Trump's Tariff Whack-a-Mole: How the US Keeps Taxes Flowing Despite Legal Setbacks

Trump’s Whack-a-Mole Tariff Strategy: Section 301 Replaces Expired Duties

The temporary tariff wall built under Section 122 of the 1974 Trade Act came down on Friday 24 July, exactly 150 days after it was erected. Within hours, the Trump administration fired up a new, permanent weapon: Section 301 of the same trade law.

The pretext has shifted. Where earlier measures cited balance-of-payments deficits, the new action targets countries that fail to ban imports made with forced labour. The list includes India, the European Union and Norway – part of a group of 60 trading partners that together account for 99% of all US imports.

The switch was no surprise. Richard Baldwin, a researcher at CEPR and author of World War Trade, said the Section 122 duties were always a stopgap designed to buy time while the permanent Section 301 investigations unfolded. That same tool was first deployed against China in 2018; now it is being rolled out globally.

The objective is clear, according to Lombard Odier chief economist Samy Chaar: tariff revenue now covers roughly 10% of the US budget deficit, making the current duty level of 10–15% on goods a fiscal imperative. “If you close the door, he’ll come through the window,” Chaar said of Trump’s determination to bypass Congress.

Behind the Legal Pivot: Why Tariffs Are Now a Permanent Fixture

Trump’s Legal Toolkit Keeps Growing

The administration is methodically cycling through old trade statutes. Section 232 (1962), allowing sector-specific duties, has been in force since February 2025 after its earlier deployment in 2018. Even more aggressive, Section 338 – a relic from 1930 – can punish countries that discriminate against US goods, and was recently used to threaten a 50% tariff on Canadian products from 19 August.

Raphaël Gallardo, chief economist at Carmignac, sees Section 338 as a bargaining tool rather than a long-term levy: “He will have threatened with a blank pistol but achieved his aims.” The White House is betting that even if courts eventually strike down a measure, the financial damage will be done. Chaar notes that under the earlier International Emergency Economic Powers Act (IEEPA), only a sliver of tariff overpayments was ever refunded.

Tariffs as a Fiscal Necessity

Tariff receipts are no longer a trade-policy sideshow. Covering about one-tenth of the deficit, they have become a hard-to-replace revenue stream. This explains the urgency behind Friday’s instant switch: any gap in collections, even for a few weeks, would widen the budget shortfall. It also explains why the administration is willing to risk legal challenges, relying on the sheer scale of duties collected and the difficulty of clawing them back.

Global Trade Proves Resilient, but the Clock Is Ticking

Despite the barrage, world trade has absorbed the first shock better than feared. Allianz Trade calculates that export losses in 2025 reached $74 billion, well below the $134 billion initially forecast, and are projected to fall to $57 billion in 2026. Rerouting through third countries, advance shipments and product exemptions have blunted the impact.

On inflation, UBS analysts judge that the latest salvo will not materially lift prices, because the effective tariff rate stays stable and the bulk of tariff-induced price increases has already passed through into goods. Core goods inflation has slowed notably over the past three months.

Yet the midterm elections cast a shadow. A tariff policy that now targets 99% of imports leaves little room for error, and any fresh supply-chain disruption or legal defeat could force abrupt changes that unsettle both markets and households.

What Exporters, Investors and Policymakers Need to Do Now

• Exporters to the US: Assume the 10–15% baseline duty is semi-permanent. Focus on product classifications where forced-labour exemptions might apply and accelerate the use of third-country routing, which already saved $60 billion in expected losses in 2025.
• Supply chain managers: Monitor the Section 338 threats to Canada and other “discrimination” cases. If the 50% tariff on Canadian products is activated in August, North American integrated supply chains in lumber, metals and machinery will face immediate cost jumps.
• Investors: The tariff revenue contribution to the deficit means any successful legal challenge would create a fiscal hole of roughly $400–500 billion annually. Watch court rulings on Section 301 eligibility, especially those challenging the forced-labour justification.
• Policymakers in targeted regions (EU, India, Norway): Engage quickly on mutual recognition of forced-labour standards to remove the formal trigger. The administration has shown it will switch justifications instantly; the only durable defence is to close the legal loophole.
• Businesses selling to US consumers: With core goods inflation already decelerating, further tariff-driven price rises are unlikely to stick. Focus on absorbing the existing duty level rather than passing on costs, as consumer resistance to above-inflation hikes remains high.