Trump Imposes 10% Alternative Tariff

Why it matters: The day after the Supreme Court ruled IEEPA tariffs unconstitutional in a 6-3 decision, Trump activated a 10% flat tariff under Section 122 of the Trade Act (Trade Act of 1974). However, this law only permits a "temporary import surcharge" for a maximum of 150 days and does not allow for country-specific discriminatory tariffs. This means Trump's tariff policy has been downgraded from a "permanent trade strategy" to a "150-day stopgap measure." This structural change fundamentally reconfigures the dynamics of the three branches of government concerning presidential trade authority.

📝 Summary: After the Supreme Court ruled IEEPA tariffs unconstitutional, Trump immediately activated a 10% global flat tariff under Section 122 of the Trade Act. However, this law has a maximum duration of 150 days and will expire in late July 2026 without congressional approval—this is not a "tariff victory" but the beginning of a "150-day grace period."

What Happened

• Activation of Trade Act Section 122 — On the day of the Supreme Court ruling (February 20), Trump signed an executive order imposing a "10% surcharge on top of normal tariffs" based on Section 122 of the Trade Act. It was announced that it would take effect at 12:01 AM on February 24. This law permits a temporary import surcharge of up to 15% for a maximum of 150 days to address balance of payments deficits, but extensions require congressional approval.
• Decisive Difference from IEEPA Tariffs — The IEEPA tariffs, which the Supreme Court ruled unconstitutional, allowed for country-specific rates: 34% for China and 25% for Canada and Mexico. Section 122 only permits flat-rate taxation, making "punitive" high tariffs on China impossible. Furthermore, there is a risk of lawsuits for the refund of $134 billion in tariffs collected by December 2025.
• Remaining and Eliminated Tariffs — Section 232 (steel and aluminum 50%, based on national security) and Section 301 (against IP infringement targeting China, 7.5-25%) remain valid as they were not subject to the Supreme Court ruling. What was eliminated was the entire "Liberation Day" tariff package based on IEEPA, and additional tariffs under the pretext of fentanyl.

Overall Picture

Historical Context

Presidential tariff authority has been a focal point of constitutional struggle since the founding of the United States. Article I, Section 8 of the U.S. Constitution clearly vests the power "to lay and collect Taxes" in Congress. However, since the 20th century, Congress has delegated tariff authority to the President through various laws. Understanding this history is key to deciphering the meaning of the current "escape to Section 122."

The Smoot-Hawley Tariff Act of 1930, where Congress directly set tariff rates for over 20,000 items, is remembered as a lesson that deepened the Great Depression. From this failure, Congress shifted towards delegating tariff negotiation authority to the President, starting with the Reciprocal Trade Agreements Act of 1934.

Section 232 of the Trade Expansion Act of 1962 granted the President tariff authority based on "national security." The Trade Act of 1974 provided the President with multiple tariff tools: Section 122 (temporary response to balance of payments deficits), Section 201 (safeguards), and Section 301 (countering unfair trade practices). And the International Emergency Economic Powers Act (IEEPA) of 1977 granted emergency powers against "unusual and extraordinary threats."

During Trump's first term (2017-2021), these tools were actively utilized, including Section 232 tariffs on steel and aluminum, and Section 301 tariffs against IP infringement targeting China. However, the use of IEEPA for the "Liberation Day" tariffs in his second term was an unprecedented expansive interpretation, defining "trade deficits themselves" as an emergency, rather than national security or unfair trade. Chief Justice Roberts of the Supreme Court called this a "transformative expansion of presidential authority over tariff policy" and rejected it by applying the major questions doctrine.

The current shift to Section 122 vividly illustrates the "hierarchy" of tariff tools available to the President. The most powerful and flexible IEEPA (unlimited) is no longer available, forcing a fallback to the second-best option, Section 122 (15% cap, 150-day limit, flat tax). Remaining options include Section 301 (requiring several months for investigation) and Section 338 (countering discriminatory trade practices, 50% cap), but neither offers the same degree of freedom as IEEPA.

