly and so quickly," but the government has a "long track record" of invoking them, making them less vulnerable to legal challenge.
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