In this industry, terms such as “Section 122” and “Section 301” rarely get thrown around under the assumption that everyone understands what they mean. Even just in the last year, the norms around how certain legislation can be used to implement global tariffs has changed significantly, impacting drayage carriers. Regardless of whether you’re looking for a refresher, or if you’re learning for the first time, this article will tell you everything you need to know about the previous Section 122 tariffs, and the new Section 301 tariffs.
What this could actually mean for you
In anticipation of the upcoming Section 301 tariffs, this July surpassed the previous national monthly TEU record of 2.4 million in May 2022, with a monthly TEU of 2.5 million. Shippers initially leaned onto larger ports in a rush to get all of their retail products in before the new tariffs hit in July, especially with back-to-school and holiday shopping seasons on the horizon. But now that the new tariffs have been in place for a few weeks, the rush is expected to slow down and roughly return to normal.
For drayage carriers, the transition from Section 122 to 301 tariffs won’t necessarily cause dray rates to spike or drop, but it could have contributed to extra capacity pressure in the larger port markets where total volume has increased. The switch from 10% to 10-12.5% isn’t major, especially given that the 12.5% tariff only applies to countries or economies that are seen as making no effort towards potential violations of human labor laws. The real impact has been felt as we move into the back-to-school and eventual holiday seasons, as a contributing factor for increasing volumes and dray rates. The surge in June and July to get ahead of the new tariffs may alleviate some pressure off of the back-to-school season, but the holiday restock may be impacted by the compounding pressure already put on drayage carriers by a volatile and ever-changing market. In the event that the new tariffs are legally challenged (similar to the previous ones), it’ll add even more uncertainty in the face of the holidays.
Before breaking down the meaningful differences between these global tariffs, it’s important to understand what these different “sections” actually mean. The U.S. Constitution grants Congress the ability to both tax and regulate foreign commerce, and (mostly) prevents states from setting their own tariffs on goods. But since then, Congress has passed acts that divide that power into different sections that allow the executive branch to temporarily adjust trade conditions under specific circumstances. Section 122 and Section 301 refer to sections of the Trade Act of 1974, a law designed to grant the executive branch a broader authority over tariffs and foreign trade. When you hear the term “Section 301 tariffs,” it just means that the tariffs are being implemented and justified under that specific piece of legislation.
Section 122: February 24 - July 24
Section 122 of the Trade Act of 1974 is designed to give the executive branch the power to put a temporary surcharge (up to 15%) on imports, but only for 150 days. After those 150 days are up, Congress has to get involved in order to extend it. In February after the Supreme Court struck down the International Emergency Economic Powers Act (IEEPA) as a means of imposing tariffs, temporary global tariffs were implemented under Section 122. The Section 122 tariffs tagged a flat 10% surcharge onto the majority of imports, with some exclusions such as United States-Mexico-Canada Agreement (USMCA) compliant goods from Mexico and Canada, and certain mineral and energy-related products.
It’s important to note that the Section 122 tariffs were always intended to act as a bridge while the administration looked into alternatives. Once the Section 122 tariffs were in place, the United States Trade Representative (USTR) began an investigation into the use of Section 301 to implement tariffs, and announced their findings along with prospective tariffs in June. And despite the U.S. Court of International Trade declaring the tariffs unlawful in May, government appeals kept the Section 122 tariffs in place until their expiration on July 24th. In the weeks leading up to the expiration of the tariffs, shippers rushed to get all of their products in before the new expected tariffs were set to hit, causing the monthly TEU to skyrocket.
Section 301: July 24 - Present
In contrast to the Section 122 tariffs, the Section 301 tariffs don’t have an expiration date, and are designed to be long-term. Section 301 of the Trade Act of 1974 gives the U.S. government the power to respond to unfair trade practices by placing tariffs or penalties on certain countries. These unfair trade practices may involve trade deals that are unreasonable or hurt U.S. commerce, intellectual property theft, violation of human labor laws, and so on. But typically, Section 301 tariffs are aimed at specific countries, and not used as a blanket over several. One of the more well-known uses of Section 301 was in 2018 when it was used to put tariffs on imports from China, for example.
The newly implemented Section 301 tariffs target 60 economies, making up 99% of U.S. imports, under the justification that they have failed to prohibit or enforce legislation regarding forced-labor imports. Unlike the Section 122 tariffs, which put a flat 10% rate onto imports from the targeted economies, Section 301 tariffs range from 10-12.5%, and may be layered or used in conjunction with other tariffs. The shift from 10-12.5% isn’t expected to shock the market given that it’s a minimal difference, but the uncertainty and constant change could put stress on the upcoming shopping seasons.
