[The Viewpoint of Dongki Kim] Where Is Trump's Tariff Policy Headed?

Fears of Rising Prices as Hiring and Investment Slow

Even Stronger Tariff Measures May Be Unleashed

On February 20, immediately after the U.S. Supreme Court invalidated tariffs based on the International Emergency Economic Powers Act (IEEPA), the Donald Trump administration unveiled an unfamiliar weapon—Section 122 of the Trade Act—and declared a second round of the tariff war. However, the legality of President Trump's new tariffs is already being questioned.

For Section 122 of the Trade Act to be invoked, at least one of the following conditions must be met: responding to a serious balance-of-payments deficit, preventing a decline in the value of the dollar, or correcting an international balance-of-payments imbalance. President Trump’s team cites the United States’ large trade deficit as justification, but this is a clear conceptual error. When this law was enacted in 1974, a ‘balance-of-payments deficit’ referred to an official outflow of gold or dollar reserves. At the time, the U.S. was mostly running a trade surplus, but still experienced a ‘balance-of-payments deficit’ due to capital outflows.

A genuine balance-of-payments crisis occurs when a country is unable to raise funds in global capital markets or cannot secure the foreign currency needed to service external debt, resulting in a sharp collapse of its currency.

However, the U.S. maintains a Treasury bond market of about 30 trillion dollars, with around 1.2 trillion dollars traded daily. Demand for U.S. bonds and equities remains strong. The dollar is involved in approximately 90% of all global foreign exchange transactions and accounts for about 57% of global foreign exchange reserves. In other words, the United States is not currently in a currency crisis. Section 122 is merely a relic of an era when the gold standard and fixed exchange rate system were collapsing. Former IMF First Deputy Managing Director Gita Gopinath has clearly stated that, while the U.S. may have a trade deficit, it is not experiencing a balance-of-payments crisis.

The Trump administration’s forced application of Section 122 increases policy uncertainty for businesses, undermining corporate hiring and investment decisions. The temporary 150-day period is likely to prompt companies to accelerate purchases or stockpile inventory before tariffs take effect, which could cause monthly and quarterly macroeconomic data to fluctuate significantly. Furthermore, already-concluded trade agreements could face legal challenges or suspension, and America’s trading partners may refuse to cooperate and instead take a wait-and-see approach until U.S. trade policy becomes clearer.

The real issue is that the use of Section 122 is only the beginning. It is little more than a stopgap to buy time until the end of July. President Trump’s “tariff menu” already includes even more threatening tools. First, Section 232 of the Trade Expansion Act allows for item-specific tariffs on national security grounds, while Section 301 of the Trade Act permits tariffs in response to unfair trade practices.

However, imposing either of these tariffs requires detailed prior investigations, which puts President Trump at a disadvantage in terms of speed. This is why attention is turning to the Smoot-Hawley Act, enacted in 1930—specifically, Section 338 of the Tariff Act. If the U.S. determines that a foreign government is engaging in discriminatory practices against American commerce, it can impose up to a 50% additional tariff and even completely ban the import of that country’s products—an extreme authority. This infamous law, synonymous with protectionism, exacerbated the Great Depression.

While the U.S. administration continues its risky legal tightrope act over the legitimacy of these moves, the burden ultimately falls on businesses and consumers. The Supreme Court’s ruling has not ended the tariff war; rather, it marks the beginning of a more complex and unpredictable “tariff war.” According to recent polls, most Americans oppose the imposition of tariffs without Congressional approval, and are deeply concerned about the negative impact of tariffs on inflation and household finances. President Trump’s “tariff obsession” will become a major issue in this fall’s midterm elections.

Donggi Kim, Author of The Power of the Dollar and Attorney

This content was produced with the assistance of AI translation services.