The Trump administration is working to re-establish a significant tariff structure following a Supreme Court ruling that struck down its broad import taxes. The court's February decision invalidated the use of the 1977 International Emergency Economic Powers Act (IEEPA) for imposing tariffs, which had previously generated substantial revenue for the U.S. Treasury.
Initially, the administration turned to Section 122 of the Trade Act of 1974 to impose a 10% global tariff, but these are set to expire on July 24 after a 150-day limit. With a rapidly approaching deadline and potential political headwinds against extending them before the midterm elections, the focus has shifted to more durable legal authorities.
Trade attorneys and officials are confident that the administration will successfully replace the expiring tariffs with measures authorized under Section 301 of the same 1974 trade law. This section permits the president to impose tariffs and other sanctions against countries engaged in "unjustifiable," "unreasonable," or "discriminatory" trade practices. Former President Trump previously utilized Section 301 to implement significant tariffs on China, and the administration is reportedly revisiting this approach, recently announcing 25% tariffs on certain Brazilian imports citing unfair trade practices.
Shifting Revenue Landscape
Revenue from import taxes, which peaked at over $31.4 billion last October, saw a significant decline after the Supreme Court ruling. Monthly revenue dropped to $22 billion in March and April. The issuance of refunds to importers, coupled with incoming revenue from Section 122 and other tariffs, led to a negative balance in May and a substantial loss of $25.6 billion in June, transforming the tariff income from a windfall into a drain on the Treasury.
Leveraging Section 301
Section 301 provides the president with the authority to impose and adjust tariffs in response to international trade practices, with no inherent limits on the tariff rates. While these tariffs can be renewed after four years, the administration must adhere to procedural requirements, including public comment periods and hearings, before imposing them. This contrasts with the more immediate imposition of tariffs under IEEPA, which had created uncertainty for businesses regarding trade rules.
A transition to Section 301 tariffs is expected to reduce some of this uncertainty, though not eliminate it entirely. The administration is pursuing two main Section 301 investigations to bolster tariff revenue. One investigation targets 60 countries for allegedly insufficient action against imports produced by forced labor. The other examines whether 16 U.S. trading partners, including China, the European Union, and Japan, are overproducing goods, thereby lowering global prices and disadvantaging American manufacturers.
Regarding the forced labor issue, the U.S. Trade Representative has proposed tariffs of 10% on 16 countries and 12.5% on 44, which are comparable to or slightly higher than the expiring Section 122 levies. Public comments are still being collected, with the expectation that these tariffs will be implemented promptly to minimize any gap with the expiring measures.
The investigation into alleged overproduction is ongoing, with expectations of new, larger tariff proposals in the coming months. Some analysts anticipate these tariffs might be timed to take effect after the midterm elections. While Section 301 tariffs have historically been legally resilient, their use for imposing universal tariffs may face future legal challenges.