Section 122 of the Trade Act of 1974 authorizes the President to impose a temporary tariff surcharge of up to 15% ad valorem on all imports for up to 150 days, to address fundamental international payments problems. The current Section 122 surcharge took effect February 24, 2026 at 10%, raised to 15%, and expires automatically July 24, 2026 unless Congress acts. Annex II goods (certain natural resources, fertilizers, vehicles and parts) are excluded; USMCA-qualifying goods are exempt; Section 232-covered goods generally are not stacked.
When the Supreme Court ruled IEEPA tariffs unconstitutional, the administration had four days before the next round of inbound containers cleared without the global surcharge that had supported a year of trade policy. Section 122 of the Trade Act of 1974 was the obvious successor: a narrow, statute-bounded tariff authority Congress had explicitly granted to the executive in 1974, and one nobody had used in fifty years.
For SMB importers, the practical questions are straightforward: am I exposed, what is excluded, when does it end, and what comes after? This guide walks through the answers.
What Section 122 actually says
Section 122 of the Trade Act of 1974 (19 U.S.C. § 2132) authorizes the President to impose a temporary import surcharge or quota when needed to address “fundamental international payments problems.” The statute caps the surcharge at 15% ad valorem and the duration at 150 days. After 150 days, Congressional action is required to extend.
The statute is intentionally narrow. It was drafted in the context of 1970s-era balance-of-payments crises (the dollar had recently come off the gold standard) and was meant as a temporary buffer while structural fixes worked through Congress. It has not been used since shortly after enactment – until February 2026.
How the current Section 122 surcharge works
- Effective date: February 24, 2026 (immediately on IEEPA termination).
- Initial rate: 10% ad valorem on all imports.
- Current rate: 15% ad valorem (the statutory maximum).
- Statutory expiry: 12:01 AM EDT on July 24, 2026 unless Congress acts.
- Excluded goods: those listed in Annex I and Annex II to the proclamation (see next section).
- USMCA carve-out: USMCA-qualifying goods are exempt.
- Section 232 interaction: Section 232 covered goods (steel, aluminum, copper, etc.) generally are not stacked – the importer pays Section 232 only.
Annex II – what is excluded and why
Annex II lists the HTSUS subheadings explicitly excluded from the Section 122 surcharge. The proclamation describes these as goods that “cannot be grown, mined, or otherwise produced in the United States or in sufficient quantities” plus a separate set of vehicle and vehicle parts categories. The HTS code is the legal trigger – not the marketing description, not the supplier description, not even what your broker said it was. If your product is misclassified, the exclusion does not apply.
The Annex II categories cluster into three groups:
- Natural resources and minerals not produced in sufficient U.S. quantity (certain ores, rare earths, specific agricultural commodities).
- Fertilizer feedstocks where U.S. domestic production is insufficient.
- Passenger vehicles, certain light trucks, certain medium- and heavy-duty vehicles, buses, and certain parts (linked to existing or pending Section 232 auto coverage).
Why the HTS classification matters here
The exclusion is at the HTSUS subheading level. A product that is “described” in Annex II but classified under a non-Annex-II subheading pays the surcharge. Conversely, a product classified at an Annex II subheading is exempt even if a similar competitor product is classified differently. This is a straightforward case where a tariff classification review pays for itself in days.
The USMCA exemption – now USMCA’s most valuable feature
Goods that qualify under the United States-Mexico-Canada Agreement (USMCA, called CUSMA in Canada) are exempt from the Section 122 surcharge. This is now arguably the single most valuable USMCA feature for North American importers. A product that qualifies under USMCA pays no Section 122 surcharge; the same product imported from a non-USMCA country pays 15%.
For some product categories – particularly auto parts, agricultural goods, machinery – the cost difference is large enough that it makes sense to put real effort into achieving USMCA qualification. That work typically takes 4-12 weeks (rules-of-origin documentation, supplier certifications, BOM analysis, cost computation, Certificate of Origin issuance).
For other categories – particularly highly globalized inputs where the regional value content cannot be achieved – USMCA qualification is not feasible. In those cases, Section 122 is just a cost.
Section 232 stacking – the rule and the exception
Where a product is subject to existing Section 232 duties (steel and aluminum since 2018; copper added 2026; pharma scheduled July 31, 2026), the proclamation provides that Section 122 generally does not stack. The importer pays the Section 232 rate; the Section 122 surcharge is not added on top.
This is not absolute. The rule depends on whether the underlying product (not just its raw material) is what the Section 232 measure covers. Steel components inside a finished good may not get the Section 232 treatment; the finished good then pays Section 122 in full. Edge cases worth a classification review.
What happens when Section 122 expires July 24
The statutory clock is fixed. Congress must act to extend; the President cannot. Three plausible scenarios are circulating among trade journalists and Hill staff:
- Congressional extension or replacement legislation. The administration prefers a permanent statutory replacement; the politics of an extension vote in late June / early July are uncertain.
- Section 232 expansions. Pharma 232 is scheduled to take effect July 31. Semiconductor and MedTech 232 investigations are in flight. Each expansion can substitute for Section 122 in specific sectors but not as a general substitute.
- No successor – a temporary tariff vacuum. If neither Congress acts nor a Section 232 substitute lands, Section 122 expires and global tariffs revert to MFN baselines for non-Section 232, non-Section 301 goods.
Frequently asked questions
What is the current Section 122 tariff rate?
The current rate is 15% ad valorem – the statutory maximum. The initial rate at effective date (February 24, 2026) was 10%; it was raised to 15% during the active period.
How is Section 122 different from IEEPA?
Section 122 is a different statute (Trade Act of 1974) that explicitly authorizes a tariff surcharge for balance-of-payments purposes, capped at 15% and 150 days. IEEPA (1977) was a sanctions/embargo statute that the Supreme Court ruled cannot be used for tariffs. Section 122 was the legal “next of kin” the administration moved to.
Can Section 122 be challenged in court?
Yes – and it is. Two coalitions of importers have filed Court of International Trade challenges arguing that the current measure does not actually address a “fundamental international payments problem” and is therefore beyond the President’s Section 122 authority. If those cases prevail before July 24, a refund window opens.
Will my goods qualify for the Annex II exclusion?
Look up your HTS subheading in Annex II. The exclusion is at the subheading level. If your product is on the list, the exclusion applies; if it is not, it does not – even if the product description “sounds like” it should match. When in doubt, get a classification opinion before filing.
Can Section 232 and Section 122 both apply to the same import?
Generally no. The proclamation provides that Section 232-covered goods do not stack with Section 122. Edge cases occur where a finished good contains Section 232 inputs but is not itself a Section 232 product – in those cases, the finished good can pay Section 122.
Is Section 122 a permanent tariff?
No. By statute, Section 122 is capped at 150 days. It expires July 24, 2026 unless Congress acts to extend or replace it. The President cannot extend Section 122 unilaterally; that is the central feature of the statute.
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