US shifts to Section 301 tariffs to plug $25.6bn budget hole
The White House is racing to replace expiring global tariffs with rule-bound Section 301 levies to halt a $25.6bn monthly drain on the Treasury, offering markets more predictability but inviting fresh legal challenges.
U.S. tariff revenue has swung from a $31.4 billion windfall to a $25.6 billion monthly deficit. The shift is forcing the Trump administration to overhaul the legal basis of its trade policy before a July 24 deadline.
The Supreme Court invalidated the president’s use of emergency powers to impose global import taxes in February. With refunds flowing to importers, Treasury income dropped to $22 billion in March and April before turning negative.
To stop the bleeding, the administration is pivoting to Section 301 of the 1974 Trade Act. This mechanism allows the president to penalize countries for unfair practices without the 150-day expiration of the interim Section 122 tariffs currently in place.
For corporate planners, the shift carries a distinct advantage. Unlike the discarded emergency powers law, Section 301 requires public comment periods and hearings, preventing the president from adjusting rates on a whim. “There’s less uncertainty but not no uncertainty,” said Sarah Bianchi, chief strategist of international political affairs at Evercore ISI.
U.S. Trade Representative Jamieson Greer has already proposed replacing the expiring 10% Section 122 tariffs with Section 301 levies targeting forced labor in 60 countries. The proposed rates - 10% on 16 nations and 12.5% on 44 others - would apply to 99% of U.S. imports.
Trade attorneys expect the forced-labor levies to be in place ahead of the July 24 deadline. “Really, they’re operating about as fast as legally possible,” said Nathaniel Halvorson, a partner at Baker McKenzie.
A separate investigation into overproduction by 16 trading partners, including China, the EU, and Japan, is expected to yield further tariffs. Ryan Majerus, a partner at King & Spalding, expects those levies to arrive after the November midterms “for obvious reasons.” He added: “They’re going to raise the tariff wall again.”
However, using these probes to resurrect a universal tariff regime could face judicial scrutiny. “Section 301s have been pretty legally durable,” Bianchi said. “But no one has tried to use it to basically put in place universal tariffs. I think there will be legal challenges.”
