Washington's New Tariff Grades 60 Economies on Their Import Laws

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 July 24 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. On June 2 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 labor, and proposed additional duties on all their products at either 10% or 12.5%. Comments closed on July 6, hearings opened on July 7, 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 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 labor 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 labor 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.

The list runs against intuition. Bangladesh and Cambodia, the two economies whose garment sectors attract more labor 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 scoring your import statute: whether your customs authority is empowered to stop forced labor 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.

There is no longer a country level answer to what an exporter will pay. Goods already caught by Section 232 sectoral duties, copper, steel, aluminum, 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 May 7, 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 within your control.

The 250 basis points are the unusual part. Trade officials spend most of their careers explaining to exporters that the tariff is a fact of nature imposed by somebody else's legislature. The lower band is available to any economy willing to legislate a forced labor 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 neighbors 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.