U.S. global tariffs, which had been temporarily introduced following the Supreme Court’s ruling that reciprocal tariffs were unlawful, will expire on the 24th local time. The Trump administration is moving to switch to tariffs under Section 301 of the Trade Act, and whether the 15% tariff cap secured through a trade agreement with South Korea will be upheld under the new system has emerged as the biggest question.
The U.S. 10% global tariff will expire on the 24th local time, and the announcement of a replacement measure under Section 301 of the Trade Act is imminent. The 15% tariff cap that South Korea secured through a trade agreement with the United States has become the key issue.
The U.S. Trade Representative (USTR) has been investigating countries since March under Section 301 of the Trade Act on two grounds: overproduction and forced labor. This is a step taken in preparation for the expiration of the global tariff.
◆ A gap created by the Supreme Court ruling… from Section 122 to Section 301
The starting point of the tariff system transition was a judicial decision. In February, the Supreme Court ruled that the Trump administration’s reciprocal tariffs were illegal. The administration then drew a defensive line with a 10% global tariff based on Section 122 of the Trade Act.
The Section 122 tariff was temporary from the outset. The law itself limits the imposition period to 150 days, making an extension impossible. That is why the expiration date was set for July 24. It is also why the Trump administration has been rushing to establish a new legal basis.
Section 301 of the Trade Act grants the administration authority to respond with tariffs and other measures to unfair or discriminatory foreign government practices. In effect, it replaces the legal basis that was struck down with another provision the court did not object to.
Unlike the temporary Section 122 measure, Section 301 has no separate time limit. Because it can be maintained on an ongoing basis, it is seen as a move to stabilize the legal foundation of tariff policy.
The rationale for imposing tariffs also changes. While reciprocal tariffs were imposed uniformly on the basis of trade deficits, Section 301 tariffs apply country by country based on specific reasons such as overproduction and forced labor. The fact that the usual 301 investigation, which typically takes around 12 months, has been completed in just three or four months is being interpreted as a race to meet the expiration date.
◆ 12.5% forced-labor tariff first… overproduction will be added later
The investigation targets 16 economic entities for overproduction and 60 for forced labor. South Korea was named in both categories.
The pace of the two tariffs differs. A plan to impose a 10% to 12.5% forced-labor tariff was announced early last month, and after the public hearing, only the final announcement remains. By contrast, no tariff plan has yet been announced for overproduction. Given the required steps after an announcement, it would be physically difficult to finalize it before the 24th.
Another notable feature is that the rationale of overproduction and forced labor was designed not to target a single country but to serve as a broad basis for tariffs. Since 60 economic entities were named under the forced-labor category alone, it is viewed as a framework that could effectively apply to most trading partners.
As the finalization dates for forced-labor and overproduction tariffs diverge, there is speculation that the USTR may first finalize the forced-labor tariff as early as this week to coincide with the expiration of the global tariff. If the overproduction tariff is later finalized, it will be added on top of the forced-labor tariff. South Korea would face a 12.5% forced-labor tariff plus the overproduction tariff.
When the legal basis changes, the conditions faced by exporting companies will also be reshaped, as tariff rates, applicable products, and procedures will all be redesigned. Since the expiration and replacement are happening within days of each other, concerns have been raised that confusion could arise in customs clearance and contract operations.
The tariff expansion appears likely to spread to other countries as well. The Financial Times (FT) reported on the 21st, citing sources, that Trump has prepared several options allowing him to impose new tariffs on dozens of countries this week. On the 20th, Trump also warned of an additional 50% tariff on most Canadian products, citing Section 338 of the Tariff Act of 1930 rather than Section 301.
However, senior White House officials were reported to have advised that the administration should respect trade agreements concluded with countries last year and maintain stable relations with trading partners. The judgment is that there is no reason to accept an economic shock and market instability caused by a trade war ahead of the November midterm elections.
◆ The key issue is the 15% cap… everything depends on how it is applied
The coexistence of signals favoring respect for agreements and hard-line warnings is one factor making predictions difficult. Given the precedent of warning even closest ally Canada with a 50% tariff, some caution that being a partner under an agreement is not automatically a safety net.
South Korea’s focus is on whether the 15% cap will be maintained. Since South Korea has already agreed to a 15% tariff with the United States, any Section 301 tariff exceeding 15% would amount to a violation of the agreement.
The initial signals are positive. Jamieson Greer, the USTR representative, publicly stated early last month that the tariff cap under the agreement would be respected. It was also reported that senior South Korean and U.S. officials discussed the 15% cap being maintained.
On paper, the 15% figure leaves only 2.5 percentage points of room beyond the already announced 12.5% forced-labor tariff. In other words, the overproduction tariff could push the total above the cap depending on its level.
But the method remains unclear. Possibilities include imposing the overproduction tariff separately and then reducing it to the 15% level, or setting conditions to match the cap. In any case, if a burden of “15% plus α” is imposed, accusations of violating the agreement would be unavoidable. Even if the nominal cap is maintained, concerns remain that additional conditions could increase the actual burden.
The gap between countries with and without trade agreements is already evident. The USTR imposed a 25% tariff on Brazil based on its Section 301 investigation. Brazil has no trade agreement with the United States, and the 25% tariff was imposed following an investigation into unfair practices more broadly. Brazil is also among the 60 countries under the forced-labor investigation, so once the forced-labor tariff is finalized, it would be added on top of the 25%.
For exporters, the structure of application may be as important as the final tariff rate. If the tariff is imposed separately and then reduced, refund or settlement procedures could arise; if it is conditional, the rate may vary depending on whether the conditions are met. Analysts say the actual burden can only be calculated after confirming the details of the announcement’s wording.
In other words, whether a trade agreement exists is acting as a variable that determines the level of tariffs. Since communication channels between governments have reportedly included mentions of maintaining the cap, the immediate risk of a complete breakdown is seen as low. Still, the prevailing view in trade circles is that uncertainty remains until it is formally documented.
Analysts say whether the 15% cap is upheld under Section 301 tariffs will be a litmus test for the credibility of U.S. trade agreements. How the cap is structured in the USTR announcement expected around the 24th will likely determine the burden on South Korean exporters.