The in-transit grace period for the new Section 301 duties ends today, closing out a frantic week in which one American tariff regime died, another was born, and importers were left to reconcile refunds, stacking rules, and a calendar full of deadlines.
WASHINGTON, July 28, 2026
For American importers, Tuesday marks the end of the last soft landing in the most consequential tariff transition since February. Entries filed today are the final ones eligible for the in-transit exception that shielded goods already on the water when the new Section 301 duties took effect on July 24. From Wednesday, the handoff is complete: the temporary Section 122 surcharge that governed nearly all imports since late winter is gone, and the new forced labor tariff regime applies with full force to almost everything that arrives at an American port.
The changeover, executed at 12:01 a.m. Eastern time on Friday, was the hinge point of the year in American trade policy. The 10 percent global surcharge imposed under Section 122 of the Trade Act of 1974 reached its 150-day statutory limit and lapsed, exactly as scheduled, after Congress declined to extend it. At the same moment, the Office of the United States Trade Representative activated its replacement: a two-tier Section 301 duty of 10 or 12.5 percent on roughly 60 economies accounting for about 99.4 percent of American imports, imposed on the grounds that those economies have failed to prohibit and police the importation of goods made with forced labor.
For trade compliance professionals, the elegance of the legal handoff belies the operational chaos underneath. In the space of four weeks, the United States has finalized a 25 percent tariff on Brazil, signed proclamations imposing 50 percent duties on a swath of Canadian goods under a statute last dusted off in the 1930s, watched a court map out the next phase of refunds for tariffs struck down in February, changed the postal duty threshold, and replaced the baseline tariff applying to nearly every import into the country. Each change carries its own effective date, its own exemption annex, and its own stacking rules.
This article walks through what changed, what it costs, and what the calendar holds for the businesses that have to live with it.
The death and replacement of Section 122
The Section 122 surcharge was born in the wreckage of the administration’s original tariff program. On February 20, the Supreme Court ruled 6 to 3 in V.O.S. Selections Inc. v. United States that the International Emergency Economic Powers Act does not authorize tariffs, permanently invalidating the reciprocal duties that had applied country-specific rates across the globe. Within hours, President Trump invoked Section 122, a provision designed for balance of payments emergencies, to impose a flat 10 percent surcharge on virtually all imports, effective February 24.
Section 122 came with a fuse: 150 days unless Congress extended it, a deadline that fell on July 24. Congress showed no appetite for extension. A coalition of 24 state attorneys general sued in March, and in May the Court of International Trade ruled the surcharge unlawful in Oregon v. United States, though collection continued under a stay granted by the Federal Circuit in June while the government’s appeal proceeded. In the end, the statute’s own clock, not the courts, killed the surcharge.
The administration spent the spring building its replacement in plain sight. On March 12, USTR opened Section 301 investigations into 60 economies over forced labor import enforcement. The investigations moved at remarkable speed: public hearings in April, a formal determination of actionability on June 2, more than 1,600 comments on the proposed remedy, hearings with over 100 witnesses in early July, and final action announced July 23, one day before Section 122 expired. USTR says the process generated more than 2,100 public comments in total.
The final structure is broader than the proposal that preceded it, which had contemplated a flat 12.5 percent on 46 countries. Instead, USTR settled on tiers. Seventeen economies with forced labor import bans in place, committed, or partially implemented, among them Canada, Mexico, India, and the United Kingdom, pay 10 percent. Certain products of the European Union, Taiwan, Japan, South Korea, and Switzerland face duties calculated net of existing most favored nation rates, capping total tariffs at 10 percent for the EU and Taiwan and 12.5 percent for the others. Everyone else, including China, Vietnam, and Thailand, pays 12.5 percent.
Ambassador Jamieson Greer framed the measure in moral terms, saying the United States “has had a forced labor import ban for nearly a century” and that it is “well past time for our trading partners to do the same.” Trading partners from Tokyo to Brasilia have protested that the rationale is pretextual, and legal challenges are widely expected. Alan Wolff of the Peterson Institute for International Economics wrote that the courts would likely strike down the new duties as another instance of presidential overreach, though litigation would take months to resolve, and the duties apply in the meantime.
Today’s deadline, and the ones behind it
The July 24 action included a transition mercy: goods loaded before the effective date and entered for consumption through July 28 escape the new duties. That window closes tonight. A parallel window for the Brazil action, which exempts shipments loaded before July 22 if entered before July 29, closes Wednesday. After that, the only relief lies in the exemption annexes, which are extensive but product-specific.
The Brazil tariff, a separate Section 301 action concluded July 15 and effective July 22, imposes 25 percent on most Brazilian goods under new tariff subheading 9903.05.01. Its exemption annex spans more than 1,600 subheadings, including coffee, beef, orange juice, iron ore, petroleum products, pharmaceuticals, and around 430 civil aircraft lines. USTR confirmed the Brazil duty does not stack with the existing 50 percent Section 232 tariff on Brazilian steel and aluminum.