Stakeholder Map

Structural Insights from Data

• 10% — Substitute tariff rate under Trade Act Section 122. This is a "downgrade" from IEEPA's 34% for China and 25% for Canada to a flat 10%.
• 150 days — The maximum period allowed by Section 122. If effective on February 24, the deadline is around July 24. Congressional approval is essential for extension.
• 15% — The maximum tariff rate allowed by Section 122. Trump chose 10%, leaving a 5% margin for increase.
• $134 billion — The amount collected as IEEPA tariffs by December 2025. Since the Supreme Court ruled it unconstitutional, there is a risk of refund lawsuits from over 300,000 importers.
• $1.5 trillion — Projected revenue over 10 years if IEEPA tariffs had been maintained. The disappearance of this funding source fundamentally undermines the financial structure of the Republican tax cut bill.
• +0.69% — S&P500 increase on the day of the ruling. The market reacted positively to the tariff repeal, but the rise was limited.
• 34%→10% — Change in tariff rate for China. With IEEPA tariffs (34%) eliminated and replaced by Section 122 (10%), China becomes the biggest beneficiary.

Reading Between the Lines — What the Reports Aren't Saying

While the media reports Trump's immediate activation of substitute tariffs as a swift response, the real story lies elsewhere. The 10% flat tariff under Section 122 is not a "substitute" for IEEPA's country-specific discriminatory tariffs, but a "degraded version." China benefits from a substantial effective tax cut from 34% to 10%, and Canada and Mexico also see their rates drop from 25% to 10%. This means the biggest beneficiary of the Supreme Court ruling is China, creating a structure where the very opponent Trump most wanted to punish gains the most. Furthermore, Section 122 is based on "balance of payments deficits," but it remains questionable whether the U.S. balance of payments deficit (approximately 3% of GDP) can be historically considered "large and serious," potentially making this substitute tariff itself legally vulnerable. The Trump administration's silence on this contradiction indicates a political judgment of "better than nothing," prioritizing political messaging over the rationality of trade policy.

NOW PATTERN

Imperial Overreach × Path Dependency

Having lost IEEPA, the "omnipotent tariff tool," due to the Supreme Court ruling, Trump has been forced into Section 122, a "weak, time-limited substitute," and the initiative in tariff policy is structurally shifting from the President to Congress.

Imperial Overreach: "Legal Loopholes" Are Not Infinite — A Downgrade Named Section 122

Trump pulled out Section 122 the day after losing IEEPA, but this is not a "victory" but the beginning of a "retreat."

Let's be frank. The switch to Trade Act Section 122 is like someone in a luxury suit suddenly changing into a tracksuit. They're "still dressed," but the class is entirely different.

IEEPA was the President's "Swiss Army knife" for tariffs. It allowed country-specific rates. It had no time limit. No cap. By declaring a "national emergency," tariffs could be imposed as much as desired without congressional approval. It was precisely because of IEEPA that "tailor-made punishments" of 34% on China, 25% on Canada, and 30% on Mexico were possible.

Section 122 is the exact opposite. First, the maximum tariff rate is 15%. Trump chose 10%, so there's still a 5% margin for increase, but it's far from IEEPA's 34%. Second, country-specific discriminatory tariffs cannot be set. Only flat-rate taxation is allowed. This fundamentally undermines Trump's core trade policy message of "punishing China." While tariffs on China dropped from 34% to 10%, allied nations like the EU, Japan, and South Korea are also subject to the same 10%. A tariff tool that cannot distinguish between friend and foe is a blunt instrument for trade diplomacy.

And the biggest constraint is the 150-day limit. If it takes effect on February 24, it will expire around July 24. Congressional approval is required for an extension, but within the Republican Party, Senator Rand Paul welcomed the ruling, stating "tariff authority rests with Congress," while Representative Buddy Carter opposed it as "judicial overreach." Senator McConnell articulated the principle that "Congress's role in trade policy is not an inconvenience to be avoided."

This division is unlikely to be resolved within 150 days. In other words, Section 122 has not ensured "tariff continuation" but rather established a "tariff cliff 150 days from now." As the deadline approaches, companies will accelerate inventory buildup and supply chain restructuring, and market volatility will increase. Trump has not succeeded in a "legal workaround" but has been forced into a "temporary measure with a countdown."

Furthermore, its legal vulnerability cannot be overlooked. Section 122 is based on "large and serious balance of payments deficits," but it is debatable whether the U.S. current account deficit (approximately 3% of GDP) meets this criterion. There is a non-zero possibility that this substitute tariff, like IEEPA, will be challenged in court.

