Section 122, invoked to place 10% tariffs, was written primarily to address balance payments issues under fixed exchange rates. By balance of payments accouting:
CA + FA +ORT ≡ 0, ORT is official reserves transactions, ORT > 0 implies decumulation.
So CA + FA < 0 requires total reserves to be decreasing. Is that the case?
Alternatively, a crash in the currency’s value. What’s reality?
Figure 1: Total reserves ex-gold, bn.$ (blue, left log scale), real value of US dollar against a broad basket of currencies, 2006M01=100 (red, right log scale). NBER defined peak-to-trough recession dates shaded gray. Source: IMF, Federal Reserve Board via FRED, NBER.
If IEEPA tariffs are not replaced with Section 122 tariffs, then the effective tariff rate of 16.9% drops to 9.1% (pre-substitution).
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