Trade policy is entering another pivotal week. As Section 122 tariffs expire on July 24, not one but two new waves of Section 301 tariffs are set to take effect. In the meantime, the long-awaited elimination of de minimis treatment for low-value imports will force thousands of businesses to adapt to new compliance requirements. Taken together, it all prompted an earlier peak season as brands and retailers attempted to import goods ahead of whatever the next chapter brings.
In a briefing at the Port of Los Angeles, Dartmouth University trade economist Douglas Irwin outlines what to expect from the Section 301 tariffs, how country-specific rates could trigger another major reshuffling of global sourcing strategies and why volatility—not stability—will define U.S. trade policy for the remainder of the administration. He also offers his perspective on what the post-Trump trade landscape could look like.
Irwin on whether Section 301 tariffs will be IEEPA version 2.0:
“[The section 122] tariffs are going to be replaced by new tariffs under Section 301, and there’s two tranches. The first one is going to replicate, in some sense, the 122 tariffs. They’re going to be a flat tariff of 10 to 12.5%, ostensibly for other countries not complying with forced labor provisions and trade agreements. But there’s some other looming tariffs on Section 301.
There’s another Section 301 set of cases that deals with a smaller set of countries that is said to deal with excess capacity and, in some sense, dumping of foreign goods. So there’s going to be a number of big countries that we buy a lot from that will be affected by this. We don’t know those rates, but the second round of 301 tariffs could replicate what we saw on Liberation Day. That is, under Section 301 the president has a lot of discretion in terms of what the tariff rates are by country and commodity. Those tariff rates could be much higher, and there could be much greater variance across countries, really hitting certain countries hard and other countries less hard.
What that means is big reshufflings of supply chains, depending on what those tariffs are. Then the other question is: Are those just an initial bargaining tariff, or are they going to be in place for some time? Are they going to be changing month to month, or are they going to be fixed? That just adds another layer of uncertainty to importers in terms of sourcing and what they’re going to have to pay. This is sort of the environment we’re going to be in for the next two years: uncertainty about USMCA, uncertainty about the China relationship, and then uncertainty with these Section 301 tariffs—that’s the most immediate threat.”
On how shipping logistics are set to change this week:
“The second thing that happens [this week] is that the de minimis provisions in the U.S. tariff code are going to be eliminated, and small packages will have to go through this special tariff process. But for a whole host of importers that bring in smaller valued items and are used to easy shipment by mail without much bureaucratic interference, that’s going to change. The small importers are really going to be affected by the new compliance requirements that the government’s establishing. Not only will they have to pay the import surcharge or the tariff on those goods now, but just the bureaucratic compliance in terms of shipping forms and things of that sort will gum up the works for a bit until we settle in and realize how the system works.”
On where the U.S. stands with China now:
“Here’s where we are with respect to China: the administration, in some sense, has pursued some aggressive policies to deny it access to technology, but hasn’t escalated the trade war the way we saw right after Liberation Day when those tariffs hit 145%. They quickly came down, are now stabilized, but we’re in this uneasy truce. So in terms of restoring U.S.-China trade, I think it’s going to be difficult, precisely because we don’t have assurance that that truce, in some sense, will hold. The president could, and maybe after the USMCA renegotiation, turn back to China and want to ratchet up the pressure. Or maybe we’re in a new situation where China doesn’t get touched as much, and the tariffs remain stable. We just don’t know, and that’s going to be a deterrent to reinvesting in China or relying on China for imported goods, as opposed to going to a Vietnam or another Southeast Asian country, or maybe even more locally Mexico for long-term sourcing.”
On whether the erratic trade policy under Trump will continue with subsequent administrations:
“I think there will be a settling down after the Trump administration. We’ve had so much chaos and volatility that any new administration, whether it’s Republican or Democrat, will still be concerned about trade policy in a big way, but want more stability and want to put it on the back burner. Historically, that’s the way it’s worked. Presidents want to shape trade, but once they’ve shaped it in the way they want, they move on to other issues, and with this administration, they never really move on. But that doesn’t mean we go back to the status quo antebellum in some sense. We go back to where we were in, say, 2015 with respect to trade policy, because once these tariffs go up, supply chains adjust to them, vested interests have a stake in them, and so I think any new administration will have difficulty completely revamping trade policy, bringing those tariffs down. What tends to go up quickly sometimes comes down slowly.”