Canada is next on the calendar. On July 20, the president signed three proclamations under Section 338 of the Tariff Act of 1930, a Depression-era authority never before used this way, imposing 50 percent tariffs on Canadian autos, alcohol, dairy, furniture, and several other categories, effective August 19. The proclamations exclude energy, potash, fish, critical minerals, and goods already covered by Section 232, but they apply even to products that qualify for duty-free treatment under the USMCA, a first that has alarmed businesses built around the agreement’s guarantees. Canadian goods also carry the new 10 percent forced labor tariff in the interim.
Then comes pharma. The administration’s onshoring deadline for major pharmaceutical companies falls on July 31. Companies that have reached onshoring agreements will see the threatened 100 percent tariff on branded pharmaceutical imports reduced to 20 percent; those that have not face the full rate. EU-origin branded pharmaceuticals are insulated by the trade deal’s 15 percent ceiling. The deadline gives the industry three days, as of this morning, to conclude negotiations that will determine the landed cost of some of the most valuable cargo entering the country.
The stacking puzzle
The single most common question brokers report fielding this week is how the new duties interact with everything else. The answer requires a map.
The forced labor Section 301 duties stack on top of most favored nation rates, except for the EU, Taiwan, Japan, Korea, and Switzerland, where the new duty is calculated to bring the total to the capped figure. They also sit alongside, not instead of, the Section 232 national security tariffs on steel and aluminum at 50 percent, copper at 50 percent, autos at 25 percent, semiconductors at 25 percent, and lumber at 10 percent, and the first-term Section 301 duties on Chinese goods, which never lapsed.
The European Union occupies its own lane. Since July 1, most EU-origin goods enter under the trade deal’s 15 percent all-inclusive ceiling, which replaced the Section 122 surcharge for EU products and does not stack on MFN: goods with MFN rates at or above 15 percent pay MFN only. EU autos fell from 27.5 percent to 15 percent under the deal, while EU steel and aluminum remain at the 50 percent Section 232 rate. From September 1, EU aircraft and parts, cork, and generic pharmaceuticals shift to MFN-only treatment. The forced labor action touches only certain non-exempt EU products, capped at 10 percent total.
Canada and Mexico continue to enjoy USMCA preferences where goods qualify, though the agreement itself entered an uncertain new phase on July 1 when the United States declined to renew it at the joint review. The pact remains in force, with annual reviews for up to ten years and a 2036 sunset if no extension is ever agreed. The 10 percent forced labor duty applies to Canadian and Mexican goods regardless of USMCA qualification, and Canada’s Section 338 tariffs will do the same from August 19.
The de minimis landscape shifted too. As of July 24, the postal shipment duty threshold rose to 2,500 dollars, a significant change for ecommerce sellers and consumers who had been paying duties on low-value postal imports since the de minimis exemption was curtailed.
The refund machine runs in reverse
While CBP collects the new duties at the border, it is simultaneously paying back the old ones, an exercise in fiscal whiplash with few precedents. The Supreme Court’s February ruling entitled importers to refunds of the invalidated IEEPA duties, a pool the Court of International Trade and government filings have put at roughly 166 billion dollars including interest.
The repayment effort, run through CBP’s CAPE system, has moved faster than most practitioners expected. Phase 1 processed refunds on nearly 8.5 million entries in its first six weeks. Phase 2, opened June 29, added reconciliation and antidumping entries, bringing about 130 billion dollars of the pool within reach of claims. A CBP declaration filed with the court on July 10 put cumulative refunds at 86.3 billion dollars, with June alone accounting for 49.1 billion dollars.
The hard cases are in Phase 3, covering roughly 11.4 billion dollars in entries that were finally liquidated before the litigation concluded. The government maintains that only importers who filed protective actions at the Court of International Trade are entitled to reliquidation of those entries, and a July 15 court order signaled that relief will come through case-specific orders across roughly 3,700 individual lawsuits. The Justice Department has also appealed aspects of the refund orders to the Federal Circuit, leaving the outer boundaries of the refund class unsettled. Importers who never filed suit are being urged by counsel to preserve rights through the 180-day protest process where deadlines have not already passed.
The result is a strange fiscal loop: the Treasury collected roughly 29.4 billion dollars in tariff revenue in the first quarter alone, is refunding tens of billions collected under the old regime, and is now collecting again under the new one. Whether the forced labor duties survive their own inevitable court test will determine whether the loop runs a second time.
Congress stirs, businesses adapt
The whiplash has consequences beyond the customs house. On July 22, Senator Ron Wyden of Oregon introduced the Congressional Trade Powers Reform Act, which would repeal Sections 122 and 338 outright and require congressional approval before any president could act under Sections 301, 201, or 232. The bill is unlikely to move this year, but it captures a growing institutional unease: the past eighteen months have seen tariffs imposed under five different statutes, two of them struck down or lapsed, with Congress a spectator throughout.
For businesses, the strategic lessons of the transition are becoming clear. First, no tariff regime should be treated as permanent; planning now means modeling scenarios, not rates. Second, the exemption annexes matter as much as the headline numbers, and product-level classification work has become the highest-value compliance activity in the building. Third, paper trails pay: the importers recovering IEEPA refunds fastest are those whose entry records were clean and whose protests were timely.
