The legal battle against President Donald Trump’s temporary 10 percent global tariff is intensifying, mirroring the rollback of earlier taxes.
Two small businesses sued the Trump administration at the Court of International Trade this week, seeking to eliminate the Section 122 tax just days after more than 20 states filed a similar suit. The companies, spice brand Burlap and Barrel and toy company Basic Fun, also outlined the potential damage the tariffs could have on their operations.
More specifically, Burlap and Barrel said many of its spice imports are not available domestically, making a switch to U.S.-grown alternatives impossible. This will increase costs and reduce the company’s ability to invest in its business, including domestically, according to the filing.
Meanwhile, Basic Fun, whose brands include Tonka and Care Bears, said US manufacturing and supplier capabilities are insufficient to support large-scale domestic toy production. The company also said it cannot mitigate tariff costs by raising prices because it sells most of its products to “large retailers with substantial bargaining power.”
“In some cases, Basic Fun! must continue to fulfill orders from retailers even when the tariffs eliminate or nearly eliminate the company’s profits on those sales in order to maintain its position with major retailers and keep its products on store shelves,” the filing says, noting that the cost pressure from the tariffs jeopardizes its position with its funding sources.
Under Section 122 of the Trade Act of 1974, a president can impose tariffs of up to 15% for up to 150 days to address balance of payments deficits.
Burlap and Barrel and Basic Fun argue that “it is economically impossible” for the US to run such a deficit due to the nature of the current exchange rate system. It also argues that Trump is falsely equating a trade deficit with a balance of payments deficit, following a line of argument similar to that of the states that sued the president last week.
Taking the matter further, Burlap and Barrel and Basic Fun cite the Trump administration’s testimony of its defense of the expired taxes that were instituted under the International Emergency Economic Powers Act. According to the filing, the administration specifically took advantage of the IEEPA “because section 122 does not apply to the facts at hand.”
“But when the Supreme Court held that the president lacked authority under IEEPA to impose tariffs, he responded by doing exactly what he told the federal courts he could not do: use Section 122 as a substitute for IEEPA to impose global tariffs because of the U.S. trade deficit,” the filing says.
Burlap and Barrel and Basic Fun also echo the states’ demand by highlighting Section 122’s requirement that any fee be applied uniformly, with some limited exceptions. The filing says the current exceptions, which include exclusions for assets of various trading partners, “are not limited to the categories permitted by section 122; instead, they are the policy preferences of the President.”
The recent challenges to Section 122 as a tariff tool look a lot like the beginning of the legal resistance that ultimately led to the invalidation of Trump’s IEEPA tariffs.
After the president announced the tariffs last April, several companies and states filed lawsuits calling for their removal. The Court of International Trade later decided to block the tariffs, a decision that was upheld by a federal appeals court. The Trump administration then appealed to the Supreme Court, which ultimately overturned the taxes.
