The tariff line you can move by passing a law

The 10% surcharge the United States imposed on nearly all imports in February was built on Section 122 of the Trade Act, which carries a hard 150 day limit. The clock runs out on 24 July and the tariff dies without anyone lifting a finger. Nobody's landed cost is going to fall. USTR spent the 150 days constructing the replacement in full public view, and the load bearing piece of it is not the one most exporters have been watching. On 2 June it issued determinations in 60 Section 301 investigations into economies that have failed to impose and effectively enforce a prohibition on importing goods made with forced labour, and proposed additional duties on all their products at either 10% or 12.5%. Comments closed on 6 July, hearings opened on 7 July, and the practical effect, as White and Case reads the annexes, is to restore baseline duties on partners accounting for more than 99% of American goods imports.

What is new is not the level. It is that the baseline is now graded, and the grade is a legal test rather than an economic one. USTR sorted the 60 economies into four buckets. Six of them, Canada, Ecuador, the European Union, Indonesia, Mexico and Pakistan, have a forced labour import prohibition on the books but do not enforce it, which earns 10%. Seven more, Argentina, Bangladesh, Cambodia, El Salvador, Guatemala, Malaysia and Taiwan, earn 10% because they wrote a forced labour commitment into their Agreement on Reciprocal Trade. The United Kingdom gets 10% for a partial regime. Everyone else, 46 economies, pays 12.5%. The gap between the two grades is 250 basis points on everything you ship.

Now read the list against your intuitions, because they will be wrong. Bangladesh and Cambodia, the two economies whose garment sectors attract more labour scrutiny than almost any others on earth, land on the cheap side of the line. Norway and New Zealand pay the higher rate. So do Morocco, Nigeria, South Africa, Peru, Sri Lanka and the Philippines. The measure is not scoring the conditions in your factories at all. It is scoring your import statute: whether your customs authority is empowered to stop forced labour goods at your border, and whether you have promised in a bilateral agreement to build that machinery. Washington is exporting the architecture of its own import ban and has put a price on refusing to adopt it. Once you see the instrument for what it is, the policy question in front of a trade ministry becomes a good deal clearer than the moral one it is dressed in.

The second thing to absorb is that there is no longer a country level answer to what an exporter will pay. Goods already caught by Section 232 sectoral duties, copper, steel, aluminium, pharmaceuticals, wood products, vehicles and parts, are carved out. USMCA originating goods are carved out. Textiles and apparel from Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua that qualify under CAFTA-DR yarn forward rules are carved out. The Annex A exclusion list, identical to the one used for the expiring surcharge, takes out a long tail of food, energy, raw materials and civil aircraft. There is also a proposed textile mechanism that would cut the rate on apparel in proportion to how much American cotton and textile the exporting economy buys, which is a purchase linked tariff discount, and worth reading closely if apparel is your sector. And absent contrary guidance in the final notice, Section 301 duties stack on other Section 301 duties. Any agency circulating a single number for its country this month is going to be wrong, and wrong in front of firms who will discover it at the port.

None of this is settled, which cuts both ways. The Court of International Trade struck down the Section 122 surcharge on 7 May, though the injunction reached only the three importers who established standing, and the government has appealed. The Supreme Court had already invalidated the earlier tariff basis in February, which is why this reconstruction exercise exists at all. A ministry that assumes the new action is permanent will over-adjust; a ministry that assumes litigation will save it will be caught flat. The defensible posture is to treat the 12.5% as the planning number, treat the legal challenges as an option with unknown value, and spend your energy on the part of the structure that is actually within your control.

Which brings it back to the 250 basis points, and this is the unusual bit. Trade officials spend most of their careers explaining to exporters that the tariff is a fact of nature imposed by somebody else's legislature. Here, for once, it is not. The lower band is available to any economy willing to legislate a forced labour import prohibition or to write the commitment into a bilateral agreement, and the price of not doing so is now published. Whether that trade is worth making is a real sovereign question, with consequences for how you then treat imports from your own neighbours and largest suppliers, and reasonable governments will land in different places. What no trade ministry should do is arrive at 12.5% by drift, having never put the two options side by side with the number attached.