Trade & Tariff Update #34 - Section 301 Hearings,  USMCA & More

Section 301 Hearings

The United States Trade Representative (USTR) begins hearings this week on the proposed Section 301 duties relating to forced labor practices for 60 countries and Brazil’s trade practices. The wait continues for any proposed action on the Section 301 investigation into excess capacity that would round out the regime to replace the IEEPA tariff framework.  As noted previously, in light of Treasury Secretary Scott Bessent’s comments indicating that the USTR is on track to replace the IEEPA duties with an identical framework, expectations are low that these hearings will be objective rather than aimed at merely satisfying  Administrative Procedures Act requirements. 

USMCA Not to Be Renewed by July 1 

Last week the Administration formally declared that it does not intend to renew the U.S.-Mexico-Canada (USMCA) trade agreement by the July 1 deadline.  Although expected given President Trump’s recent comments condemning the agreement that was negotiated during his first term, it ultimately is not dispositive.  Instead, a 10-year process of annual renewal discussions among the signatories begins, and it is possible an agreement could be reached within that period or that a new administration could approach renewal differently.  Some outstanding issues include: new tariffs introduced last year by the U.S., import limits for Mexico and retaliatory measures taken by Canada. U.S. officials have been negotiating with Mexico but tensions remain high with Canada due to its decision to impose retaliatory duties on U.S. products.  Those challenges are discussed here. 

Jobs Report Uninspiring  

The President’s USMCA decision only increases uncertainty for businesses at a time of conflicting economic indicators.  The jobs report released last week once again fails to provide a clear picture.  Unemployment fell to 4.2% but the 57,000 new jobs total was only a bit more than half of what economists had predicted.  Combined with the previous week’s inflation numbers, this data raises the specter that the Federal Reserve will increase interest rates in the fall, resulting in market declines.  That timing is perilous for an Administration already facing low poll numbers on the economy heading into the mid-terms and may create some limits for the pending 301 tariffs.  However, as evidenced last week by his proclamation suspending duties for phosphate fertilizer imports from Morocco at the behest of farmers, President Trump remains open to relaxing tariffs in response to pressure from key voting blocs. 

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