Economy
Trump’s new tariffs target problem many economists say doesn’t exist
President Donald Trump’s promised temporary 15% tariffs to replace those struck down by the U.S. Supreme Court are meant to resolve a problem that many economists say does not exist: a U.S. balance of payments crisis, making them potentially vulnerable to new legal challenges.
Hours after the high court on Friday struck down a huge swath of tariffs Trump had imposed under the International Emergency Economic Powers Act (IEEPA), the president announced the new duties under Section 122 of the Trade Act of 1974 – a never-used statute that even his own legal team dismissed as irrelevant months ago.
An initial 10% tariff came into effect at a minute past midnight on Tuesday, according to a customs notice, and it was unclear when the promised increase to 15% would take effect. So far, Trump has only signed an executive order for the 10% tariff.
The Section 122 law allows the president to impose duties of up to 15% for up to 150 days on any and all countries to address “large and serious” balance-of-payments deficits and “fundamental international payments problems.”
Trump’s tariff order argued that a serious balance of payments deficit existed in the form of a $1.2 trillion annual U.S. goods trade deficit and a current account deficit of 4% of gross domestic product (GDP) and a reversal of the U.S. primary income surplus.
Is there balance of payments crisis?
Some economists, including former International Monetary Fund (IMF) First Deputy Managing Director Gita Gopinath, disagreed with the Trump administration’s alarm.
“We can all agree that the U.S. is not facing a balance of payments crisis, which is when countries experience an exorbitant increase in international borrowing costs and lose access to financial markets,” Gopinath told Reuters.
Gopinath rejected the White House’s claim that a negative balance on the U.S. primary income for the first time since 1960 was evidence of a large and serious balance of payment problem.
She attributed the negative balance to a large increase in foreign purchases of U.S. equities and risky assets over the past decade, which outperformed foreign equities over this period.
Mark Sobel, a former U.S. Treasury and IMF official, said that balance of payments crises are more associated with countries that have fixed exchange rates, and noted that the floating-rate dollar has been steady, the 10-year Treasury yield fairly stable, with U.S. stocks performing well.
Josh Lipsky, chair of international economics at the Atlantic Council think tank, agreed, noting that a balance of payments crisis occurred when a country could not pay for what it was importing or was unable to service foreign debt. That was fundamentally different from a trade deficit, he added.
Brad Setser, a currency and trade expert at the Council on Foreign Relations who served as a senior adviser to the U.S. Trade Representative in the Biden administration, took a somewhat contrarian view, arguing in lengthy X posts on Sunday that the Trump administration may have a reasonable case that there is a “large and serious” balance of payments deficit.
He noted that the current account deficit was far higher than when then-president Richard Nixon erected tariffs in 1971 to address a balance of payments crisis, and the U.S. net international investment position is much worse. This “gives the administration a real argument,” in favor of its tariffs, Setser wrote.
Wrong statute for job
Despite the Trump administration’s new focus on balance of payments, the Justice Department had previously argued that Section 122 was the wrong statute to handle a national emergency over the trade deficit.
In court filings in its defense of IEEPA tariffs, the Justice Department said Section 122 would not have “any obvious application here, where the concerns the president identified in declaring an emergency arise from trade deficits, which are conceptually distinct from balance-of-payments deficits.”
Neal Katyal, who argued at the Supreme Court on behalf of plaintiffs challenging the IEEPA tariffs, told CNBC that the Trump administration’s stance against the use of Section 122 for a trade deficit will make those tariffs vulnerable to litigation.
“I’m not sure it will necessarily even need to get to the Supreme Court, but if the president adheres to this plan of using a statute that his own Justice Department has said he can’t use, yeah, I think that’s a pretty easy thing to litigate,” Katyal said.
It is unclear who might take the lead in challenging the Section 122 tariffs.
Sara Albrecht, chair of the Liberty Justice Center, a nonprofit, public-interest law firm representing several small businesses that challenged the IEEPA tariffs, said the group would closely monitor any new statutes being invoked.
Albrecht did not reveal any future litigation strategy, adding: “Our immediate focus is simple: making sure the refund process begins and that checks start flowing to the American businesses that paid those unconstitutional duties.”
In its ruling, the Supreme Court did not give instructions regarding refunds; instead, it remanded the case to a lower trade court to determine the next steps.
Vice President Cevdet Yılmaz on Tuesday said overall financial conditions were expected to improve in 2026, adding that the government is aware of financing challenges faced by the real sector and is implementing necessary measures to ease access to funding.
Speaking at the Investment Environment Improvement Coordination Council (YOIKK) meeting in Ankara, Yılmaz said the government remains determined and coordinated in its fight against inflation while seeking to strengthen financial stability.
