Special Ep. - The US balance-of-payments gamble: All about Section 122

In this special edition of the Hinrich Foundation’s podcast on global trade, the Association of Foreign Press Correspondents-USA sits down with Dawn Shackleford, President of Looking Glass Trade, LLC, to analyze the Trump administration’s pivot to Section 122 tariffs as a rapid, temporary workaround after legal setbacks, examining the credibility of its balance-of-payments justification and the roles of the IMF and WTO in assessing its implications for US trade policy. 

The Trump administration’s turn to Section 122 tariffs reflects a search for speed and legal durability in advancing its trade agenda after the Supreme Court blocked the use of emergency powers under the International Emergency Economic Powers Act.   

Designed as a temporary measure, Section 122 allows tariffs of up to 15% for 150 days, positioning the policy as a stopgap while more permanent tools — such as Section 232 and Section 301 — are pursued. Yet its reliance on a balance-of-payments justification raises questions about credibility, as such crises typically involve acute external imbalances and are subject to scrutiny by the International Monetary Fund (IMF) within World Trade Organization (WTO) processes.  

Shackleford explains how the United States may be leveraging timing, procedural complexity, and partial product coverage to sustain the tariffs while remaining formally engaged in multilateral rules, arguing that the move underscores both the constraints of existing trade commitments and the continued relevance — and tension — of the WTO system. 

Tune in to this podcast as Dawn Shackleford, President of Looking Glass Trade, LLC, and Consultant at the Hinrich Foundation, joins the Association of Foreign Press Correspondents-USA to discuss the Trump administration’s Section 122 tariffs, what they reveal about US trade policy, and the roles of the IMF and WTO. The podcast follows up on Shackleford’s recent article for the Hinrich Foundation, “Trump asserts trade payments problems. The IMF may want to sharpen its pencils.” 

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Transcript

Here is an excerpt from their conversation: 

Roseanne Gerin: Let's dig deeper into the IMF's role because it's central to this story and also an area where expectations often exceed reality. From your experience sitting on the WTO Balance-of-Payments [Restrictions] Committee, what is the high-level process that the IMF follows when it is asked to evaluate whether a member truly faces balance-of-payments pressures? 

Dawn Shackleford: Sure. Well, I want to step back just a little bit because this review is happening at the World Trade Organization, and it is an agreement that exists between the World Trade Organization and the IMF that triggers this IMF review. And it is enshrined in Article 15 of the GATT, but there is also an agreement between the WTO and IMF setup that facilitates this. But I just want to make clear that it is a WTO process where the IMF has been asked to provide this input. And what they do, because they really are the ones with the expertise, it's not the WTO or the WTO representatives necessarily or the member representatives because they're trade experts. They're not necessarily monetary fiscal experts. So they call on the IMF. And the IMF's role in this is they try to determine if there is a balance-of-payments crisis. And to do that, they analyze if a country can no longer finance imports or service foreign debt, and they look at whether there has been a rapid foreign exchange reserve depletion or massive capital outflows, or unsustained currency pressure. And this is something that the IMF regularly monitors already. So it would be on them to look at these key indicators that they do monitor and determine if there are large current account deficits, high short-term debt, and dwindling reserves. They then present this information, this macroeconomic picture to the WTO members, and they provide an assessment to their best ability of whether or not there is a balance-of-payments crisis. I will say that they're not always 100% definitive in their evaluation of this, but they will give information on all of these data points. 

Roseanne Gerin: You've noted that a real balance-of-payments crisis involves things like an inability to pay for essential imports or a major depletion of reserves. Without getting into monetary policy math, what is the reputational risk for the US if the IMF finds that these conditions simply don't exist for the world's reserve currency issuer? 

Dawn Shackleford: Well, indeed, it is somewhat unlikely that the IMF would come to a firm conclusion on that. In looking at current dollar figures, the US official reserve level as of March, it sits at $252 billion. So it seems as if there are adequate reserves. That said, it is important to understand that when the IMF presents its findings to the WTO, it has to go through an internal process that requires a fund statement approved by the IMF executive board. And there is an official US representative, her name is Shannon Ding, and she is the US representative on the board. So I would find it curious as to — there are 25 board members — whether or not the IMF would be able to get a unanimous and definitive position out of the executive board if there is a finding that the US does not have a balance-of-payments crisis. In that case, the IMF may provide input, but not necessarily provide a definitive determination on what the US situation is in terms of balance-of-payments. 

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