23 Mar 2026 Tariff Strategy In Light of The Supreme Court Ruling on IEEPA Reciprocal Tariffs
Written by Jeffrey Cartwright, Managing Partner
The Supreme Court Ruling
On February 20, 2026, the United States Supreme Court determined that Trump’s use of IEEPA (International Economic Emergency Powers Act) to impose tariffs was unlawful during peacetime. The Supreme Court, in its opinions, expressed that there are other valid authorities for Trump to impose tariffs, such as:
- Section 232 of the Trade Act of 1974
- Section 122 of the Trade Act of 1974
- Section 301 of the Trade Act of 1974
The Supreme Court did not address Section 338 of the Smoot-Hawley Trade Act of 1930, and it also remains on the books as legal authority for a President to use.
Now the President Has Imposed a Global Tariff on All Countries Under Section 122
Section 122 allows for limited–duration tariffs of up to 15% for a period no longer than 150 days. Trump imposed 10% and suggested that he might impose 15% later. This authority will expire in July 2026.
Section 232 Tariffs Are Structural or Industry Specific
Section 232 tariffs on steel, aluminum, automobiles, pharmaceuticals, and other categories continue with no changes as a result of the Supreme Court ruling. These typically apply to all countries from which the United States imports these products.
Smoot-Hawley Tariffs (Section 338 of the Smoot-Hawley Tariff Act of 1930)
Section 338 remains dormant and has not been used by any President since the years following its immediate enactment into law. The tariffs under this law were widely viewed as worsening the Great Depression. However, this law remains on the books. Tariffs imposed in the 1930’s were in the 40-60% range on thousands of specific products.
Trade Agreements Reached as a Reaction to the Reciprocal Tariffs
The Supreme Court did not address these agreements. They enter the realm of Presidential authority to conduct foreign policy and are largely based upon mutual agreement, tariffs, and relaxation or elimination of barriers to exporting products to specific countries. These agreements continue although both India and the European Union are pending revisions while awaiting the outcome of the new 301 investigations. Many of these agreements include investments by these countries in manufacturing in the United States.
Section 301 of the Trade Act of 1974. All Existing Tariffs Continue, and Trump Has Launched Investigations into the Trade Practices of 15 Countries, Plus the European Union
The tariffs imposed under Section 301 continue. The Trump Administration has launched investigations into the countries stated below. He has also launched investigations under this authority into 60 countries for the potential of manufacturing products using forced labor. These are two separate investigations and will have two separate paths as to when the investigations will be completed and when remedies will be imposed.
The recently initiated 301 investigations into these countries and the European Union is centered on global manufacturing overcapacity, which then results in creating unfair competition with the United States. The unstated reason for these investigations is to replace the substantial tariff revenue that the Supreme Court ended with its decision on IEEPA. The countries subject to this investigation are:
- China
- Vietnam
- Thailand
- Singapore
- Malaysia
- Cambodia
- Indonesia
- Bangladesh
- India
- Japan
- South Korea
- Taiwan
In Europe, besides the European Union (EU), the countries subject to the investigation are Switzerland and Norway.
Mexico is also included in the process.
The processes for 301 and 232 tariffs require investigations, which typically take a year or more. However, the United States Trade Representative (USTR) is experienced and expects the process to be completed prior to the expiration of the 122 temporary tariffs.
The schedule started with the formal announcement of the investigations on March 11th. On March 17th, the docket opened for the investigations. On April 15th, comments from interested parties are due. Formal hearings begin on May 5th. Following those hearings, the USTR will determine the appropriate tariff levels. As in the 301 tariffs imposed during the first Trump Administration and the Biden Administration, there can be varying levels by product categories and exclusions. As these tariffs are intended to raise revenue, it is our speculation that for China, there will be a minimum of 10% on all products, and the ones currently at 25% will be increased to 35% or more.
Negotiations Are Underway on the USMCA (the United States-Mexico- Canada Free Trade Agreement)
These negotiations are in the early stages, with the formal review beginning in July 2026. It is our belief that the rules for content to avoid tariffs will be raised and perhaps expanded to more categories. It is also possible that the three-country agreement will be replaced with bilateral agreements.
Achieving a Lower-Landed Cost Rather than Importing from China or Other Asian Countries
The likelihood of achieving a lower landed cost given tariff increases on China and Southeast Asian countries over the last few years is far more likely for many products than it was even a year ago.
The previous strategy of moving from China to another low-cost country in Southeast Asia has been challenged by the imposition of tariffs on countries like Vietnam and Thailand. There are two reasons for this:
1. Many factories in those countries are Chinese-owned, and the parent company remains in China. These factories typically import a large number of raw materials and components from China. As such, the cost of a product at the factory gate can be 15 to 20% higher than in China due to the cost of transporting those materials to the new factory. Prior to the August imposition of tariffs (and subsequent changes to tariff rates), this made sense.
