Key Takeaways
- Losing IEEPA did not end the tariff wall; it re-engineered it onto a portfolio of narrower authorities, including the Section 301 forced-labor action, Section 338 measures against Canada and Section 232 sectoral tariffs.
- The result is a regime that is more fragmented, more litigated and more administratively burdensome than the universal tariff structure it replaced. The Section 301 forced-labor action, covering approximately 99.4 percent of U.S. imports at rates generally ranging from 10 to 12.5 percent, remains the load-bearing and most legally exposed measure, now facing both importer and multistate challenges.
- The six-month base case is continued collection during litigation, accompanied by selective exclusions, negotiated modifications and substitution through narrower tariff authorities if courts intervene, rather than a return to a tariff-free environment.
- The operational takeaway is to plan at the entry level rather than the country level, using a tariff matrix keyed to HTS classification, origin, Section 232 status, applicable Section 301 and Section 338 coverage, exclusions, quotas and stacking, with particular attention to FTZ privileged foreign status, drawback eligibility and potential retaliation affecting U.S. exporters.
Introduction: The Wall and What Sticks
The Supreme Court’s rejection of the Trump Administration’s use of the International Emergency Economic Powers Act (IEEPA) did not end the Administration’s effort to establish a broad tariff floor. It changed the legal engineering.
The emerging regime is a portfolio of older, narrower and sometimes obscure statutory authorities: Section 301 for forced labor and other allegedly unreasonable foreign practices, Section 338 of the Tariff Act of 1930 for discriminatory treatment of U.S. commerce, Section 232 for sectoral national security tariffs, and, briefly, Section 122 for balance of payments relief. The practical result for traders is not a return to the pre-tariff environment. It is a more fragmented system in which tariff liability increasingly depends on the intersection of country of origin, tariff classification, product content, importer identity, corporate commitments and the specific proclamation governing the entry.
The Supreme Court held in February 2026 that IEEPA does not authorize tariffs. The Administration then imposed a temporary 10 percent surcharge under Section 122, but the Court of International Trade found that measure unlawful in May.[1] The surcharge nevertheless remained under appeal until its statutory expiration on July 24, with approximately $31 billion reportedly assessed through July 5.
The Administration has now moved to authorities that expressly mention tariffs or import restrictions. That is a materially stronger legal position than IEEPA, but not an impregnable one. The new forced labor action under Section 301 is particularly vulnerable because of its scale and the attenuated connection between the alleged foreign conduct and the burden on U.S. commerce.
Measures Now Shaping the Tariff Environment
| Measure | Timing and Coverage | Principal Commercial Effect | Preliminary Legal Assessment |
|---|---|---|---|
| Section 301 forced labor action | Effective July 24, 2026. Covers 60 economies representing approximately 99.4 percent of U.S. imports. Rates are generally 10 percent or 12.5 percent, subject to lower aggregate caps for certain partners and extensive product exclusions. | Functions as a replacement baseline tariff across most imports. Goods subject to Section 232 are excluded, but importers must examine the detailed annexes rather than rely on headline rates. | Multiple importer and multistate challenges are now pending. There is a material risk of judicial narrowing, although continued collection during litigation remains more likely than immediate suspension. |
| Brazil Section 301 action | Effective July 22, 2026. A 25 percent additional tariff applies across numerous product categories, subject to exclusions. | On products also covered by the forced labor action, the combined additional tariff can reach 37.5 percent before ordinary duties. | Legally more conventional than the global forced labor action because it rests on a country specific investigation, but retaliation and negotiated modification remain likely. |
| Canada Section 338 action | Scheduled to take effect August 19. A 50 percent additional duty applies to selected Canadian products, covering approximately $20 billion, or about 5 percent, of U.S. imports from Canada. | Certain goods could face the 50 percent Section 338 duty plus the 10 percent forced labor duty and ordinary MFN duty. Section 232 goods and several strategic Canadian sectors are excluded. | Litigation is likely if the measure takes effect. The absence of judicial precedent creates uncertainty, although Section 338 expressly authorizes duties of up to 50 percent. |
| Pharmaceuticals under Section 232 | Initial company specific implementation begins July 31, with broader implementation scheduled for September 29. Rates on patented pharmaceuticals and active ingredients may reach 100 percent, with lower treatment for certain trading partners and companies undertaking U.S. production. | Potentially significant restructuring of sourcing, inventory, transfer pricing and manufacturing commitments. Generic products are presently excluded. | Comparatively durable, provided Commerce maintains a credible national security record and the Administration follows the statutory process. |