“As the government, we continue our determined and coordinated efforts to reduce inflation. At the same time, we aim to provide a more solid foundation for the real sector by reinforcing financial stability,” he said.
Türkiye’s annual inflation eased to 30.7% in January. But a monthly spike of nearly 5% in consumer prices triggered market doubts about whether the downward course seen throughout 2025 is on track.
Officials have dismissed those doubts, saying there’s no deterioration in Türkiye’s disinflation path but rather a slowdown mainly due to food prices and seasonal effects.
Yılmaz said the global economy is navigating a period of heightened risk and uncertainty, with geopolitical developments, financial volatility and fragile trade flows directly affecting investment decisions.
Citing data from the United Nations Conference on Trade and Development (UNCTAD), he said leading indicators point to a 14% increase in global foreign direct investment (FDI) flows in 2025. However, much of the rise stemmed from financial transactions among developed economies, and when these are excluded, the real increase stands at around 4%.
FDI flows to developing countries declined by 2%, he added.
“Within such a global outlook, Türkiye has been among the positively differentiated countries, recording a 12.2% increase in 2025,” Yılmaz said, noting that international FDI inflows reached $13.1 billion.
He said wholesale and retail trade ranked first with a 32% share, driven largely by e-commerce investments, followed by manufacturing at 31% and information and communication at 14%.
Focus on quality investments
Yılmaz said the sectoral distribution shows investments are concentrated in areas that strengthen production infrastructure, increase trade volume and enhance technological capacity.
Under Türkiye’s International Direct Investment Strategy, the government continues to prioritize climate-friendly, digital, knowledge-intensive and global supply chain-oriented investments, he added.
Yılmaz said the government expects overall financial conditions to improve in 2026 while continuing selective measures to facilitate access to financing.
“We are aware of the difficulties our real sector faces, particularly in accessing finance, and we continue to implement necessary measures, especially for labor-intensive sectors and SMEs,” he said.
He highlighted a newly announced TL 100 billion ($2.28 billion) financing package aimed at preserving employment in manufacturing enterprises, particularly small and medium-sized businesses (SMEs).
In addition, he said a new program to be launched by the Turkish Employment Agency (IŞKUR) will support youth employment and strengthen labor-intensive manufacturing firms.
Yılmaz said the government’s investment-, employment-, production- and export-oriented policies are designed to reinforce balanced growth and stability while sustainably increasing social welfare.
The Turkish central bank released the results of its first Household Expectations Survey on Tuesday, which aims to track households’ views on inflation, currency and asset prices.
According to the survey, households’ 12-month-ahead inflation expectation held steady at 48.81%, the Central Bank of the Republic of Türkiye (CBRT) said.
Use of the new data source shows 12-month-ahead inflation expectations in January and February measured 3.3 and 2.3 points lower than the consumer tendency survey.
Türkiye’s annual inflation lastly eased to 30.7% in January. But a monthly spike of nearly 5% in consumer prices triggered market doubts about whether the course seen throughout 2025 is on track.
Officials have dismissed those doubts, saying there’s no deterioration in the disinflation path but rather a slowdown mainly due to food prices and seasonal effects.
According to CBRT’s survey, households said food and fuel/energy prices rose the most in the past year, and expect them to rise the most in the next 12 months.
Share of respondents citing food as the fastest rising category fell 0.2 points to 41.1% month-over-month.
The survey also showed that the expected increase in housing prices over 12 months fell 3.82 points to 35.41%.
A separate survey by the CBRT showed 12-month-ahead annual inflation expectations decreased by 0.1 points to 22.1% among market participants and by 0.9 points to 32% in the real sector.
Price increases are expected to remain lofty near 3% this month, and policymakers said a limited annual increase in headline inflation may be seen, with food prices again weighing.
But they expect the main trend to approach the lower November-December levels from March onward.
“While we maintain our policies to limit the reflection of temporary factors on pricing behavior, we continue to support the disinflation process with supply-side steps,” Treasury and Finance Minister Mehmet Şimşek said on the social media platform X on Tuesday.
The CBRT survey showed the Turkish lira to U.S. dollar exchange rate level expectation in 12-month-ahead declined 0.71 lira to 51.56.
Foreign exchange expectations below inflation projections imply households foresee a real appreciation of the lira.
According to the survey, preference for buying gold as an investment rose 2.7 points to 55.5%, while preference for buying property fell 1.2 points to 30% compared to the previous month.
In a blog on Tuesday, the central bank said it expects continued improvement in household inflation expectations as tight monetary policy and disinflation progress, narrowing the gap between expectations and actual inflation.
Logistics major FedEx took a legal turn and has become the first to sue the U.S. government seeking a refund of tariffs it paid under an emergency powers law that the Supreme Court recently ruled was unlawfully used to impose duties, a filing showed on Monday.
