U.S.-Asia Tariffs Evolution: Section 301 Takes Over

Overview

This report analyzes the evolution of U.S. tariff policies towards Asia in 2026. The core conclusion is that despite significant declines in effective tariffs at the beginning of the year due to exemptions and negotiations, as the Section 122 transition period ends, the U.S. is using Section 301 investigations (particularly regarding 'forced labor') to raise tariffs back to levels close to those under the previous IEEPA framework. This shift leads to a分化 in relative competitiveness across Asian countries, where tech-intensive economies gain from exemptions, while labor-intensive or geopolitically sensitive nations face higher barriers.

Core views

Cyclical Nature and Current State of Tariff Policies: In early 2025, the announcement of high IEEPA tariffs triggered market panic. However, through bilateral negotiations, product exemptions (especially in consumer electronics and semiconductors), and shifts in trade patterns (such as increased tech exports driven by AI), effective tariffs significantly decreased by early 2026 compared to statutory rates. Yet, with the U.S. Supreme Court abolishing IEEPA, the government has implemented Section 122's global 10% tariff as a temporary measure and swiftly initiated Section 301 investigations to rebuild a country-specific tariff system. Differential Impact of Section 301: Currently, the ‘forced labor’ related Section 301 investigation covers 60 economies. For Asian countries found inadequately addressing or partially compliant with regulations (like Bangladesh, Indonesia, Malaysia, Pakistan, Taiwan), proposed tariffs are 10%; others face 12.5%. The report's baseline scenario suggests subsequent Section 301 cases will bring each country’s tariffs close to their IEEPA negotiation levels, implying moderate increases of 3-4 percentage points for EMAX economies and Japan, about a 7-point rise for India, and a 10-point increase for Bangladesh. Relative Competitiveness Landscape: If these Section 301 tariffs are fully implemented, Bangladesh, China, and Indonesia would face the highest effective tariff rates regionally. Conversely, EMAC economies with strong tech sectors (e.g., Singapore, Taiwan, Malaysia, Thailand) benefit from extensive export exemptions, resulting in the lowest actual tax burdens. Japan and India fall in between. Notably, Pakistan, the Philippines, and Sri Lanka could be exceptions, ending up with final tariffs lower than under IEEPA, thus gaining relative competitive advantages. Singapore might face worse conditions than during the IEEPA era due to an overcapacity investigation.

Analysis framework

The report employs policy evolution tracking combined with scenario analysis. It first reviews the implementation and repeal process of IEEPA tariffs, quantifying how exemptions and changes in trade structure dilute effective tariffs. Then it thoroughly examines the legal basis of Section 301 investigations (such as forced labor, overcapacity) and their targeted effects on different countries. Finally, by comparing statutory and estimated effective tariffs under different frameworks (IEEPA vs Section 301), it derives a map of changing relative competiveness across countries.

Methodology notes

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Supply Chain Transmission

  Protective Effect of Tariff Exemptions on Tech Supply Chains

  The report notes that although statutory tariffs are high, exemptions for crucial upstream inputs such as semiconductors and consumer electronics mean downstream tech economies don’t see a proportional rise in actual export costs, highlighting differential tariff transmission along the supply chain.

• Event Game Theory and Behavioral FinanceExpectation Gap / Expectation Management

  Market Expectation Management During Policy Transitions

  By utilizing Section 122 as a short-term transitional tool, the U.S. government aims to buy time for initiating more complex Section 301 investigations, thereby influencing market expectations of tariff shocks at each phase.

Key data

• EMAC Technology Export Share Change36% to 45%From late 2024 to end of 2025, the share of technology products in EMAC export baskets rose, amplifying the impact of exemptions
• India's Highest Effective Tariff36%Due to Russia crude oil imports from August 2025 to January 2026
• China's Statutory Tariff Peak145%Reached in April 2025 during confrontation, later reduced to 20%
• Proposed Section 301 Tariffs10%-12.5%Based on different findings from the forced labor investigation
• Expected EMAX Tariff Increase3-4 percentage pointsBaseline scenario, increasing from the Section 122 level back to IEEPA levels

Impact & implications

The 'return' to past tariff environments means cost advantages previously gained through exemptions will be eroded, particularly impacting labor-intensive industries (e.g., Bangladesh, parts of Vietnam). Tech-led economies, though facing nominal tariff increases, experience manageable impacts due to key product exemptions. For China, layered tariffs keep it in a high-tariff bracket. Firms need to reassess supply chain layouts considering compliance risks around forced labor and potential additional tariffs from overcapacity allegations.

Risks

• Additional Section 301 investigations may extend beyond current three cases, broadening tariff coverage.
• Section 301 tariffs face legal challenges despite rigorous procedures, leaving room for litigation disruptions.
• Section 232 provisions could impose further tariffs on specific industries (steel, aluminum, copper).
• Uncertainties surrounding bilateral negotiations between countries and the U.S. may affect final agreement rates.

What to watch

• Results of the July 7 hearing on proposed forced labor Section 301 tariffs and the final ruling.
• Extension or replacement policy following the expiry of the Section 122 global tariff on July 24.
• Further U.S. investigations into overcapacity issues, especially their impact on countries like Singapore.
• Whether Pakistan, the Philippines, and Sri Lanka sign formal trade agreements with the U.S.