| Metals under Section 232 | Current rates include 50 percent on principal steel, aluminum and copper products, with differentiated treatment for certain derivatives and industrial equipment. | Continued classification, metal content and origin complexity. Product specific exclusions and domestic content rules may be as important as the headline rate. | Lower statutory authority risk than the global Section 301 action, but individual classifications, exclusions and derivative designations will remain contestable. |
| Commercial aircraft and parts | Section 232 negotiations began July 9. Tariffs may be imposed if agreements are not reached within 180 days. | Creates pricing and sourcing uncertainty extending into January 2027, particularly for engines, avionics, components and maintenance supply chains. | Negotiation is more likely than immediate across the board application, but contracts should account for the tariff contingency. |
The Principal Legal Fault Line: Forced Labor Under Section 301
The U.S. Trade Representative’s (USTR) theory is not wholly invented. Section 301 permits action against an unreasonable or discriminatory foreign act, policy or practice that burdens or restricts U.S. commerce. The statute’s definition of unreasonable conduct specifically refers to a persistent pattern of conduct that permits forced labor. USTR therefore argues that countries failing to prohibit imports made with forced labor are tolerating practices that disadvantage U.S. producers operating under stricter labor and supply chain requirements.
The legal problem is the leap from that statutory language to a near universal tariff. The challenged conduct is not necessarily the use of forced labor within the targeted country. It is frequently the country’s failure to adopt and enforce an import prohibition comparable to the U.S. regime. Plaintiffs can therefore argue that USTR has transformed a provision directed at identifiable foreign practices into a mechanism for compelling other governments to enact U.S. preferred domestic legislation.
Litigation has now broadened beyond the initial private-importer challenges. Two businesses challenged the tariffs when they took effect on July 24, and on August 3 a coalition of 25 states filed a separate action in the Court of International Trade (CIT). The states contend that USTR exceeded its Section 301 authority and violated the Administrative Procedure Act by using forced labor as a pretext to preserve a substantially global tariff policy, relying on insufficiently individualized country findings and imposing rates with no rational relationship to the alleged foreign practices. The addition of a coordinated multistate challenge materially increases the institutional and political weight of the litigation, although it does not necessarily make immediate suspension of tariff collection more likely.
The Administration begins from a stronger position than it had under IEEPA. Section 301 expressly authorizes tariffs, and the Federal Circuit’s 2025 decision in HMTX Industries afforded USTR considerable latitude in modifying and extending Section 301 measures. The Supreme Court declined to review that decision in June.
Nevertheless, the forced labor action presents issues that HMTX did not resolve:
- Whether the absence of a foreign import ban constitutes an act, policy or practice within Section 301.
- Whether USTR established a sufficient causal relationship between each country’s conduct and a burden on U.S. commerce.
- Whether a substantially global tariff supported by generalized findings is arbitrary, capricious or unsupported by substantial evidence.
- Whether the extraordinary economic reach of the measure triggers the major questions doctrine.
Our six-month assessment is that collection is more likely than suspension. Courts may be reluctant to enjoin a measure expressly linked to forced labor, particularly where the tariff statute contains explicit remedial authority.[2] The greater risk is a later ruling requiring more specific findings, narrower country coverage or a more direct relationship between the challenged conduct and the tariff imposed.
Section 338: Broad Text, Almost No Jurisprudence
The Canadian action revives Section 338 of the Tariff Act of 1930 (aka Smoot-Hawley), a dormant interwar provision authorizing the President to impose additional duties of up to 50 percent where a foreign country discriminates against U.S. commerce. Historically, the provision was used principally to investigate discriminatory treatment and support negotiations rather than to impose penalty tariffs. The U.S. International Trade Commission (USITC) activity under Section 338 largely ended after Congress enacted the more developed Section 301 framework in 1974. The Canadian measures therefore appear to represent the first direct use of Section 338 to impose the additional duties contemplated by the statute.
