Section 122 Trade Act: Surcharge, Exemptions, and Transit Rules

Section 122 of the Trade Act of 1974 gives the President authority to impose a temporary import surcharge of up to 15 percent, or temporary import quotas, when the United States faces serious international payments problems. The measures are capped at 150 days and cannot be extended without an act of Congress. Codified at 19 U.S.C. § 2132, the provision sat unused for nearly fifty years until February 2026, when a President invoked it for the first time to impose a 10 percent surcharge on a broad range of imports.¹

When Section 122 Can Be Used

The statute is not a general tariff power. The President can invoke it only when “fundamental international payments problems” exist and at least one of three specific conditions is met:

Large and serious balance-of-payments deficits, where the value of goods and services flowing out of the country substantially exceeds what comes in.
Imminent and significant depreciation of the dollar in foreign exchange markets.
A need to cooperate with other countries in correcting a shared balance-of-payments disequilibrium.

Only one trigger needs to apply, but the underlying problem must be “fundamental” rather than cyclical or minor.²

What the President Can Impose

Once a qualifying trigger exists, Section 122 offers two tools that can be used separately or together.

The first is a temporary import surcharge, an extra duty layered on top of whatever tariff a product already carries. If an item normally faces a 5 percent tariff and a 10 percent surcharge is imposed, the importer pays 15 percent on the value of the goods. Subsection (a)(A) caps the surcharge at 15 percent ad valorem, and that ceiling cannot be raised by executive action.

The second is a temporary import quota, a hard ceiling on the volume or value of particular goods entering the country during a given period. Once the quota is filled, no further imports of that product category are allowed until the restriction expires.

Both tools carry a strict 150-day time limit. The measures expire automatically at that point unless Congress passes legislation extending them. A simple notification is not enough: extension requires an actual Act of Congress, meaning both chambers must vote and the President must sign the extension into law. The President can suspend, modify, or terminate a proclamation early if conditions improve, but cannot stretch it past 150 days unilaterally.²

The February 2026 Surcharge

On February 24, 2026, a President invoked Section 122 for the first time in the statute’s history, imposing a temporary import surcharge of 10 percent ad valorem on articles imported into the United States. The proclamation cited large and serious balance-of-payments deficits as the justification.³

The surcharge is set to remain in effect through 12:01 a.m. eastern daylight time on July 24, 2026, exactly 150 days from the effective date. It expires automatically at that point unless Congress passes an extension. The surcharge is treated as a regular customs duty for all purposes, so existing enforcement, collection, and refund rules apply.⁴

What the Proclamation Exempts

The statute lets the President exclude articles that “should not be subject to import restricting actions because of the needs of the United States economy.” The 2026 proclamation uses that authority broadly. Exempted categories include:

Critical minerals and metals used in currency and bullion.
Energy and energy products.
Natural resources and fertilizers that cannot be produced domestically in sufficient quantities.
Certain agricultural products, including beef, tomatoes, and oranges.
Pharmaceuticals and pharmaceutical ingredients.
Certain electronics.
Passenger vehicles, certain trucks, buses, and related parts.
Certain aerospace products.
Information materials, donations, and accompanied baggage.
Articles already subject to Section 232 tariffs under the Trade Expansion Act of 1962.
Goods entering duty-free under the USMCA (from Canada or Mexico) or the DR-CAFTA agreement.

Goods Already in Transit

Section 122 authorizes uniform exceptions for goods in transit or under binding contract when the surcharge takes effect. The 2026 proclamation exempts goods that were already loaded onto a vessel and in transit before 12:01 a.m. eastern standard time on February 24, 2026, provided they were entered for consumption before February 28, 2026. That gave importers a four-day window to clear cargo that was already on the water when the surcharge hit.⁴

Nondiscrimination and the Surplus-Country Exception

Section 122 generally requires surcharges and quotas to be applied on a nondiscriminatory basis, consistent with the most-favored-nation principle. Quotas must aim at preserving the distribution of trade that countries would have expected without the restrictions. The statute cannot be used to selectively punish a single trading partner while leaving all others untouched.

One exception matters. If the President determines that Section 122’s goals are best served by targeting countries that run large or persistent balance-of-payments surpluses, all other countries can be exempted. That lets the administration concentrate pressure where the imbalance originates rather than spreading it across trading partners who are not contributing to the problem.²

The Reverse Authority to Liberalize Imports

Section 122 is not only a restrictive tool. Subsection (c) gives the President mirror-image authority to liberalize imports when conditions are reversed. When the country runs large and persistent balance-of-trade surpluses, or when the dollar is appreciating significantly, the President can temporarily reduce tariffs by up to 5 percent ad valorem or increase import quotas for up to 150 days.⁵

The liberalizing side has its own guardrail. Duties cannot be reduced on products where doing so would cause material injury to domestic workers or firms in industries such as agriculture, mining, or manufacturing, or where the reduction would impair national security.

If You’re an Importer Affected by the Surcharge

Because the 2026 proclamation treats the surcharge as a regular customs duty, the standard penalty, protest, and refund frameworks apply.

Under 19 U.S.C. § 1592, civil penalties for underpayment scale with culpability. Fraud can draw a penalty up to the full domestic value of the merchandise. Gross negligence caps at the lesser of domestic value or four times the duties owed, or 40 percent of dutiable value if the violation did not affect the duty amount. Negligence caps at the lesser of domestic value or twice the unpaid duties, dropping to 20 percent of dutiable value if there was no revenue loss. Unpaid duties, taxes, and fees are owed regardless of the penalty tier. Voluntary disclosure before a formal investigation begins reduces exposure substantially.⁶

If you believe the surcharge was misapplied to a shipment, you can file a protest with U.S. Customs and Border Protection under 19 U.S.C. § 1514 within 180 days after liquidation. Common grounds include misclassification of goods that should fall under an exempted category, incorrect valuation, and misapplication to goods that qualify for the in-transit exception.⁷ Protests can be filed electronically through CBP’s ACE Portal or on paper at the port of entry. CBP Form 19 is standard, but any signed document that clearly contests the agency’s decision counts. A denied protest can be appealed to the U.S. Court of International Trade.⁸

Goods that are later exported or destroyed may qualify for a duty drawback refund under 19 U.S.C. § 1313. The standard drawback rate is 99 percent of the duties paid, including the surcharge, and it applies both to unused merchandise that is exported and to imported materials that are manufactured into a finished product and then exported.⁹

1
Congress.gov. Section 122 of the Trade Act of 1974
2
Office of the Law Revision Counsel. 19 USC 2132 – Balance-of-payments authority
3
The White House. Imposing a Temporary Import Surcharge to Address Fundamental International Payments Problems
4
Federal Register. Imposing a Temporary Import Surcharge To Address Fundamental International Payments Problems
5
GovInfo. 19 USC 2132 – Balance-of-payments authority
6
Office of the Law Revision Counsel. 19 USC 1592 – Penalties for fraud, gross negligence, and negligence
7
Office of the Law Revision Counsel. 19 USC 1514 – Protest against decisions of Customs Service
8
U.S. Customs and Border Protection. Protests
9
Office of the Law Revision Counsel. 19 USC 1313 – Drawback and refunds