Ahead of the expiration of Section 122, uncertainty around U.S. tariff policy is heating up again

Overview

This report discusses how U.S. tariff policy has returned to market focus ahead of the expiration of temporary Section 122 measures. After the court struck down IEEPA tariffs, the average U.S. import tariff rate declined; meanwhile, the government is shifting toward Section 301 tools, including forced-labor enforcement investigations and structural excess-capacity investigations. The report argues that new tariffs and judicial review will prolong trade policy uncertainty and expand risks from geopolitics to tariffs, supply chains, and legal outcomes.

Core views

The core view is that the U.S. government is trying to rebuild a broad-based tariff framework similar to IEEPA/Section 122 through Section 301, but because exemptions are broader and the taxable base is narrower, the average effective tariff rate may stay close to current levels rather than rising significantly. The impact varies across economies: Brazil sees the largest increase in the effective rate; Canada and Mexico remain near 3% due to USMCA exemptions; the EU and the UK may ease slightly under the 10% tier; economies in the 12.5% tier such as Vietnam and India rise modestly; China is already in a high-tariff environment and remains near 23%.

Analysis framework

Using the U.S. import-weighted effective tariff rate as the main thread, the report compares headline tariff rates, exemption scope, tax-base changes, country tiering, and sector coverage under the IEEPA, Section 122, Section 301, and Section 232 frameworks. The analysis also incorporates static 2024 trade weights, observed tariff-revenue-to-import ratios, proposed tariff rates, exemption lists, and legal review risks.

Methodology notes

• Tariff EstimationEffective Tariff Rate Analysis

  Estimate the average tariff burden under different policy mixes by dividing collected tariffs by import value, or by using static import weights.

  The report distinguishes headline tariff rates from observed effective rates, emphasizing that exemptions, import structure, and changes in source countries can make actual rates materially lower than policy headline figures.

• Policy PathSection 301/Section 122 Substitution Analysis

  Compare whether Section 301 can replace a broad tariff mechanism after the expiration of the temporary Section 122 arrangement.

  The forced-labor investigation and the structural excess-capacity investigation are viewed as next-phase policy tools, but their broad use could trigger litigation and increase policy uncertainty.

• Scenario TieringCountry and Exemption Tiering

  Differentiate impacts by 10%, 12.5%, standalone Brazil measures, and countries already at high tariff levels.

  Changes in effective tariffs across countries are mainly driven by tier levels, USMCA exemptions, new exemptions for aircraft, machinery, and food, and the stacking effect of Section 232.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• U.S. importers and global supply chains

  Directly affected by U.S. tariff rates, exemption lists, and changes in import sourcing.

  Strengths

  Broad exemptions can reduce the direct impact on categories such as energy, pharmaceuticals, electronics, and some machinery and food products.

  Weaknesses

  Frequent changes in the policy path make it difficult for companies to plan procurement, inventory, and pricing.

  Comparison

  The observed effective tariff rate is about 6.7%, below headline tariff rates above 10%.

  Risks

  Tariff stacking, changing litigation outcomes, supply-chain reconfiguration costs, and uncertainty in price pass-through.

• Brazilian exports to the U.S.

  Most affected by a standalone Section 301 action.

  Strengths

  Brazil's direct trade exposure to the U.S. is relatively low, and its strong oil exports mean the overall macroeconomic impact is expected to be limited.

  Weaknesses

  The weighted effective tariff rate could rise to about 19%, with the 50% steel tariff pushing up the overall burden.

  Comparison

  Among major economies, Brazil sees the largest increase in the effective tariff rate, up about 8 percentage points.

  Risks

  If the scope of exemptions changes or trade frictions escalate, pressure on specific sectors could intensify.

• Chinese exports to the U.S.

  Continues to operate in a high-tariff environment.

  Strengths

  Marginal changes are limited, and the market may have already partly priced in existing tariffs.

  Weaknesses

  Existing Section 301 and Section 232 tariffs keep the effective rate near 23%.

  Comparison

  Compared with most economies, China remains one of the major trading partners with the highest tariff burden.

  Risks

  If excess-capacity-related Section 301 tariffs are added, pressure could increase further.

• EU and UK exporters

  They are in the 10% tier, but with the expiration of Section 122 and a narrower Section 301 tax base, average tariff rates may decline slightly.

  Strengths

  New exemptions for aircraft, machinery, and some food products can lower effective tariff rates.

  Weaknesses

  They still face uncertainty around trade policy and legal outcomes.

  Comparison

  France may see a larger decline because its exports to the U.S. are concentrated in fuselages and jet engine parts, which benefit from aviation exemptions.