Costs, meanwhile, continue to migrate toward the consumer. Studies of earlier rounds consistently found that American importers and households bear most of the burden of tariffs, and the new regime arrives just as retailers finalize holiday orders. With nearly every sourcing alternative covered by the same action, the traditional escape valve of shifting suppliers offers little relief this time.
The week ahead holds three dates worth circling: the Brazil in-transit window closes Wednesday, the pharmaceutical onshoring deadline arrives Friday, and the excess capacity Section 301 investigations covering 16 trading partners remain pending with no announced timeline. The handoff from one tariff regime to another is complete. The argument over whether the new one is lawful, wise, or durable is just beginning.
Sector snapshots: where the handoff bites
The transition’s effects vary sharply by industry, and the first week of entries under the new regime is already revealing the pattern.
In retail and consumer goods, the handoff is close to a wash in rate terms for many origins, since the 10 percent Section 122 surcharge has been replaced by duties of 10 to 12.5 percent. But the distributional change matters. Under Section 122, every origin paid the same; under the new regime, sourcing from Canada, Mexico, India, or the United Kingdom carries a 2.5 point advantage over China, Vietnam, or Thailand. For categories such as apparel and home goods, where sourcing is genuinely mobile across South and Southeast Asia, that gap is wide enough to influence order placement for the spring 2027 season, and buyers report that Indian and Bangladeshi suppliers are already citing the tier difference in negotiations.
In automotive, the picture is dominated by what has not changed and what is coming. Section 232 duties of 25 percent on autos remain in force, EU-built vehicles enjoy the trade deal’s 15 percent ceiling, and the Canadian Section 338 tariffs of 50 percent on autos arrive August 19. Parts supply chains that cross the northern border multiple times face the most complex exposure in the industry’s modern history, and manufacturers are lobbying intensively for the August proclamations to be narrowed before their effective date.
In food and agriculture, the Brazil action looms largest. The exemption annex spared coffee, beef, and orange juice, sparing American grocers a visible price shock, but covered categories now carry 25 percent, and importers of Brazilian specialty goods spent the week scrambling to document loading dates against the July 29 in-transit cutoff. The forced labor tariffs add 10 to 12.5 percent to a wide range of food imports from other origins, with exemptions for products that cannot be grown domestically in sufficient quantity, a standard whose application to specific tariff lines is already generating classification disputes.
In pharmaceuticals and medical products, everything depends on Friday. The onshoring deadline will sort branded pharmaceutical imports into a 20 percent lane for companies with agreements and a threatened 100 percent lane for the rest, while EU-origin branded drugs shelter under the 15 percent ceiling and generics move toward MFN-only treatment in September. Hospital systems and pharmacy benefit managers, largely spectators to the negotiations, are modeling formulary impacts they cannot yet quantify.
The revenue and price picture
The macroeconomics of the handoff are a study in offsetting flows. Tariff revenue ran at 29.4 billion dollars in the first quarter, a pace that would deliver well over 100 billion dollars for the year even before the new duties took effect. The forced labor tariffs, covering a slightly higher average rate on virtually the same import base, should sustain or modestly increase that pace, assuming courts allow them to remain in place.
Against that stands the refund outflow: 86.3 billion dollars repaid as of July 10, on the way to a pool the government has sized at roughly 166 billion dollars including interest. On the government’s own numbers, most of the revenue collected under the invalidated IEEPA program is going back out the door, an outcome without precedent in American fiscal history and one that has complicated every projection of the tariff program’s budget contribution.
For prices, the economic literature accumulated since 2018 points one direction. Studies of the first-term tariffs found close to complete pass-through of duties into import prices, with American firms and consumers bearing the burden. The Section 122 surcharge was visible in goods inflation through the spring; the new regime’s slightly higher average rate, arriving at the start of holiday ordering, is expected to sustain that pressure into the fourth quarter. The administration argues the burden is worth bearing, pointing to rising domestic steel production and announced reshoring investments; its critics point to input cost inflation squeezing the very manufacturers the policy is meant to help. Both can cite data from a policy experiment that has never stopped moving long enough to be cleanly measured.
A checklist for the week
For importers navigating the handoff, the immediate agenda is concrete. Confirm that entries filed today for pre-July 24 loadings claim the in-transit exception correctly, because the window does not reopen. Verify Brazil-origin entries against the July 29 cutoff and the 9903.05.02 exemption subheading. Re-run landed cost calculations on every active purchase order, checking which layer applies to each origin: the forced labor tiers, the EU ceiling, USMCA preference, Section 232, legacy China 301, or several at once. Audit classification against the exemption annexes rather than assuming coverage from headline descriptions. Diarize August 19 for Canadian exposure and July 31 for pharmaceutical lines. And preserve every protest right the calendar allows, because if the courts treat the forced labor tariffs the way they treated their predecessors, today’s paperwork is tomorrow’s refund claim.
None of this is the way anyone would design a tariff system from scratch. It is, however, the system American importers woke up to this morning: five statutes deep, two court rulings old, one grace period from fully armed, and still changing by the week.