Trump’s Tariffs Enter New Phase, Ending Months of Calm

When the Supreme Court in February struck down most of Trump’s second-term tariffs, he immediately replaced the illegal duties with a temporary 10% tariff that applied to nearly all U.S. imports. That 10% duty is legally limited to 150 days, which ends early Friday. The interim period ushered in relative stability in trade policy as officials crafted a new set of levies to replace it—a welcome relief for trade-reliant firms buffeted by constant policy shifts over the past year.

The calm is ending. U.S. Trade Representative Jamieson Greer said on CNBC on Tuesday that he expects new tariff action soon, previewing replacement tariffs for the ones that expire Friday. And a day earlier, Trump said he would impose additional 50% tariffs on certain goods from Canada, a move that pressures America’s northern neighbor to renegotiate the U.S.-Mexico-Canada Agreement. The Canada tariffs were separate from the sweeping global levies Trump is trying to rebuild after the Supreme Court ruling.

“We’re 3 days out from the page being turned,” said Drew DeLong, a former State Department official now at consulting firm Kearney. Many companies “have been kind of lulled to sleep on the tariff front for the last 5 months,” he added.

After the Supreme Court said Trump overstepped his authority last year by using a 1970s emergency law to impose levies, the president’s trade team is expected to impose duties under Section 301 of the Trade Act of 1974. Those are widely seen as more legally durable, but trade observers expect that overall U.S. tariff rates won’t change much in the short term under the new legal regime. In crafting the replacement tariffs, administration officials have said they would devise levies at similar levels to the expiring levies.

In March, Greer’s office opened a tariff investigation into 60 economies it accused of not prohibiting the use of forced labor in supply chains. Early this month, it issued a preliminary finding in the investigation, proposing 10% tariffs on more than a dozen U.S. trading partners including Canada, Mexico and the European Union, and 12.5% tariffs on over 40 nations, including China, India, Japan and South Korea. All told, Greer has said the tariffs would cover 99% of U.S. trade.

Trump can keep Section 301 levies in place indefinitely. But before that can happen, USTR must issue its final report in the tariff investigation, taking into account more than 1,500 comments from U.S. companies, many of which pleaded for exemptions from the coming levies.

The timeline is “incredibly tight” for USTR to issue the final report and provide guidance to Customs and Border Protection on how to implement the tariffs, said Ryan Majerus, a former Commerce Department trade official now at King & Spalding.

Though the scope of the levies could change from the preliminary report, Majerus said Trump is unlikely to initially impose forced-labor tariffs higher than levels he agreed to in a series of trade agreements struck with major economies last year. Deals with the EU, Japan and South Korea capped most U.S. tariffs at 15%.

USTR has also opened a separate Section 301 investigation into industrial overproduction from China and more than a dozen other nations. The preliminary tariff proposal in that probe hasn’t been released, but people familiar with the planning say that it could come as early as next month, which would set in motion a new comment period before tariffs would be imposed.

Once in place, the totality of the Section 301 tariffs could return the U.S. to an average tariff level similar to before the Supreme Court decision, said DeLong, the former State official. That would mean an average U.S. tariff of about 17%, up from about 11% today under the temporary measures.

Greer’s office is also overseeing a high-stakes renegotiation of the USMCA, its largest trade deal.

The U.S. is actively engaged in talks with Mexico, with U.S. officials traveling to Mexico City this week for a third round of negotiations. Talks with Canada, however, haven’t officially been opened yet, and the new tariffs Trump imposed Monday injected new tension into the relationship.

America’s role as a large buyer of Canadian goods adds leverage. Even before the latest round of tariffs, Canada’s central bank projected in January that growth would be about 1.5 percentage points lower this year versus a pre-tariff forecast, leaving projected growth at just 1.1%.

While the scope of the tariffs is relatively modest—$20 billion out of more than $380 billion of Canadian exports to the U.S.—the legal justification raised eyebrows in trade circles.

Trump proposed the new Canada tariffs under a never-before-used portion of U.S. trade law—Section 338 of the Tariff Act of 1930, which covers alleged discrimination on U.S. goods. That provision could give him more flexibility to impose tariffs on a whim, rather than the months of investigations required by Section 301.

Unlike previous Trump administration tariffs against Canada, the new duties override the protection offered by the USMCA, which makes them more impactful but also more vulnerable to legal challenges, said Abigail Watt, an economist at UBS. Thanks largely to the trade deal, about 85% of American imports from Canada were tariff-free last year, Watt said.

The new Canada tariffs could be averted if relations improve. On Tuesday, Canadian Prime Minister Mark Carney said he and Trump would accelerate trade talks in the coming weeks, ahead of the Aug. 19 deadline when the new U.S. tariffs would be imposed.

For most Americans, the most tangible impact of Trump’s trade war has been higher prices. Excluding volatile food and energy prices, the administration’s tariffs raised consumer prices for so-called core goods by about 3.4% through February, Federal Reserve economists have estimated—pushing the overall core inflation rate up by about 0.8 percentage point.

“There’s a great deal of support among businesses for the Administration’s goal to encourage more production in the United States,” said Jake Colvin, president of the National Foreign Trade Council, “but frequently changing the rules and ramping up new tariffs every few weeks isn’t the way to do it.”

Write to Gavin Bade at [email protected] and Matt Grossman at [email protected]