Its breadth is both its attraction and its weakness. Section 338 contains no detailed petition, hearing, consultation or public-determination process comparable to Section 301, and courts have had virtually no opportunity to define what constitutes discrimination, how much evidence is required to establish a disadvantage to U.S. commerce, or how closely the selected tariff must relate to the burden it is intended to “offset.” The strongest challenges are therefore likely to concern statutory fit, the adequacy of the factual record, and the relationship between the alleged discrimination and the products and rates selected.
For commercial planning, negotiation remains the more immediate variable. Section 338 provides a 30-day implementation period and permits the President to amend, suspend or revoke a proclamation, creating a clear window for concessions or negotiated modification. A narrowing, postponement or suspension of the Canadian measures before a final judicial ruling is at least as plausible as a court resolving the merits during the next six months.
Six-Month Outlook
The base case through January 2027 is that the replacement tariff regime remains substantially operational, although its composition will continue to shift. The Section 301 forced-labor duties are likely to remain in effect while litigation proceeds, potentially accompanied by expanded exclusions or more differentiated country treatment. The Canadian Section 338 measure is more likely to be negotiated, postponed or narrowed than to remain indefinitely in its announced form, while Section 232 is likely to become the Administration’s principal vehicle for additional sector-specific tariffs. A material judicial narrowing of one or more measures remains possible, particularly given the unresolved statutory and evidentiary questions surrounding the forced-labor action and the limited judicial history of Section 338. Even an adverse ruling, however, would not necessarily produce immediate relief because appeals, stays and liquidation timing could delay refunds, while the Administration substitutes narrower Section 301 or additional Section 232 measures.
Moreover, additional U.S. tariffs, foreign retaliation, WTO proceedings and negotiated countermeasures may occur while the existing regime remains in force. The 16-economy Section 301 investigation into structural excess capacity is the most important prospective action because it provides USTR with a platform for country- and sector-specific tariffs tied more directly to subsidies, excess production, trade distortions and injury to U.S. manufacturing. Companies should therefore plan for continued tariff volatility, selective modifications, additional sectoral measures, and parallel litigation rather than a definitive judicial or negotiated resolution during the next six months.[3]
What The Administration Could Use Next
If courts reject both the forced labor theory and the Section 338 approach, the likely response will not be abandonment of tariffs. It will be further fragmentation.
| Alternative Authority | Likely Use | Principal Constraint | Six-Month Probability |
|---|---|---|---|
| Section 232 | Additional sectoral tariffs on semiconductors, critical minerals, pharmaceuticals, aircraft, machinery and other strategically framed products. | Requires a Commerce investigation and a plausible national security nexus. | High |
| Narrower Section 301 actions | Country specific and product specific actions supported by more detailed findings concerning subsidies, excess capacity, digital regulation, intellectual property or market access. | Requires a defensible burden on U.S. commerce and an administrative record proportionate to the action. | High |
| Section 201 safeguards | Temporary global relief for industries seriously injured or threatened by increased imports. | Requires an affirmative USITC injury determination and is product specific rather than economy wide. | Moderate |
| Antidumping and countervailing duties | Expansion of traditional product and country specific trade remedy cases. | Slower, evidence intensive and dependent on dumping, subsidies and material injury findings. | High, but targeted |
| Forced labor import prohibitions | More Withhold Release Orders (WRO), findings and UFLPA entity designations under 19 U.S.C. § 1307. | Blocks imports rather than generating broad tariff revenue and requires supply chain evidence. | High |
| Section 122 | Another temporary balance of payments surcharge. | Limited to 150 days without Congress and already subject to an adverse Court of International Trade ruling. | Low |
| New legislation | A congressionally enacted baseline tariff or broader delegation. | Politically difficult, but legally the most durable route. | Low/Non-existent in the present Congress |
Immediate Implications for Importers and Exporters
Importers should construct an entry-level tariff matrix rather than rely on a country-level schedule. The matrix should capture HTS classification, origin, Section 232 status, applicable Section 301 annexes, Section 338 coverage, exclusions, tariff rate quotas and possible stacking. Particular attention should be paid to foreign trade zone admissions, because several measures require privileged foreign status, and to whether drawback is expressly permitted.
