The expiration of the temporary Section 122 tariffs on July 24 is expected to mark the beginning—not the end—of another chapter in U.S. trade policy.
While most industry observers anticipate that new Section 301 tariffs tied to the administration’s forced labor investigation will kick in immediately, they’re short on details about when the duties will begin and how the new measures will be implemented as they relate to the growing web of existing tariffs. And if that weren’t enough, the industry still faces additional duties as a result of separate Section 301 investigations into industrial overcapacity.
The myriad open questions are bringing more uncertainty for brands and retailers, according to Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation. Beyond the hit to margins and potential impact to retail costs, these companies are left to wonder whether today’s sourcing strategy could become tomorrow’s liability.
Here, Gold shares the knowns, how companies are dealing with the unknowns and what could come next.
HGI: We are close to the end of the 122 tariffs. How would you characterize the impact of the threat of more trade policy changes on the horizon?
Jon Gold: Everybody’s waiting with bated breath for USTR [United States Trade Representative] to make their announcement on the forced labor tariffs. But it’s been a continuous challenge for folks on how to plan accordingly when you are making your sourcing decision six, nine, 12 months in advance, not knowing what the tariff rates are going to be, not knowing who the tariffs are going to be on, and what’s next. In the pipeline, we’ve also got potential for tariffs on Vietnam, based on that 301 investigation, which just got underway.
HGI: Do you anticipate that when the 122s expire, the 301s will kick in immediately?
JG: Everybody expects that the 301s will kick in either immediately or shortly thereafter. [The 201s] are set to expire on the 24th. If the administration wants these other tariffs to take effect, they’ve got to give folks time to plan and implement. You can’t do this overnight. It takes time for the retailers and others to program their systems. Will there be an on-the-water provision that allows for product that’s already been shipped to avoid having to pay those higher tariffs? We just don’t know. They gave you a week for the Brazil tariffs. Will they do that with the 301s? Are they going to try and do it overnight? We just don’t know.
HGI: In order to extend the 122s, the administration would need Congressional approval. But is there any chance that they could reinstate the 122s once the initial tariffs expire?
JG: As far as we know, in order to extend the 122s they have to get it approved by Congress. In one interview, Ambassador [Jamieson] Greer mentioned that they could redo [the 201s], but I don’t think folks agree with that sentiment. Most in the trade legal community all agree that they’ve got to get Congress to renew it and not just reapply it for a different reason.
HGI: Are we anticipating that the 301s will look a lot like the IEEPA rates?
JG: The [301] rates that they proposed were 10 to 12.5%, which were around the 10% global that the [IEEPA] tariffs were. If you listen to some administration officials, they say they were just looking to replace the IEEPA tariffs. Ambassador Greer said no determinations have been made yet.
HGI: Are the forced labor and the overcapacity investigations and tariffs being handled separately?
JG: They’re two separate investigations. We’re still waiting for USTR to put out the remedy recommendations on the overcapacity. It’s unclear when they’re going to do that. The ultimate question, though, with all these different tariff rates, is how do they interact with each other? Do they stack on top of each other? You have individual 301s as well [with] Brazil and Vietnam. How do they all work together in concert with each other? That’s one of the things that we’re all still trying to figure out, and need guidance from the administration on. There’s still a lot of questions about the steel and aluminum tariffs and the derivatives. How do you calculate the value of the steel, aluminum or copper in a product to see if it fits within that tariff rate, and then how does the rest of the product get impacted?
HGI: Last year the tariff disruption was new and it was a shock. This year, how are businesses handling it, and does it seem like it’s a bit smoother, at least?
JG: It’s a bit smoother to the extent that you’re not getting different announcements on tariff rates daily. There’s still a lot of uncertainty, though. Again, how does this all play out? What are the rates going to be at the end of the day? How do I plan forwards? One of the things we’ve told folks is, wait until we see official announcements—out of the White House, an executive order or something else like that—before we make determinations.
And even with the tariff announcements, what is the end goal? Under forced labor, what are the points that these countries need to meet to get out from under the tariffs. Is it just putting a forced labor ban in place? What does implementation look like from a country’s perspective? How are we grading that implementation? As we’ve negotiated a bunch of these agreements on reciprocal trade that all include language on forced labor, if we’ve signed these agreements, why are we putting tariffs on them if they’re putting these measures in place? And who makes the determination whether or not implementation was done correctly? There’s got to be some give and take there, knowing that not every country has the same requirements and capabilities that the United States has. And someone questioned our ability to catch products made by forced labor, based on some of the challenges and issues from UFLPA enforcement..
HGI: How is all of this affecting sourcing decisions?
JG: Companies are trying to figure out who’s potentially next, and where is it safe to source from? During the first Trump administration, the message was, get out of China. So, we had some members who shifted footwear to production to Brazil. They did the right thing. It’s either Brazil, Vietnam or China where you’re going to make footwear. And Brazil gets hit twice now with additional tariffs that potentially put them higher than China. What are companies supposed to do? That’s the mindset with companies: if I shift, am I then opening myself to [a country that] could get hit further down the line?
