The Office of the U.S. Trade Representative is defending Section 122 tariffs by asking the World Trade Organization to disregard its own rules and accept an alternative measure created by the United States, according to a new analysis published by the National Taxpayers Union Foundation. The report finds that USTR's June 22 submission to the WTO concedes it's impossible for the United States to meet the actual requirements for imposing balance-of-payments tariffs, yet asks the organization to rubber-stamp them anyway. The government has collected an estimated $35 billion in these duties while the case moves through the courts.
WTO rules require that countries imposing balance-of-payments tariffs face either "the imminent threat of, or to stop, a serious decline in its monetary reserves" or have "very low monetary reserves" they're trying to increase. U.S. reserve assets currently stand at an all-time high of nearly $1.5 trillion, according to Bureau of Economic Analysis data cited in the report. USTR's own submission acknowledged that "a serious decline in monetary reserves is not an appropriate measure of a balance-of-payments problem for the United States" because the dollar's status as the world's reserve currency means "any imminent threat of a serious decline in U.S. dollar reserves held by the United States is largely mitigated by the ability of the United States Treasury to print more money." Instead, USTR proposed using the net international investment position as a "proxy" for reserves, which one WTO member said "appears to be effectively rewriting a key WTO provision."
The report points out that USTR's proposed proxy measure contradicts the Trump Administration's own economic policies. The net international investment position measures all foreign investment in the United States compared to all U.S. investment abroad—when foreign investment increases or when a U.S. company reshores a factory, it increases the country's negative NIIP. According to the report, President Trump said in his July 3 Mount Rushmore speech that "$19.2 trillion pouring into the United States right now from all over the world," which represents a 90% increase in the negative NIIP that USTR characterizes as a "deterioration." The White House runs an entire program called The Trump Effect to track foreign investment, and the Commerce Department operates SelectUSA specifically to attract it.
The Justice Department's own legal brief stated that Section 122 tariffs must be "consistent with the then-existing GATT rules and any future international rules entered into force for the United States," the report notes. But USTR selectively quoted WTO rules in its submission, citing language that allows countries to impose restrictions to "safeguard its external financial position and its balance of payments" while omitting the qualifying paragraph that limits such restrictions to addressing serious declines in monetary reserves. These Section 122 tariffs replaced the massive "Liberation Day" tariffs that the Supreme Court struck down 6-3 earlier this year—a decision that should have saved taxpayers from hundreds of billions of dollars a year in illegal tariffs, according to the analysis. Section 122 tariffs are set to expire on July 24 unless Congress extends them, and the government may be required to refund the $35 billion collected, with interest, if the Court of International Trade decision stands.