The multiplication of overlapping measures also increases the consequences of rushed or insufficiently supported entries. Classification, origin, value, product content and exclusion eligibility will frequently determine whether additional duties apply. Importers should therefore ensure that tariff positions are supported by contemporaneous records and that customs brokers receive complete and accurate information. Use of a broker does not transfer the importer’s responsibility for the accuracy of its entries.
The potential consequence is not limited to additional duties, interest or administrative penalties. DOJ has made tariff and customs-duty evasion a specific enforcement priority and, together with DHS, established a Trade Fraud Task Force focused on false origin declarations, misclassification, transshipment and other material misrepresentations to CBP. DOJ reported that the Task Force surpassed $1 billion in recoveries, penalties, forfeitures and publicly charged losses during its first year. Recent False Claims Act (FCA) settlements include $549.5 million penalty involving allegedly mischaracterized aluminum products, $54.4 million penalty involving alleged origin and classification misstatements for Chinese tungsten carbide, and $7.3 million penalty involving bags allegedly transshipped through Hong Kong and declared as Hong Kong origin.[4]
Contracts should be reviewed for tariff pass-through, change-in-law, pricing adjustment, record-production, indemnification, delivery and termination provisions. Country-of-origin and substantial-transformation analyses should be refreshed where production is distributed across several jurisdictions. U.S. exporters should also conduct the corresponding retaliation analysis and ensure that quotations, distributor agreements and long-term supply contracts address retaliatory duties, currency movement and foreign governmental countermeasures.
The larger conclusion is that successful litigation will not produce a stable tariff-free reset. It will, presumably, force the Administration toward a denser collection of sectoral and country-specific actions. For importers, that may prove more administratively difficult than a single baseline tariff, even where the aggregate duty burden is lower. It will also make accurate, documented and consistently applied customs-entry data increasingly important as both a commercial and enforcement control.
This advisory provides general trade policy analysis and does not constitute legal advice.
Summary of Recent Tariff-Avoidance Penalties Under the False Claim Act
Announcement Date | Respondents | Settlement Amount | Alleged Tariff or Duty-Avoidance Conduct | Notable Features |
|---|---|---|---|---|
| July 15, 2026 | Redi-Bag USA and CEO Jeffrey Rabiea | $7.3 million | Chinese polyethylene retail carrier bags were allegedly transshipped through Hong Kong and declared as Hong Kong-origin goods to avoid antidumping duties of up to 77.57 percent. DOJ also alleged concealment of the Chinese origin from CBP and the company’s customs broker. | Individual executive liability; qui tam action; relator received approximately $1.33 million. |
| May 20, 2026 | Farjess Inc., Royal Canadian Steel Inc. and Feroz Jessani | $19 million | Flat-rolled steel manufactured in China, Indonesia, Italy, Turkey or Vietnam was allegedly declared as originating in Canada or the United States. | Cross-border defendants; company president included; qui tam action filed by a broker; relator received approximately $3.61 million. |
| May 12, 2026 | Perfectus Aluminum Inc., Perfectus Aluminum Acquisitions LLC and four warehousing affiliates | $549.5 million | More than 2.2 million Chinese aluminum extrusions were allegedly spot-welded together and entered as finished “pallets” that were not subject to applicable antidumping and countervailing duties. | Largest matter in the period; related companies had previously been criminally convicted; FCA actions were brought by multiple relators. |
| December 18, 2025 | Ceratizit USA LLC | $54.4 million | Chinese tungsten carbide products were allegedly transshipped through Taiwan and falsely declared as Taiwanese origin to avoid Section 301 tariffs. DOJ also alleged HTS misclassification and failure to pay country-of-origin marking duties. | Direct Section 301 enforcement example; qui tam action; relator received approximately $9.75 million. |
