Key Highlights

  • America's average effective tariff rate stands at about 7%, down from 10% before the Supreme Court's February ruling.
  • New 50% tariffs on Canadian goods will cover nearly 20 billion dollars of imports starting August 19th.
  • Manufacturing output grew at an annualised 4.6% in the second quarter, its fastest pace since 2021, though largely driven by AI-related demand.
  • Tariffs have lifted consumer prices by about 0.8%, according to the Harvard Business School Pricing Lab.

A Persistent Return Through Alternative Legal Pathways

Trump's tariffs have shown remarkable persistence despite the Supreme Court striking down their main legal foundation in February, anxious markets forcing repeated retreats, and frustrated voters, two-thirds of whom say tariffs have raised consumer prices, prompting exemptions for certain foods. Each setback has forced adjustments to the tariff regime, yet the underlying levies have consistently returned through alternative statutory authority.

On July 15th, the administration imposed 25% duties on selected Brazilian goods under Section 301 of the Trade Act of 1974, citing offences ranging from favouring a home-grown payments system to illegal deforestation, action that coincided with a broader feud with Brazilian President Luiz Inácio Lula da Silva. Five days later, the administration invoked a dormant provision of the 1930 Smoot-Hawley Tariff Act to impose 50% levies on selected Canadian goods, ostensibly to punish discrimination against American cars, alcohol and dairy products, with the duties covering nearly 20 billion dollars of imports, including goods normally exempt under the USMCA trade agreement, though they will not take effect until August 19th, a delay that increases negotiating leverage in stalled talks over the agreement's renewal.

Rebuilding the Foundation of the Original Tariff Regime

Behind these tactical actions lies a broader effort to resurrect the tariffs originally announced on Liberation Day, which included both a 10% tariff on all imports and country-specific levies imposed under the International Emergency Economic Powers Act of 1977, based on the claim that America's trade deficit constituted a national emergency. After the Supreme Court disagreed in February, the administration imposed a temporary 10% surcharge under Section 122 of the Trade Act of 1974, set to expire on July 24th. America's average effective tariff rate fell from 10% before the court's ruling to 7% today, according to the Penn Wharton Budget Model.

The tariffs now appear likely to be reincarnated in two stages. First, the Office of the United States Trade Representative is expected to imminently impose Section 301 forced-labour duties on 60 countries accused of failing to keep out goods made with forced labour, a new focus on labour standards that will allow the administration to preserve roughly 10% tariffs once the Section 122 surcharge lapses, keeping the effective rate near its current 7% level. Later this year, the USTR is expected to impose further country-specific duties under separate Section 301 investigations into structural excess capacity among 16 of America's largest trading partners, accusing these countries of producing more goods than they can consume or productively invest domestically, a definition one policy analyst has characterised as eccentric.

Legal Durability Despite Thin Underlying Justifications

Section 301 grants the USTR broad discretion to retaliate against foreign practices it deems unreasonable or discriminatory, and courts have generally focused on whether the USTR followed the required procedural process rather than scrutinising the underlying factual claims, such as whether a country genuinely has a deforestation problem, according to one trade lawyer. This procedural deference suggests the duties are likely to prove legally durable regardless of how thin their stated justifications may appear.

Mixed Evidence on Whether Tariffs Are Achieving Their Goals

If tariffs continue being revived, their effectiveness remains an open question. The levies are already raising revenue and giving the administration leverage over both allies and adversaries, but the most politically consequential goal remains the long-promised boost to domestic manufacturing. The Institute for Supply Management's survey of purchasing managers has indicated six months of expanding factory activity, with manufacturing output growing at an annualised rate of 4.6% in the second quarter, its fastest pace since 2021, prompting Treasury Secretary Scott Bessent to declare America is having a manufacturing renaissance.

Yet there is limited evidence tariffs are directly driving this industrial activity. Nearly all recent growth has come from advanced manufacturing tied largely to AI-related demand, while the rest of the sector has stagnated and spending on factory construction has fallen by almost a third, from an annualised peak of nearly 250 billion dollars in 2024 to 175 billion dollars in May. Much of the new capacity reflects investment decisions made before the current administration took office, and manufacturing employment has actually declined by about 75,000 since Trump returned to office.

Costs Becoming More Apparent as Consumer Prices Rise

The costs of tariffs are also becoming clearer. Uncertainty is weighing on business investment, with half of business leaders surveyed by KPMG reporting low confidence in carrying out their investment plans. Tariffs have lifted consumer prices by about 0.8%, according to the Harvard Business School Pricing Lab, with research from the Federal Reserve Bank of New York finding that nearly half of firms paying tariffs still expect to pass additional costs on to customers, suggesting further price increases may be forthcoming.

Conclusion

Trump's tariffs may well survive ongoing legal challenges given courts' general deference to the USTR's procedural authority under Section 301, but whether they can survive increasingly price-weary voters remains far less certain. With manufacturing growth concentrated almost entirely in AI-related advanced sectors rather than broader industrial activity, and consumer prices continuing to climb as businesses pass along tariff costs, the durability of the tariff regime may ultimately depend less on its legal footing than on how much economic pain the public is willing to continue absorbing.