FXTRADING Financial Focus (Asia-Pacific 02/25)Temporary U.S. tariffs take effect

U.S. tariff policy has undergone a sharp shift within a short period. Just hours after the Supreme Court rejected the broad tariffs previously imposed under emergency powers, the White House swiftly announced a new measure, replacing the old framework with a temporary, uniform 15% tariff. The new policy officially took effect at midnight on Tuesday, while the earlier tariffs ranging from 10% to 50% imposed under the International Emergency Economic Powers Act were terminated simultaneously. The speed of the policy transition reflects the administrations intention to maintain a degree of intervention in trade despite legal constraints.

The legal basis this time comes from Section 122 of the Trade Act of 1974. This provision has rarely been used in practice. Its core mechanism allows the president to impose tariffs of up to 15% on all countries for a period not exceeding 150 days to address severe balance-of-payments problems or systemic external payment pressures. By design, this tool is intended as a short-term emergency measure rather than a long-term trade framework, which makes its applicability and justification inherently subject to debate.

The White House argues that the United States is facing structural external imbalances. Official documents highlight a goods trade deficit of roughly USD 1.2 trillion, a current account deficit equal to about 4% of GDP, and the fact that the countrys long-standing primary income surplus has turned into a deficit. The administration believes these indicators together point to a deterioration in external balance that warrants temporary tariff measures.

However, many former officials from international institutions disagree. A true balance-of-payments crisis is typically characterized by sharply rising financing costs, a sudden stop in capital inflows, or loss of access to international markets. None of these conditions are evident in the United States. The dollar has remained broadly stable, long-term Treasury yields have fluctuated within a limited range, and equity markets have shown resilience, all of which differ markedly from a typical crisis environment.

There are also alternative interpretations of the shift in primary income to deficit. One view suggests that this reflects changes in global asset allocation rather than a deterioration in external financing capacity. Over the past decade, overseas investors have significantly increased their holdings of U.S. equities and other risk assets, which have outperformed many foreign markets. This has altered the direction of income distribution. From this perspective, the change may be seen as a byproduct of the strong appeal of U.S. assets rather than a sign of weakening external fundamentals.

That said, a minority of analysts offer a different perspective. They point out that the current U.S. current account deficit is already well above the level seen in the early 1970s, when the Nixon administration introduced trade measures, and that the countrys net international investment position has continued to deteriorate. From the standpoint of the absolute scale of external imbalances, the administration can indeed find some policy justification. This also suggests that legal disputes surrounding Section 122 could intensify in the future.

From a broader policy impact perspective, the introduction of temporary tariffs has increased uncertainty in the global trade environment. On one hand, the 150-day time limit means markets will need to repeatedly reassess whether the policy will be extended. On the other hand, the legal foundation itself is contested and may trigger new judicial challenges. This raises the difficulty for businesses in making decisions related to supply chain arrangements, inventory management, and pricing strategies, and could lead to periodic disruptions in global trade flows. From the perspective of FXTRADING, such policy reversals may not immediately alter economic fundamentals, but they tend to significantly increase market volatility. In the short term, rising trade uncertainty is likely to channel safe-haven flows into the U.S. dollar and Treasuries while weighing on risk-sensitive currencies. However, if legal disputes or policy adjustments continue to unfold, the dollar may enter a tug-of-war between safe-haven demand and policy uncertainty, with global market dynamics becoming increasingly event-driven.