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The US government’s proposed Section 301 tariffs on 60 nations based on forced labor findings (effective post public hearings) are timed to replace the 10% Section 122 tariffs that expire 24-July, i.e., retain revenues. Differentiation is being attempted: 14 aligned nations get a 10% rate (others 12.5%), Section 232 metals tariffs have been tweaked to enable partner-specific rates, and the still ongoing excess-capacity probe against 16 partners can be used for leverage in bilateral deals. However, the risks of legal challenges are intact: concluding investigations on 60 countries in four months means significant scope for procedural lapses. Trade-policy uncertainty is likely to continue, though with lower differentiation attempted, it is a smaller risk for market volatility than last year.
Section 301 (labour) tariffs on 60 countries meant to preserve tariff revenues
The US Trade Representative (USTR) had two ongoing probes under Section 301 tariff authority i.e. (i) forced labour; (ii) excess capacity. Under the first, it has recommended 10/ 12.5% tariffs on 60 countries. As we anticipated, these tariffs are set to be effective just in time to replace the existing 10% baseline tariffs under Section 122, expiring on 24- July. A wide net (99% of US trade) and a hurried timeline confirm that the intent is revenue continuity. Tariff-exempt electronics, agri products, goods under USMCA and Section 232 tariffs (metals, pharma) and apparel/textiles under CAFTA-DR are out of scope.
Aligned partners got a 2.5pp preference (carrot); tariffs could still go up (stick)
All 60 countries under investigation were found to be deficient, but 14 (Canada, Mexico, EU, UK, Taiwan, Malaysia, Indonesia, Cambodia, Bangladesh, Pakistan, Argentina, Ecuador, El Salvador and Guatemala) received a 2.5pp tariff preference, i.e. 10% rate. This appears to be based on their closer alignment with the US administration on trade deals/geopolitics. Metals tariffs (Sec. 232) were also tweaked recently allowing country-specific concessions, confirming this bias. While it signals the US trying to use carrots to rebuild leverage with trading partners, the gap by itself is not meaningfully dis/advantageous. Add-on tariffs under the (still ongoing) second excess capacity probe targets 16 countries (all major trading partners ex-UK; including India) could be the ‘stick’ in trade negotiations.
Legal challenges are likely; trade and tariff uncertainty to rise once again
During the 2017 Section 301 probe on China, launch to public hearing took ~2 months; and findings took another 5 months. In this instance, public hearings for 60 countries are happening in less than 4 months from the date of initiation, with indicative tariffs already announced. While more durable than IEEPA authority, Section 301 tariffs could still be legally challenged on procedural lapses given a crunched timeline, especially because: (i) Section 122 tariffs have also been legally challenged; (ii) with the blanket use of these tariffs, the constitutional question on ‘delegated authority’ will resurface. Even as markets await certainty around the US-Iran war, trade/tariffs linked volatility could rise once again.
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