Hi there,
First came the scattergun “Liberation Day” tariffs targeting dozens of countries back in April last year — struck down as unlawful by the U.S. Supreme Court 10 months later. In their place came a global tariff of 10% — a temporary measure expiring on Friday. Now the world is bracing for a new generation of American import tariffs based around a whole new set of grievances.
Yes, Tariff Man — as U.S. President Donald Trump dubbed himself as far back as 2018 — is back. The goal is essentially to rebuild the tariff armoury he tried to put in place over a year ago, but this time on a legal basis that will stick. The weapon of choice is Section 301 of the U.S. Trade Act, a provision authorizing investigations into alleged unfair trade practices that until now had largely been used against China.
First up was Brazil, which as of Wednesday was hit by a new 25% U.S. tariff on goods ranging from farm machinery to wood products, ethanol and apparel. No matter that Brazil is a country with which the U.S. enjoys a trade surplus: Washington argues the tariffs are needed to counter what it calls unfair trade practices and illegal deforestation. Brazilian President Luiz Inacio Lula da Silva, expected to run for re-election in October, said the U.S. decision is unjustified.
Coming days may see a bunch of similar moves based on the U.S. accusation that its commercial partners are not doing enough to curb the trade in goods made from forced labor — an accusation that the Trump administration has made against some 60 countries. Beyond the heated debate about whether U.S. rules in this area are actually stricter than, say, those of the European Union, businesses are looking closely at how exactly the new measure will be applied and fear it could be arbitrary.
Another big Section 301 move will be justified as an attempt to curb the rising tide of exports from countries with what the U.S. sees as excess factory capacity: 16 major trading partners could be targeted, including China, the European Union, Japan, South Korea, Mexico and Vietnam. For now, that is seen as less imminent.
And a few curveballs have been thrown into the mix already: a separate Section 301 investigation targeting Germany after a recent health reform aimed at keeping a lid on the prices paid for pharmaceuticals; threats of tariffs on France and others if they go ahead with taxes on U.S. digital services; and of course there was the threat (possibly now withdrawn) to cut off all trade with Spain for not spending enough on defense.
Where all this leaves Trump’s tariff policy is going to be interesting to pick apart. On the one hand, the moves against countries like Brazil contain exemptions on some of the products that U.S. households enjoy the most (coffee, anyone?). That limits the amount of money that will be raised by them. And let’s say the U.S. imposes a 10% tariff on the EU over forced labor and a bit more for excess capacity: some trade analysts think that would in any case be superseded by the 15% rate for EU imports already agreed in last year’s Turnberry deal between the two sides.
On the other hand, it’s true the Trump administration could do with the cash: refunds of the Liberation Day tariffs after they were ruled illegal pushed the federal budget deficit to $120 billion in June — a sharp reversal of the tariff windfalls to the U.S. Treasury in 2025.
Whichever way this goes, if Tariff Man were a movie, it’s a fair bet that we’ll see more sequels yet.
Mark
