States Sue Trump Administration Over Unprecedented Section 122 Global Tariffs

The Trump administration’s pivot to Section 122 of the Trade Act of 1974 marks a significant escalation in the use of executive power to reshape global trade, triggering an immediate and coordinated legal response from nearly half of the U.S. states. This latest confrontation follows a February 2026 Supreme Court ruling that struck down the administration's previous attempt to leverage the International Emergency Economic Powers Act (IEEPA) for similar purposes. By invoking Section 122—a provision never before utilized by a U.S. president—the administration is testing the limits of the executive branch's ability to bypass Congress in matters of international commerce. For the venture capital and startup ecosystem, this legal volatility introduces a layer of systemic risk, particularly for hardware-intensive sectors and companies with complex international supply chains.

The core of the legal dispute centers on the separation of powers. The 24 states, led by a coalition of attorneys general and governors, argue that the administration is overstepping its constitutional bounds. Section 122 was originally designed to allow a president to issue temporary import surcharges, capped at 15%, specifically to address 'large and serious United States balance-of-payments deficits.' The states contend that the current economic environment does not meet the statutory requirements for such a drastic measure and that the administration is using the law as a pretext for a broader protectionist agenda. This legal uncertainty is likely to cause immediate friction in the markets, as businesses struggle to price in the potential for 10% to 15% cost increases on imported goods.

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collected $287 billion in customs duties, taxes, and fees—a staggering 192% increase from the previous year.

From a fiscal perspective, the administration’s trade policies have already had a massive impact on federal revenue. In 2025, the U.S. collected $287 billion in customs duties, taxes, and fees—a staggering 192% increase from the previous year. While the administration maintains that foreign exporters absorb these costs, the states’ lawsuit cites economic studies suggesting that the burden is largely borne by American consumers and businesses. For startups, which often operate on thin margins and lack the lobbying power of multinational corporations, these tariffs represent a direct threat to capital efficiency. Venture-backed companies in the consumer electronics, automotive, and renewable energy sectors are particularly exposed to these inflationary pressures.