  Risks

  Interpretation of exemptions, tax-base classification, or follow-on excess-capacity measures could change the outcome.

• Canada and Mexico trade

  USMCA-compliant trade enjoys important exemptions.

  Strengths

  Effective tariff rates are expected to remain close to 3%, significantly below most investigated economies.

  Weaknesses

  Non-USMCA-compliant goods may still be affected by tariffs.

  Comparison

  Compared with economies in the 10% or 12.5% tiers, Canada and Mexico bear a lower effective burden.

  Risks

  USMCA compliance definitions, enforcement rules, or future policy changes could create marginal risks.

• Metals, autos, and downstream derivative products

  Mainly affected by Section 232 tariffs and adjustments through expansion/reductions.

  Strengths

  Tariffs on some agricultural, industrial, and home-improvement equipment derivative products have been cut from 25% to 15% through the end of 2027, which may ease localized pressure.

  Weaknesses

  The structure of 50% tariffs on primary metals and 25% tariffs on high-metal-content derivatives still creates cost pressure.

  Comparison

  The report cites Global Trade Alert estimates that the latest adjustments could reduce the average effective tariff rate by 0.7 percentage points.

  Risks

  The expansion to downstream derivatives under Section 232 is being challenged in court, and estimates of metal content in finished products also make impact measurement highly sensitive.

Key data

• Section 122 tariff expiration date2026-07-24The report expects forced-labor-related Section 301 measures could replace the temporary tariff arrangement after Section 122 expires.
• Impact of the IEEPA rulingAverage tariff rate down about 2.5 percentage points to around 11%Estimated based on static 2024 weights.
• Observed U.S. tariff rate in April 2026About 6.7%Below headline tariff rates above 10%, mainly due to broad exemptions and changes in import structure.
• Recommended tariff rate under the forced-labor Section 30110% or 12.5%10% applies to jurisdictions already subject to forced-labor bans but with weaker enforcement, or that have completed reciprocal trade agreements; the rest of the investigation targets are set at 12.5%.
• Coverage of the forced-labor Section 301About 60 economies, representing roughly 99% of total U.S. tradeThe investigation focuses on whether economies have failed to adopt and enforce rules banning imports of forced-labor products.
• Proposed tariffs on BrazilHeadline tariff rate 25%, weighted effective rate about 19%, up about 8 percentage pointsCoffee, meat, rare earths, orange juice, aircraft, and equipment still have exemptions, but the 50% steel tariff raises the weighted average rate.
• Effective tariff rates for Canada and MexicoClose to 3%USMCA exemptions cover a large share of their trade with the U.S.
• China effective tariff rateClose to 23%China is already affected by existing Section 301 and Section 232 tariffs and remains near the highest tariff level.
• Impact of Section 232 derivative-product adjustmentsAverage effective tariff rate may decline by about 0.7 percentage pointsGlobal Trade Alert estimates the net effect of the relevant adjustments is a reduction in Section 232 tariffs.

Impact & implications

The investment implication centers on policy uncertainty rather than a simple rise in tariff rates. If Section 301 replaces Section 122 with a broader exemption scope, the average effective U.S. tariff rate may remain close to current levels; however, legal challenges, the excess-capacity investigation, standalone measures on Brazil, the expansion of Section 232, and tariff stacking will continue to affect supply chains, import costs, corporate pricing, and multinational trade exposure.

Risks

• The use of Section 301 to rebuild a broad-based tariff framework could face litigation, and the court's emphasis on statutory text increases policy uncertainty.
• If the expiration of Section 122, the implementation timing of Section 301, or exemption definitions change, actual effective tariff rates could deviate from current estimates.
• If the structural excess-capacity investigation results in new tariffs, the key risk is whether they will stack with existing tariffs.
• The expansion of downstream derivative products under Section 232 is under legal challenge, and the final outcome could change tariff burdens on metals and equipment.
• Retaliation by trading partners, supply-chain migration, and price pass-through could amplify macroeconomic and corporate-level impacts.

What to watch

• Whether Section 122 tariffs expire on July 24, 2026 and whether a Section 301 replacement arrangement is implemented.
• The final tariff rates and exemption list after the July 6, 2026 deadline for comments on the forced-labor Section 301.
• The outcome of the USTR Section 301 investigation on 'foreign structural excess capacity and production,' and whether related tariffs will stack.
• The actual implementation of Brazil's 25% headline tariff, 50% steel tariff, and product exemptions.
• Litigation progress related to IEEPA, Section 301, and Section 232.
• High-frequency data on actual U.S. tariff collections/import value, import-source composition, and the J.P. Morgan Tariff Monitor.