Trump’s New Tariff Gambit Remakes the Global Economy

Source: Leverage Shares analysis

Section 122 forms a bridge for other time-tested measures within the same Trade Act to kick in: Section 301 (for unfair trade) and Section 232 (national security), both of which have been the traditional workhorses of U.S. trade enforcement. Famously, Section 301 was used by the Reagan administration in 1986 to apply 100% tariffs on cheap Japanese semiconductors then flooding the U.S. market, by the Clinton administration in 1999 on luxury goods like French handbags and Italian pecorino cheese to force the E.U. into remaining committed to buying bananas from Latin America (which were sourced by U.S. companies) and by Trump’s previous administration in 2018 to apply tariffs on Chinese goods over China’s forced technology transfers and IP theft.

Section 232 gives the power to restrict imports if they “threaten to impair” U.S. national security and was used to bring oil embargoes on Iran (1979) and Libya (1982) by Presidents Carter and Reagan, with the latter also using it in 1986 to limit imports of high-precision machine tools to protect the domestic “tool-and-die” industry. In 2018, the previous Trump administration used this law ostensibly on behalf of U.S. steel mills to impose 25% tariffs on steel and 10% on aluminium from global sources that remained unchallenged to this day by the Supreme Court.

These two laws require extensive investigation and fact-finding before being applied: Section 301 historically required about 12-18 months while Section 232 averages at around 9 months. In just the last year, the current Trump administration has launched a record-breaking number of Section 232 probes across semiconductors, commercial aircraft, copper, and medical equipment, effectively treating almost all industrial manufacturing as a “national security” asset. On the day of the Supreme Court judgement, U.S. Trade Representative (USTR) Jamieson Greer confirmed¹ that new investigations into China, the E.U., and other trading partners would be launched under Section 301 ranging across areas from industrial excess capacity and forced labour to drugs pricing and discrimination against U.S. tech companies and digital goods. Other focus areas could be digital services taxes, ocean pollution, and trade practices related to seafood, rice, and other items. The USTR’s office has stated they intend to use “fast-track” provisions to complete these investigations within the 150-day window provided by the Section 122 emergency.

Meanwhile, two major bills have been “tabled” (introduced for debate) that would bypass the Supreme Court ruling entirely: the Restoring Trade Fairness Act and the United States Reciprocal Trade Act. The Restoring Trade Fairness Act — sponsored by House Representative John Moolenaar, who’s also Chairman of the House Select Committee on the CCP, and Senator Tom Cotton — seeks to permanently revoke China’s Permanent Normal Trade Relations (PNTR) status and impose a minimum 35% tariff on “non-strategic goods” as well as a minimum 100% tariff on “strategic goods” imported from China. The proceeds from these will be used to compensate U.S. farmers and manufacturers hurt by inevitable retaliatory tariffs. The Act also targets Russia, Iran, and North Korea by ending their “de minimis” (duty-free) shipping privileges. The United States Reciprocal Trade Act, meanwhile, grants the U.S. President the powers the Supreme Court stated he lacked to impose tariffs without consultation.

Of the two, the Restoring Trade Fairness Act stands to be the most favoured one by a large margin and on a bipartisan level: on the basis of voting blocs who are variously inimical to China, supportive of local industries and conscious of human rights abuse, the Act could secure the support of 240-260 House Representatives and 55-62 Senators, thereby securing a comfortable majority. The Unites States Reciprocal Trade Act, on the other hand, is considered to be in the initial stages of consideration.

While the U.S. Supreme Court’s decision held that the law applied to justify tariffs was incorrect, it was explicit in that it was only deciding the statutory authority of the President. In a bid to recover the tariffs collected thus far – which is estimated to be anywhere from $130 to $200 billion – hundreds of lawsuits have been filed by U.S. importers and (soon) state governments against the Trump administration in the U.S. Court of International Trade (CIT). It is estimated that litigation will take 2-5 years, which means that Trump would be out of office by the time a verdict is delivered. If President Trump is proclaiming that his administration won’t be repaying tariffs collected, he’s technically correct. However, his successor might have to.

Even Trump’s successor might not have to make a repayment since there likely won’t be any outflow from the Treasury Department. Prevailing theory suggests that the CIT might mandate that a credit be applied on future cash flows from aggrieved parties if they win. Hence, the bond market is likely not going to take a hit today; instead, future bond issuances will be larger to factor in the discounts given – which means that yields would rise and prices would dip if the CIT rules in the importers’ favour.

Meanwhile, the new tariff regime is significantly smaller in scope than what was applied through 2025 till date and will likely stir segments of the bond market. The 10-year Treasury yield is expected to tick up towards the 4.1%–4.25% range (from the 4.0%+ currently) as investors price in the fiscal uncertainty created by this hole in the budget.

An order to provide credit by the CIT would keep the Treasury from having to flood the market with new bonds within a week or two, which means that short-term yields will remain relatively stable. However, it leaves a multi-year shadow over the federal budget that could keep yields stubbornly elevated, since the credits would become a “corporate stimulus” (essentially a $200 billion tax cut for U.S. importers) which could be inflationary. As a result, long-term yields (10Y/30Y) could face upward pressure and force the Federal Reserve to hold rates higher for longer.

Earlier in January this year, German think tank Kiel Institute published a study² which estimated that over 96% of all tariffs levied by the Trump administration till date were borne by the American consumer and not the exporter. There’s no indication that this rubric will change either now or in the future. What does change is the notion of “business as usual”.

The World Trade Organization (WTO), which was established after the Cold War ended, played a leading role in creating what was later dubbed the “rules-based global economic order” – one that massively advantaged select countries to evolve into leading markets and producers. The follow-up to the Supreme Court order arguably puts paid to the notion that this rules-based order will be returning any time soon. It also punctures the long-touted idea that the “checks and balances” within the American system was a unique proposition for stability: if Trump could do it today, so could somebody else in the future over an entirely different set of casus belli. By no conceivable means can this be explained away as a “one-off”. Thus, the risk in returning to “business of usual” after the Trump era are arguably massive.

It is likely that new geopolitical alliances will continue being formed, new trade partnerships will continue being forged, complex trading blocs and barriers will be tested and new avenues and marketplaces outside of the United States will blossom and flourish. In the long run, this might even be a net positive for the world at large and it won’t be quite as simple as it used to be.

Footnotes:

1. “USTR expects new Section 301 probes to cover most major trading partners”, Reuters, 21 February 2026
2. “America’s own goal: Americans pay almost entirely for Trump’s tariffs”, Kiel Institute for the World Economy, 19 January 2026