With the White House’s 10% Section 122 tariffs set to expire in late July, the office of the United States Trade Representative (USTR) yesterday proposed rolling out new tariffs on 60 countries.
The USTR said this is based under the guidelines under Section 301 of the Trade Act of 1974, stating that, “the acts, policies, and practices of these countries related to the failure to impose and effectively enforce a prohibition on the importation of goods produced with forced labor is unreasonable and burdens or restricts U.S. commerce, and are thus actionable under Section 301 (b) of the Trade Act.”
In March, the USTR announced Section 301 investigations related to what it called structural excess capacity and production in manufacturing sectors. Which was subsequently followed by an announcement indicating it had added another 60 countries to its Section 301 investigations list. The impetus for these additional investigations, according to USTR, was to determine whether acts, policies, and practices of each of these economies related to the failure to impose and effectively enforce a ban on the importation of goods produced with forced labor are unreasonable or discriminatory and burden or restrict U.S. commerce.
“The failure of our most important trading partners to address the importation of goods made with forced labor is unacceptable. This creates a dynamic where American workers are forced to compete globally on an unlevel playing field,” said Ambassador Jamieson Greer. “We will no longer tolerate this disparity. Some trading partners have taken initial steps to prevent the importation of forced labor goods, including through USMCA and commitments in Agreements on Reciprocal Trade. However, each of our trading partners must do more to ensure that trade does not perversely encourage and entrench forced labor globally.”
In terms of the planned tariffs, the USTR said it is proposing additional duties on all products of the investigated economies, with economies imposing a forced labor import prohibition and have committed to impose and enforce such a prohibition through an Agreement on Reciprocal Trade, as well as economies that have imposed a partial regime with the effect of preventing the importation of certain forced labor goods, it is calling for a 10% tariff. And for all other economies, it is proposing a 12.5% tariff, in addition to proposing a textile mechanism allowing for a certain volume of apparel and textile imports from certain economies to enter the U.S. at a reduced Section 301 tariff rate.
As previously reported by LM, in February, the United States Supreme Court ruled against the legality of the Trump administration’s implementation of tariffs under International Economic Emergency Protection Act (IEEPA). The White House did not hesitate to move forward with a 10% Section 122 tariff in its place, for a 150-day period, set to expire in late July, for what it describes as serious international payment imbalance and a growing U.S. balance-of-payments deficit, as well as pushing for increased domestic manufacturing, and stemming the flow of fentanyl across U.S. borders from Canada and Mexico.
Since then, a refund process through U.S. Customs and Border Protection went into effect on April 20, in the form of a new electronic tool called CAPE, the Consolidated Administration and Processing of Entries, that lets importers submit claims directly through the ACE Secure Data Portal. It gives companies their first clear way to recover duties tied to the now-invalid tariffs.
CBP said more than 330,000 importers paid roughly $166 billion in IEEPA duties across more than 53 million entries, making this one of the largest duty recovery efforts in recent history.
While the White House has commenced the refund process, a New York Times report published today stated that it is pushing back on the court order regarding paying out the refunds, with the report noting that the White House, “has indicated that it could hold up the return of potentially tens of billions in those previously paid duties.”
In a LinkedIn post, Pete Mento, Director, Global Trade Management Services, at Baker Tilly, likened Section 301 to the trade equivalent of the spare key hidden under the flower pot.
“When one legal authority gets challenged, policymakers start looking for another door into the house,” wrote Mento. “The important thing here is that no new tariffs have been announced yet. But if you’ve been wondering what comes after the reciprocal tariff cases, the Section 122 litigation, the appeals, the appeals of the appeals, and the inevitable appeals of those appeals… well, this may be your answer. The bigger lesson for importers remains the same: Stop treating tariffs as a temporary disruption. Start treating tariffs as a permanent operating expense that occasionally changes names. The duty rate may change. The legal authority may change. The court cases may change. But the tariffs? The tariffs appear to have achieved immortality.”
Keith Prather, Managing Director and Co-founder, at Armada Corporate Intelligence, told LM that the 12.5% tariff is lower than anticipated, adding that by showing by what he called “modicum of compliance,” some of the countries are already down at 10%, matching the level of the current Section 122 tariffs.
“What I don’t know is whether the other Section 301 investigation on structural imbalances would stack on these,” said Prather. “If one of those countries were found in violation and had 301’s applied in both cases, would they stack? We don’t know that yet. I thought we would eventually get to this stage: a new level of complexity in understanding applied tariffs. It’s a mess.
Overall, it’s not as bad as I thought it would be at first blush—but that solely depends on how the other 301 investigation comes in and whether they stack. For those 16 countries, if they are all found in violation, this 12.5% could be the base with another 10% or something stacked on top of it. At that point, it’s a hefty lift. Most firms had adjusted their pricing under the IEEPA tariffs at 15%-to-18%. The 122s at 10% were a bit of a tariff holiday of sorts (just look at how strong most earnings are). This first 12.5% is probably already built into pricing, but an additional 301 on top of it might force another industry market price adjustment.”
In a statement provided to LM, National Retail Federation (NRF) Vice President of Supply Chain and Customs Policy Jonathan Gold said that the retail industry abhors the use of forced labor in the global supply chain.
“Retailers continue to take meaningful steps to eliminate the use of forced labor by working closely with their supply chain partners,” added Gold. “As noted in our joint statement for the record, we do not believe tariffs are the appropriate tool to address whether a country has a ban on imports of goods made with forced labor. As USTR has correctly pointed out, many of the countries subject to the investigation and potential tariffs have laws and procedures in place or are engaged in negotiations as part of an Agreement on Reciprocal Trade. USTR and the U.S. government more broadly should continue working in partnership with the identified countries to address the use of forced labor in the supply chain. Retailers and other stakeholders should be considered partners to help achieve the goal in a collaborative effort, rather than through tariffs.”
There will be more to the White House tariff developments under Section 301 and other sections of trade law where tariffs can still be imposed going forwards, according to Paul Bingham, Director, Transportation Consulting, at S&P Global Market Intelligence.
“The administration also seems likely to continue to negotiate with individual trade partner countries in ways that could affect these new Section 301 forced labor tariffs, including adjusting tariff rates imposed using other remaining valid mechanisms, for whatever combination of objectives the administration includes as conditions for any deal,” said Bingham.