Path Dependency: Tariff Leadership Shifts from President to Congress — The "July Cliff" Approaches a Power Shift

The 150-day deadline is a countdown to a "forced transfer" of trade policy decision-making power from the President's hands to Congress's.

This is the deepest structural meaning of the current ruling. For decades, Congress has largely delegated trade policy to the President. Detailed technical decisions on tariffs carry high political risk for lawmakers with little return—constituents enjoy cheaper imports, but local manufacturers demand protection. By pushing this "tariff dilemma" onto the President, Congress has avoided responsibility.

The Supreme Court ruling forcibly ended this "structure of responsibility avoidance." With IEEPA, the omnipotent tool, no longer available, Trump must go through Congress if he seeks permanent tariffs. This means that for the first time since Smoot-Hawley in 1930, Congress will once again become a "party" to tariffs.

However, Congress is not prepared for tariff legislation. House Speaker Johnson and Senate Majority Leader Thune face serious internal party divisions. Within the Republican Party, there are three factions: (1) the "MAGA faction" that fully supports Trump's tariffs and pushes for legislation, (2) the "traditional conservatives" (e.g., Paul, McConnell) who support free trade and oppose tariffs in principle, and (3) the "wait-and-see faction" that does not want to clarify its stance.

It is extremely difficult to consolidate a tariff bill within 150 days in this three-way split. If Congress fails to act, Section 122 tariffs will automatically expire in late July, leaving only Section 232 (steel and aluminum 50%) and Section 301 (China-specific 7.5-25%). The broad protectionist regime of the "Liberation Day" tariffs will completely collapse.

This structure forces Trump into a dilemma: "mobilize Congress" or "lose tariffs." Mobilizing Congress would require imposing party discipline on free-trade Republican members, which is akin to political suicide for lawmakers facing the 2026 midterm elections. On the other hand, losing tariffs would dismantle the cornerstone of Trump's trade policy.

The fiscal impact is also immense. IEEPA tariffs were projected to generate $1.5 trillion in revenue over 10 years. The disappearance of this funding source fundamentally undermines the financial plan for the tax cut bill promoted by Republicans. The scenario that relied on tariff revenue to fund tax cuts is no longer viable, making an expansion of the fiscal deficit inevitable. As VanEck's Siegel points out, "the disappearance of tariff revenue could accelerate money printing to cover the fiscal deficit."

For the market, this is not the "end of tariffs" but the "institutionalization of uncertainty." The 150-day countdown paralyzes corporate supply chain planning and freezes investment decisions. The fact that the S&P500 only rose by +0.69% on the day of the Supreme Court ruling is evidence that the market instantly priced in this structural uncertainty.

Intersection of Dynamics

"Imperial Overreach" and "Path Dependency" possess mutually reinforcing dynamics. The clearer the constraints of Section 122 (150-day limit, flat tax, 15% cap) become, the stronger the reality that congressional legislation is indispensable for permanent tariffs. However, as long as Congress remains divided, legislation will not progress, leaving reliance on Section 122, a "weak substitute." The biggest beneficiary of this stalemate is, ironically, China. During the IEEPA era, it faced punitive tariffs of 34%, but under Section 122, only a flat 10% tariff applies. Given that Trump has made "being tough on China" the core of his trade policy, this structural contradiction is politically unsustainable. As the July deadline approaches, Trump will be forced to choose from limited options: initiating new Section 301 investigations (requiring several months), activating Section 338 (50% cap but no prior activation), or intensifying pressure on Congress. None of these paths can match the speed and flexibility of tariff policy that was possible with IEEPA's "single stroke."

Pattern History

1971: Nixon Shock — The Sole Precedent for Trade Act Section 122

On August 15, 1971, President Richard Nixon simultaneously suspended the convertibility of the dollar to gold and imposed a 10% temporary import surcharge on all imports. This was virtually the only large-scale precedent for the use of Trade Act Section 122 (then its predecessor provision). Nixon's objective was to correct the balance of payments deficit and address downward pressure on the dollar, and the surcharge served as a negotiating tool to compel major trading partners like Japan and Germany to revalue their currencies. When the dollar was devalued under the Smithsonian Agreement in December 1971, the surcharge was abolished after approximately four months. In Nixon's case, the surcharge functioned as intended as "temporary pressure for negotiation" and ended with the achievement of a clear goal: the restructuring of the international monetary system.

