Excess Capacity Tariffs: Will They or Won’t They? Part 2

Back in August we asked why the Office of the U.S. Trade Representative had not acted on its Section 301 investigation into structural excess manufacturing capacity. We identified a host of possible reasons: tariff fatigue, ongoing trade negotiations, and questions about whether Section 301 provides a solid legal foundation for such a sweeping action. 

With the midterm elections now behind us, the Trump administration no longer has to worry about the immediate electoral consequences of announcing another round of tariffs. And off-the-record conversations in Washington suggest action could be coming in the next three to four weeks. 

Nevertheless, there are still some pretty strong reasons for caution. 

First, voters just sent a fairly clear message about affordability. Another broad tariff action could mean higher costs for importers, manufacturers, and ultimately consumers. 

Second, there’s China. The U.S. and China are trying to preserve their trade truce, and USTR just extended both the remaining China Section 301 exclusions, and the suspension of a separate Section 301 action on China maritime policies, into January. Slapping another tariff on Chinese goods would seem to push in exactly the opposite direction. 

Finally, there’s the legal question we flagged back in August. 

Just this past week, the Court of International Trade questioned USTR’s legal justification for broad forced labor Section 301 tariffs, including whether USTR demonstrated the necessary country-specific connection between the challenged practices and harm to U.S. commerce. Recent developments in that litigation suggest the court may be leaning toward ruling against at least some of those tariffs. 

That matters because the structural excess capacity action represents another stretch of Section 301 in a novel direction, which may ultimately be met with judicial pushback. 

So, will the election free the administration to finally pull the trigger? Or will economics, China, and the courts keep these tariffs on the shelf? 

We may know in three or four weeks.