In a complaint filed with the U.S. Court of International Trade in New York on Monday, FedEx demanded a “full refund” of all tariffs collected under the 1977 International Emergency Economic Powers Act (IEEPA).
The lawsuit targets U.S. Customs and Border Protection, which is part of the Department of Homeland Security.
U.S. President Donald Trump has invoked the IEEPA to impose tariffs on dozens of trading partners without congressional approval since the start of his second term. The Supreme Court ruled on Friday that the law does not authorize a president to unilaterally levy tariffs.
The justices did not decide whether the government must reimburse importers, leaving the issue to lower courts.
Several U.S. media outlets described the FedEx filing as the first major corporate lawsuit by a U.S. company following the ruling. The logistics group argued it suffered harm by paying duties that have now been deemed unlawful.
After the court’s decision, observers anticipated a wave of refund claims. According to estimates by the University of Pennsylvania, potential repayments could total about $175 billion, roughly 2.5% of the federal budget.
European Union countries have failed to reach a consensus and agree on a 20th package of sanctions against Russia, mainly due to objections from Hungary’s side as the war in Ukraine entered its fifth year on Tuesday.
According to information obtained by Deutsche Presse-Agentur (dpa) by EU diplomats, Hungary, in particular, continued to block the planned tightening of sanctions against Russia.
During a Monday meeting of EU foreign ministers in Brussels, Hungary also reaffirmed its opposition to a multibillion-euro loan for Ukraine. Instead, only a 100 million euro ($117.8 million) emergency package for Ukraine’s energy infrastructure, which EU officials say can be approved without Hungary’s backing, is now expected to be announced.
“This is a setback and a message we did not want to send today,” said the EU’s top diplomat, Kaja Kallas.
The EU had planned to use the anniversary to send a signal of support to Ukrainians and reaffirm that the bloc would stand by them in their defense against Russian aggression.
EU leaders had also aimed to show Russian President Vladimir Putin that he cannot count on fading European solidarity and should come to the negotiating table.
Druzhba pipeline dispute
Hungarian Foreign Minister Peter Szijjarto on Monday said that his country would only agree to the measures to help Ukraine if Kyiv allows the resumption of Russian oil supplies through the Druzhba pipeline.
Szijjarto accused Kyiv of deliberately blocking the use of the pipeline, which runs through Ukraine, for political reasons.
Ukraine says that Russian bombing led to the flow of oil being stopped at the end of January.
Budapest’s position was supported by Slovakia. Like Hungary, Slovakia still purchases large quantities of Russian crude oil and says that it cannot guarantee its energy security without the supplies.
“I am astonished by Hungary’s position,” said German Foreign Minister Johann Wadephul as he arrived at the foreign ministers’ meeting.
“I do not believe it is right for Hungary to betray its own struggle for freedom and European sovereignty,” Wadephul said, alluding to the Soviet Union’s decades-long rule of Hungary following World War II.
Ministers had been expected to formally sign off on the 90 billion euro EU loan and the bloc’s 20th package of sanctions on Russia.
On Tuesday, a group of senior EU officials was due to travel to Ukraine to mark the anniversary of the Russian invasion on Feb. 24, 2022.
European Council President Antonio Costa, who is among them, said in a letter to Hungarian Prime Minister Viktor Orban that he would “raise this matter directly” with Ukrainian President Volodymyr Zelenskyy.
“A decision taken by the European Council must be respected. When leaders reach a consensus, they are bound by their decision. Any breach of this commitment constitutes a violation of the principle of sincere cooperation,” Costa wrote.
Even prior to the meeting, Orban had said that Budapest would block both measures unless the Druzhba pipeline supplies resume.
“I think we shouldn’t tie together things that are not connected to each other at all,” said Kallas.
The 90 billion euro loan was initially agreed by EU leaders, including Orban, in December and then approved by the European Parliament, but still needs to be formally signed off by EU ministers.
The funding is intended to meet Ukraine’s financial and military needs until the end of 2027, enabling it to further resist Moscow’s larger military might.
The EU’s 20th package of sanctions is to include a ban on maritime services related to exports of Russian crude oil.
In addition, the European Commission has proposed additional financial restrictions to further constrain Russia’s ability to carry out international payments to fund economic activities.
There are fears in Brussels that Orban is instrumentalizing the conflict for his current election campaign.
Last week, Orban claimed without any evidence that Ukraine was interested in him losing Hungary’s parliamentary elections scheduled for April 12.
Ukraine will require about $588 billion to rebuild after nearly four years of destruction caused by Russia’s invasion, an amount nearly three times the country’s annual economic output, according to a joint assessment released Monday by the World Bank and partner institutions.
