President Donald Trump is facing a major legal challenge to the global tariffs he imposed last month after the Supreme Court struck down his earlier sweeping duties, setting up a fresh legal fight over executive power that could take months to resolve.

Trump’s proclamation placing a 10% tax on imports as of February 24 is “fatally flawed” and must be overturned, two dozen states said in a lawsuit filed on March 5 in the Court of International Trade in Manhattan. Trump has said he plans to increase the levy to 15%.

Thousands of U.S. companies are already seeking refunds for about $170 billion paid under the earlier tariffs that were overturned, which Trump issued under the International Emergency Economic Powers Act, or IEEPA. On February 20, the Supreme Court ruled 6-3 that the president issued those tariffs illegally.

Trump’s new tariffs were issued under a different law — Section 122 of the Trade Act of 1974, which has never been used before. The law allows the president to issue limited duties to address major “balance-of-payments deficits,” a situation the states say Trump is conflating with U.S. trade deficits.

“The president either doesn’t know the difference or he doesn’t care,” Arizona Attorney General Kris Mayes, a Democrat who is one of the leaders of the suit, said in a March 5 press conference. “Either way he is breaking the law.”

In a statement, White House Spokesman Kush Desai said, “The president is using his authority granted by Congress to address fundamental international payments problems and to deal with our country’s large and serious balance-of-payments deficits. The administration will vigorously defend the president’s action in court.”

The president pivoted to Section 122 after the Supreme Court last month invalidated tariffs he’d issued under the IEEPA, another law that had never previously been used to issue tariffs. The decision was handed down in two landmark cases, one of which was filed by the state attorneys general.

“As with his unlawful use of IEEPA, the president has once again exercised tariff authority that he does not have — involving a statute that does not authorize the tariffs he has imposed — to upend the constitutional order and bring chaos to the global economy,” the states said in the complaint.

The states allege that Trump’s order announcing the Section 122 tariffs was “riddled with omissions and mischaracterizations” around the meaning of a balance-of-payments deficit. The trade deficit cited by Trump is just one part of calculating the country’s balance of payments position, the states say.

Under Section 122, the president can order import duties of as much as 15%. The executive action can last 150 days, at which point Congress would have to extend it.

Oregon Attorney General Dan Rayfield, another leader of the suit, said Section 122 is an “archaic statute that was never intended for its current purpose,” and that Trump is only using it because he can’t get Congress to pass tariffs. “The truth is he doesn’t have the support of Congress and he doesn’t have the support of the American people,” Rayfield said.

Refund Fight

The clash over Section 122 is emerging just as the legal fight over refunds from Trump’s IEEPA tariffs is beginning to heat up. On March 4, a judge in the Manhattan-based trade court ordered the Trump administration halt a key step in the tariff payment process in order to make any refunds simpler. 

“If the lawsuit is successful, Section 122 tariffs could be invalidated just as the IEEPA tariffs were invalidated, which would create a new refund issue for Customs and importers,” said Jeff Harvey, a lawyer with Bradley Arant Boult Cummings LLP in Dallas. “For now, importers are caught in the middle of an administration insistent on imposing tariffs without clear authority to do so.”

In their new lawsuit, the states seek a court order finding the new tariffs illegal and requiring refunds for entities that have paid tariffs under Section 122.

“After the Supreme Court rejected his first attempt to impose sweeping tariffs, the president is causing more economic chaos and expecting Americans to foot the bill,” New York Attorney General Letitia James, another co-leader of the lawsuit, said in the statement.

The states argue that Trump’s new tariffs violate other requirements in Section 122, including that such duties not be discriminatory in their application. The states argue that Trump’s new tariffs improperly exempt some goods from Canada, Mexico, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua.

According to the complaint, the Trump administration conceded during the prior lawsuit against the president’s IEEPA tariffs that trade deficits “are conceptually distinct from balance of payments deficits.”

The case is Oregon v. Trump, 26-cv-1472, US Court of International Trade.