Section 122 Tariffs: Trump's New Trade Weapon

When the U.S. Supreme Court struck down the IEEPA tariffs from "Liberation Day" in February 2026, declaring in a 6-3 vote that using IEEPA for trade policy was unconstitutional, President Trump needed a new legal instrument. He found it in Section 122 of the Trade Expansion Act of 1974 — a provision created in the context of the Bretton Woods collapse, never before used for a global tariff.

On February 24, 2026, the Trump administration implemented a 10% additional global tariff on all U.S. imports under Section 122. Three weeks later, the president announced intentions to raise the tariff to 15%, though that change was still being challenged in court at the time of this writing.

What Section 122 of the Trade Act of 1974 is

Section 122 authorizes the president to impose, for a period of up to 150 days (without Congressional renewal), an emergency import tariff to correct a "serious imbalance in international payments." The provision was created in 1974, when the floating dollar was still a novelty and concern about balance of payments deficits was central to American economic policy.

No previous president had used Section 122 for a global tariff before 2026. Trump argues that the U.S. trade deficit — which reached $1.24 trillion in 2025 — constitutes the "serious imbalance" the law was created to remedy.

The U.S. Court of International Trade began questioning the legality of the tariff in April 2026, asking specifically whether a chronic trade deficit — an integral part of the international monetary system's functioning with the dollar as reserve currency — constitutes the type of emergency the law intended to cover.

The history of U.S. tariffs in perspective

American tariffs in 2026, adding up the various regimes (Section 122, Section 232 for steel/aluminum/pharmaceuticals, ongoing Section 301 investigations), reached their highest levels since World War II. The CRFB (Committee for a Responsible Federal Budget) estimates that the announced 15% tariff would generate approximately $300 billion in additional annual government revenue.

The paradox: global trade grew despite tariffs

One counterintuitive data point from the tariff period: even with record tariffs, global trade continued growing faster than the world economy through 2025-2026. This happens for several reasons:

1. Trade diversion: Imports that previously went directly to the U.S. were rerouted through third countries, but overall volumes did not decrease significantly
2. Value chain resilience: Companies absorbed part of the tariff cost to maintain commercial relationships, compressing margins rather than disrupting flows
3. Digital and services trade: Trade in services and digital products — not subject to goods tariffs — accelerated. AI-related trade grew substantially in the period.

The impact on Brazil: exporters and importers

For Brazil, American tariffs have a dual and asymmetric effect.

Brazilian exporters to the U.S.: Brazil faces the 10% Section 122 tariff on its exports to the U.S. The most affected sectors are footwear, textiles, processed coffee, and higher value-added products. Agricultural commodities like raw soybeans and iron ore were already less subject to American tariffs, so the direct impact is more limited.

Trade diversion beneficiaries: Brazil may benefit indirectly from American tariffs on other countries. If the U.S. taxes Chinese manufactured goods at 35-40% but Brazil faces only 10%, Brazilian manufactured goods become relatively more competitive in the American market. Sectors like agricultural machinery have potential to gain.

Trade diversion risk for Brazil: Chinese products that previously went to the U.S. are now seeking other markets, including Brazil. This creates additional competition for domestic industry, especially in manufactured goods.

Winners and losers in the new tariff order

The legal battle in American courts

The Trump administration is aware that Section 122 has a 150-day time limit. To work around this, the trade team is preparing Section 301 investigations — which allow permanent tariffs on specific countries based on "unfair" trade practices. These investigations would take 6 to 12 months to conclude.

The U.S. Court of International Trade and potentially the Supreme Court will have the final word on the legality of Section 122 tariffs. The IEEPA precedent — where the Supreme Court struck down the legal basis of Liberation Day tariffs — increases uncertainty about the durability of the current regime.

What this changes for investors

Currency: American tariffs weaken the dollar globally (the world buys fewer dollars to pay for U.S. imports), which benefits the real. This effect contributed to the real's appreciation in Q1 2026.

Commodities: If global growth slows due to tariffs, demand for commodities falls — pressuring prices for ore, oil, and soybeans. Global growth continues in 2026, but uncertainty is higher.

Exporting stocks: Brazilian companies with significant dollar revenues and U.S. exports need case-by-case analysis to assess tariff impact.

Volatility as opportunity: The tariff environment creates market swings in both directions — declines when new tariffs are announced, recoveries when negotiations advance or courts suspend measures.

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