The estimated total is 12% higher than the amount given last year, amid a winter of devastating Russian attacks on Ukrainian energy infrastructure that left millions of people without heating and power.
Four years of war have decimated Ukraine’s economy, reduced entire towns and cities to rubble and forced millions to flee their homes.
Kyiv’s Western allies have pledged hundreds of billions of dollars in aid to Ukraine since Russia invaded in February 2022, but Kyiv uses most of it for the war effort and to keep its economy afloat.
“Recovery and reconstruction needs continue to grow and are now estimated at US$587.7 billion over a 10-year horizon, equivalent to almost three times Ukraine’s 2025 GDP,” the report published jointly by the World Bank, Ukrainian government, United Nations and European Commission said.
The figure was calculated based on an assessment of damage caused up to Dec. 31, 2025.
Since then, Russia has launched more devastating attacks on Ukraine’s energy grid, including waves of missile and drone strikes that have completely destroyed some power plants.
More than one in seven homes in Ukraine have been damaged or destroyed as a result of the war, the report said.
Reconstruction costs were highest in the transport sector, at an estimated $96 billion, followed by the energy and housing sectors at around $90 billion each.
Clearing debris and “explosives hazard management”, essentially de-mining efforts, will require $28 billion.
The frontline Donetsk and Kharkiv regions will need the most investment, while the capital Kyiv will require more than $15 billion to recover, the report showed.
Ukraine’s Western allies have allocated more than $400 billion in financial, military and humanitarian assistance to Ukraine since Russia’s invasion, according to data from the Germany-based Kiel Institute.
A planned EU loan of 90 billion euros ($106 billion) will mostly go towards covering Ukraine’s military expenses, with the rest earmarked for general budget support, Brussels said in January.
Output in Türkiye’s construction sector surged 7.5% on an annual basis as of December last year, and the construction index saw its record high, according to data from the country’s statistical office compiled by Anadolu Agency (AA) on Monday.
Türkiye’s construction output index, without calendar effects, rose to its highest at 151.2 points in December 2025, the data showed.
The index reached 150.4 points when adjusted for calendar effects, the highest since January 2022, when the data began to be collected, up 7.5%.
The index, adjusted for both calendar and season effects, totaled 129.1 points at the same time.
Meanwhile, all sub-sector indices of the construction production index in December 2025 reached peak highs.
The building construction index rose 8.4%, the civil engineering index 5.8%, and the specialized construction activities index 5.5% year-over-year.
Construction in 2025 offsets 2024’s slowdown
Ali Hepşen, a professor of business administration at Istanbul University, told AA that the country’s construction production saw volatility for a long time, especially due to difficulties in financing, which suppressed production in 2024.
“However, reaching a peak level like 150.4 points is important – the acceleration on construction sites has already been felt in the field since the second half of last year, and the data reflects that,” he said.
He noted that the 8.4% rise in the building construction index reflects that housing remains the sector’s driver, while the rise in non-building construction, which Turkish Statistical Institute (TurkStat) calls the civil engineering index in its data, reflects the support from public investments. Meanwhile, specialized construction activities indicate that “the supply chain is working.”
He said these developments point to a “normalization rather than a new leap.”
“The slowdown in 2024 was offset in 2025,” he said. “The relative decrease in cost uncertainty accelerated unfinished projects.”
“However, the data alone does not indicate demand health or predictability since production and financial resilience are not the same – it’s necessary to make this distinction,” he added.
Hepşen said that extending this momentum into 2026 “would not be easy,” and that the rise last year was led by the completion of delayed production, so the continuation of this momentum depends on the start of new projects, which require financing.
He mentioned that contractors are more selective than before when it comes to starting new projects due to slow sales in certain price segments, but “there is no scenario that could completely slow down the sector.”
Urban transformation, earthquake-related projects
“Investments in earthquake-prone regions, urban transformation, and public projects may continue this year, but I don’t expect the same high momentum as last year, a more limited and balanced increase is the likely outcome this year, yet the peak of last year is still very important,” he said.
“The sector likes confidence, so when the index rises, suppliers relax, and banks become less distant, but the volume growth alone doesn’t measure success, as sustainability will be determined by financing conditions and demand levels,” he added.
Mustafa Ekiz, head of Turkish construction sector service provider Real Estate and Construction Platform, said that the rise in the index shows the sector “has once again assumed its role as the driver of the economy.”
“The rise shows that the housing demand is strong,” he said, noting that the construction production activity will continue into this year, “but the growth is expected to progress more steadily.”
“Access to financing, land costs and credit conditions will determine the pace of the sector this year,” he added.
Ekiz said the sector creates employment and stimulates related sectors, while shaping the future of cities.
“Planned production, appropriate financing models, and a quality urbanization approach are needed for sustainable growth,” he said.
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