Now, with the addition of 20% tariffs on these countries by way of bilateral agreements, the economics have shifted. This is also challenged by the announcement of 40% tariffs on transshipped products. These are products that are principally made in China and then lightly touched in other countries, such as assembly and packaging only, and then claimed to be made in that country. While this has not yet been defined and implemented, USMCA content provisions provide the likely model going forward. Under USMCA, products are assessed a 25% tariff if they do not have majority value-added content and thus are determined not to be made in Mexico. Also, products like automobiles have an even higher content requirement to avoid tariffs.
It is generally thought that these tariff levels have mostly settled out, there may be further adjustments along the lines of agricultural products not grown in the United States.
2. The second set of adjustments are 232 sectoral tariffs, which are global and for a product category that the US wants to have manufactured in the United States. These adjustments are upwards and will not shift comparative country economics.
Also, as a cost factor, there are duties on most products from Asia; there are no duties on products from Mexico.
So, what does this all mean for Nearshoring?
- Many US companies now want to Nearshore as Southeast Asia is no longer the lowest cost alternative.
- Other countries that own factories in China or Southeast Asia would like to relocate manufacturing to Mexico. This includes Chinese companies realizing that tariffs are here to stay and now need a lower-cost alternative to manufacturing for US companies elsewhere. It also includes Taiwanese and other countries that operate factories in Southeast Asia, which are no longer tariff-free.
Off-Setting Geopolitical Risk
The current conflict between Iran, and the United States, and Israel is clearly demonstrating that events elsewhere seriously disrupt global trade. While it is too early to know how long and how serious the effects will be with the Strait of Hormuz being closed, oil trade is being seriously disrupted, ships are stranded inside the Persian Gulf, and many others are unable to enter. Short-term effects are the price of oil, including diesel fuel, which power container ships transiting from Asia to the United States. Expect major delays and much higher costs until there is a cessation of hostilities, and then months for the ocean carriers to sort out their complex systems for loading, unloading, and sailing of vessels at multiple ports around the world.
Beyond the geopolitical risk of a disruption of international trade, in the event of a war between China and Taiwan, which will stop every shipment from East Asia (China, Taiwan, Vietnam, South Korea, Japan, etc.), there is the risk of China exploiting its near monopoly on certain products, such as rare earths, to achieve political objectives elsewhere. In the last two weeks, General Motors and Tesla have announced their intention to stop importing any components from China. The export limitations that China has announced on rare earths and rare earth magnets twice this year (and later relaxed) threaten automobile and defense manufacturing throughout the world. Given the threat to the global economy, many companies are going to exit China for the sole reason of being able to continue manufacturing operations. Countries and companies do not want to be held hostage by Beijing.
China has also retaliated against Japan over a recent statement by the Japanese prime minister concerning defense of Taiwan. Previously, China has retaliated against Japan over visits by the Japanese prime minister to a shrine in Tokyo that includes graves of some war criminals. China’s sensitivities and retaliation against other countries are both historical and likely in the future.
Companies that have moved their supply chains to Southeast Asia are still exposed to the risk of Chinese political disruptions.
If China invades Taiwan, the Strait of Hormuz disruption will seem minor as all trade from China, Taiwan, and Southeast Asia will end suddenly and of unknown duration.
Moving to Mexico also virtually eliminates the risk of intellectual property theft or forced technology transfer.
Proximity to the US Market, Which is 26% of Global GDP
The other major reason US companies want to Nearshore is proximity to the US market.
The same time zone, flights to Mexico one day and back the next, and 2 to 5 days of transportation from Mexico to most anywhere in the US are significant advantages for manufacturing in Mexico. The shortened purchase order to receipt of product timeframe allows adjustments to incoming product flow that is simply impossible with products from Asia. That results in lower inventory, which positively impacts working capital. Also, if the product line is seasonal and due to weather or other factors, demand suddenly increases or decreases; adjustments can be made to better serve customers. This may result in fewer discounts to customers moving end of season inventory and a reduction in obsolescence for products that have been discontinued.
Some Asian companies recognize these as benefits, and there is heightened interest in those companies manufacturing in Mexico. Some of them of their own volition and some because US companies are demanding that they move manufacturing or lose the business entirely.
There is a very real price to US companies in waiting to explore Nearshoring: added costs and lower profits for the entire time that the opportunity to reduce landed costs while hoping that the world will return to the previous normal of globalism and “free” trade. There is no such thing as free trade as there have always been tariffs or limits on market access.
Shoreview Management Advisors’ Value Proposition
Shoreview focuses on Nearshoring for US importers and has delivered successful results in a variety of projects. The advent of enduring, high levels of tariffs on China and southeast Asia mandate a strategic review of not only costs, but of what alternative supply chains bring to the table in terms of reducing risk and increasing profits. Shoreview Management Advisors takes pride in knowing that our efforts have resulted in huge, quantifiable savings for our clients.