| November 26, 2025 | Harman International Industries Inc. | $11,809,628 | Harman allegedly imported Chinese heat sinks containing extruded aluminum without paying applicable antidumping and countervailing duties, and failed to disclose the avoidance after the issue was identified. | Settlement resolved allegations under the FCA and other customs laws; qui tam action; relator received approximately $2.30 million. |
| August 19, 2025 | Allied Stone Inc. and President Jia “Jerry” Lim | $12.4 million | Chinese quartz surface products were allegedly described as marble, crystallized glass or other lower-duty merchandise. DOJ also alleged reliance on third-party importers of record without ensuring that applicable duties were paid. | Individual executive liability; qui tam action; relator received approximately $2.17 million. |
| July 24, 2025 | Grosfillex Inc. | $4.9 million | Chinese aluminum extrusions were allegedly entered using false customs forms, including by packaging components as sham furniture “kits” to make them appear outside the scope of AD/CVD orders. DOJ also alleged that earlier false entries were not corrected after the company learned of the problem. | Settlement covered the FCA and other statutes; illustrates post-entry correction risk. |
| July 23, 2025 | Global Plastics LLC and Marco Polo International LLC, subsidiaries of MGI International LLC | $6.8 million | The companies failed to declare the correct country of origin and value for certain Chinese plastic-resin entries, resulting in unpaid duties. | Voluntary self-disclosure; DOJ credited cooperation and remediation. |
| March 25, 2025 | Evolutions Flooring Inc. and owners Mengya Lin and Jin Qian | $8.1 million | The respondents allegedly avoided antidumping, countervailing and Section 301 duties on multilayered wood flooring manufactured in China. | Owners included as respondents; qui tam action; settlement amount was based on ability to pay. |
Aggregate Results
Period | Number of resolutions | Announced settlement amounts |
| Calendar year 2025 | 6 | Approximately $98.41 million |
| January 1 through August 2, 2026 | 3 | $575.8 million |
| Combined period | 9 | Approximately $674.21 million |
[1] Section 122 is derived from The Trade Act of 1974. The statute was drafted during the collapse of the post-WWII Bretton Woods system. During this era, fixed exchange rates were failing, and the U.S. was losing its gold reserves to foreign central banks due to severe trade and monetary imbalances. Congress wrote Section 122 to give the Executive Branch a fast, short-term mechanism to stabilize the U.S. economy during an international macroeconomic emergency.
[2] Because Congress explicitly constructed this mechanism as a trade remedy statute, courts accord significant deference to executive enforcement determinations. Moreover, because financial losses can theoretically be refunded with interest via liquidated entries if the tariffs are ultimately ruled invalid, courts rarely treat duty payments as irreparable harm.
[3] For another scenario-based appraisal, we recommend the Yale Budget Lab’s “State of U.S. Tariffs,” https://budgetlab.yale.edu/research/state-us-tariffs.
[4] An isolated clerical error does not automatically create FCA liability. The statute applies where a party knowingly avoids an obligation to pay the government, with knowledge extending to deliberate ignorance and reckless disregard. The greater risk therefore arises where unsupported entry practices become systemic or warnings (broker or internal) are ignored. DOJ’s fiscal year 2025 report expressly identified the improper avoidance of tariffs and customs duties as an enforcement focus.
[KN1]I recommend inserting this chart as a link (with Digital Team’s help) with a call to action to “Click here to read a summary of recent tariff-avoidance penalties under the False Claims Act.”
/Passle/6878183c1547331efeed13be/SearchServiceImages/2026-08-03-17-36-32-417-6a70d1a0b949cf9a2cde52c5.jpg)
/Passle/6878183c1547331efeed13be/SearchServiceImages/2026-07-27-15-27-13-095-6a6778d12f7f4abc62410a19.jpg)
/Passle/6878183c1547331efeed13be/SearchServiceImages/2026-07-17-14-10-50-106-6a5a37eaa543841e34e7b987.jpg)