Structural Similarities with Today: Both Nixon (1971) and Trump (2026) use Section 122's temporary import surcharge as a "negotiating tool," but the structural conditions are fundamentally different. Nixon had a clear negotiating objective (dollar devaluation), and his counterpart countries (Japan, Germany) had an incentive to negotiate. Trump has only a vague goal of "correcting the trade deficit," and with tariffs on China now reduced from 34% to 10%, China has little incentive to negotiate. Nixon was able to abolish the surcharge in four months, but Trump faces a "tariff cliff" if he cannot secure congressional approval after 150 days.

2018: Trump's First Term Steel and Aluminum Tariffs — The Beginning of "Strategic Use" with Section 232

In March 2018, Trump imposed tariffs of 25% on steel and 10% on aluminum under Section 232 of the Trade Expansion Act. The activation of tariffs based on "national security" was almost unprecedented since oil-related measures during the Cold War, drawing strong backlash from allies like the EU, Canada, and Japan. Legal challenges were made, but the Court of International Trade consistently upheld the President's broad discretionary powers until 2025. This success encouraged Trump to "upgrade" to the even more flexible IEEPA tool in his second term. While Section 232 was limited to specific items (steel and aluminum), IEEPA was applicable to all items, with virtually unlimited rates and duration.

Structural Similarities with Today: The 2018 Section 232 tariffs and the 2026 Section 122 tariffs demonstrate the same structure where the scope of trade policy is determined by the nature of the "legal tools available" to the President. In 2018, Section 232's characteristic of being "item-limited but unlimited in duration" allowed for permanent protection of specific sectors like steel and aluminum. In 2026, Section 122's characteristic of being "all-item but limited to 150 days" can only provide broad but temporary protection. The structure where the "shape" of the legal tool determines the "shape" of the policy is identical.

Patterns Revealed by History

Presidential tariff authority is entirely defined by the "shape" of the legal tools available. Nixon (1971) successfully used Section 122 as temporary negotiating pressure, and Trump's first term (2018) achieved permanent protection for specific items with Section 232. IEEPA (2025) enabled unlimited tariffs on all items as an omnipotent tool, but the Supreme Court blocked it in 2026. The remaining Section 122 is the most restrictive tool, with "150 days, flat rate, 15% cap," placing Trump's trade policy on the structurally weakest legal foundation.

Future Scenarios

Optimistic Scenario (Probability: 20%)

Congressional Republicans unite and achieve permanent tariff legislation within 150 days. A comprehensive trade law, including country-specific discriminatory tariffs, is enacted, legally stabilizing Trump's trade policy. Negotiations with China progress, and the trade deficit begins to shrink. The market reacts positively to the resolution of uncertainty, and the S&P500 rises.

Implications for Investment/Action: If legal stabilization of trade policy is confirmed, a shift to domestic manufacturing-related stocks with low import dependency would be rational. However, congressional agreement is highly difficult to achieve given internal Republican divisions.

Base Scenario (Probability: 50%)

Section 122 tariffs will continue for 150 days, but permanent legislation in Congress will face difficulties. Due to divisions between free-trade and protectionist factions within the Republican Party, legislative prospects will remain unclear until just before the deadline. As July approaches, "tariff cliff" concerns will rise, increasing market volatility. Ultimately, a compromise for a short extension (another 150 days) may emerge, or Trump may seek alternative measures by initiating new Section 301 investigations.

Implications for Investment/Action: Volatility hedges should be established as the July deadline approaches. Companies will temporarily benefit from reduced import costs from China (34%→10%), but long-term planning will be difficult. Gold and BTC will benefit if the dollar's depreciation trend continues.

Pessimistic Scenario (Probability: 30%)

Section 122 tariffs themselves are legally challenged (lawsuits arguing they do not meet the "large and serious" balance of payments deficit criterion). Courts issue injunctions, and substitute tariffs also collapse. Trump completely loses effective tariff tools, leaving only Section 232 (steel and aluminum) and Section 301 (China-specific). $134 billion in refund lawsuits proceed, and the fiscal deficit rapidly expands. Dollar depreciation accelerates, and inflation concerns reignite.

Implications for Investment/Action: In a scenario of complete tariff policy collapse, import-dependent companies (retail, tech) would benefit, while domestic manufacturing would lose protection. Assuming an expanding fiscal deficit and a depreciating dollar, gold, BTC, and internationally diversified investments would be effective.