A 25-state coalition asks the Court of International Trade to strike down the Section 301 forced labor tariffs, calling the levies on 60 trading partners an unlawful revival of a tariff regime the Supreme Court already rejected
WASHINGTON, August 6, 2026
The legal siege around the Trump administration’s rebuilt tariff wall tightened this week, as a coalition of 25 states filed suit in the U.S. Court of International Trade seeking to strike down the Section 301 forced labor tariffs that now apply to imports from 60 trading partners accounting for 99.4 percent of everything the United States buys from abroad.
The lawsuit, filed Monday and announced by New York Attorney General Letitia James and Governor Kathy Hochul, asks the court to declare the tariffs unlawful, halt their collection, and order refunds of duties already paid to the states. It is the third and by far the largest legal challenge to the levies since they took effect on July 24, and it puts half the country’s state governments on record against the centerpiece of the administration’s third attempt in eighteen months to construct a global tariff regime.
“The Tariff Action is arbitrary, capricious, and contrary to law,” the complaint states, according to reporting by Supply Chain Dive. The filing adds that “the Administration cannot use forced labor as a pretext to continue its illegal tariff scheme.”
The suit names President Donald Trump, U.S. Trade Representative Jamieson Greer, Customs and Border Protection Commissioner Rodney Scott, and their respective agencies as defendants.
A Tariff Regime Built on a New Legal Foundation
To understand what the states are challenging, it helps to trace how the administration arrived at the forced labor tariffs in the first place, because the current duties are the third legal vehicle the White House has used to impose broadly similar rates on broadly similar trade flows.
The first vehicle was the International Emergency Economic Powers Act, the 1977 statute the president invoked in 2025 to impose the sweeping “Liberation Day” tariffs on nearly every U.S. trading partner. In late February 2026, the Supreme Court held in Learning Resources v. United States that IEEPA does not authorize tariffs of that kind, invalidating the entire structure at a stroke. The Court of International Trade subsequently ordered the government to refund IEEPA duties to importers of record, a liability that the Penn Wharton Budget Model has estimated could ultimately reach 175 billion dollars including interest, on top of the more than 130 billion dollars collected through mid-December of last year. The Justice Department filed a notice of appeal to the Federal Circuit on June 2, contesting the trade court’s authority to compel refunds on entries that have already liquidated.
The second vehicle was Section 122 of the Trade Act of 1974, a balance-of-payments provision that allows temporary import surcharges of up to 15 percent for no more than 150 days. Within days of the Supreme Court ruling, the president used it to impose a 10 percent global tariff. That measure fared no better in court: on May 7, the Court of International Trade sided with a group of 24 states and businesses and found the temporary levies unlawful. In practical terms the ruling was narrow, and the surcharge was in any case approaching its statutory 150-day expiration, which arrived on July 24.
The third vehicle is the one now under attack. On March 12, the Office of the U.S. Trade Representative opened investigations under Section 301 of the Trade Act of 1974 into whether 60 economies had failed to impose or effectively enforce prohibitions on the importation of goods made with forced labor. On June 2, USTR announced findings against all 60. On July 23, Ambassador Greer announced final action, and at 12:01 a.m. Eastern Time on July 24, the very moment the Section 122 surcharge lapsed, new duties of 10 or 12.5 percent attached to imports from the 60 economies, including the European Union, China, Canada, Mexico, Brazil, and India.
Announcing the action in July, Greer said the trading system needs a level playing field: countries need to “prohibit the import of goods made with forced labor, and you need to enforce these laws so that we all have a level playing field,” he said.
The seamless handoff from one statute to the next is precisely what the states now cite as evidence of pretext. In their telling, the forced labor rationale is a legal costume draped over the same policy the Supreme Court struck down in February.
What the Complaint Actually Argues
The 25-state complaint, filed by attorneys general led by New York, advances an argument that is more procedural than moral. The states do not deny that forced labor is a genuine problem in global supply chains. Instead, they contend that USTR failed to do what Section 301 requires before imposing remedies, and that the remedies it chose bear no rational relationship to the problem it claimed to be solving.
The procedural allegations are specific. Section 301 investigations of unreasonable or discriminatory foreign practices ordinarily involve consultations with the targeted government, evidence gathering tailored to that country’s practices, and remedies calibrated to the harm identified. According to the complaint, USTR completed investigations into 60 separate economies in roughly two and a half months, a pace the states say made genuine country-specific analysis impossible. The suit alleges the agency bypassed required country-by-country consultations, did not respond meaningfully to comments and testimony that undercut its rationale, and set tariff rates without explaining how a 10 or 12.5 percent duty on all goods from a given country would reduce the prevalence of forced labor anywhere.
“In short, there is no rational fit between the purported problem of forced labor in international supply chains and the blanket global tariffs the USTR imposed,” the complaint argues.
The states also point to the absence of any exit ramp. A remedial trade action, they argue, should give the targeted country a path to relief through better behavior. The complaint alleges that USTR offered no mechanism for an accused economy to escape the levies through remedial action, and that the agency maintained an effective 10 percent tariff floor even for countries it acknowledged were taking steps to combat forced labor. A remedy that cannot be satisfied, the states suggest, is not a remedy at all. It is a revenue measure, and revenue measures on imports are tariffs that require a lawful delegation of tariff authority.
The Company the States Are Keeping
The states are not alone in the courthouse. On July 24, the day the tariffs took effect, two small businesses filed the first challenge in the Court of International Trade: Burlap and Barrel, a single-origin spice importer, and Collective Horology, a watch retailer. Their suit asks for the duties to be removed and for refunds of amounts paid, and it makes arguments that parallel the states’ filing: that the administration did not fully meet Section 301’s procedural requirements and that the tariffs are a backdoor attempt to replace duties the courts had already forced it to abandon. A second group of small business plaintiffs followed later in July.
The multiplying dockets echo the litigation pattern that unwound the IEEPA tariffs, which also began with small importers and state coalitions before reaching the Supreme Court. That history is one reason trade lawyers are watching the new cases closely. The plaintiffs have a playbook that has already worked twice, and the same trade court that ruled against the government in May will hear the new challenges first.
The administration, for its part, enters the litigation with one recent victory in hand. On June 15, the Supreme Court denied certiorari in HMTX Industries, leaving in place a Federal Circuit decision that upheld USTR’s authority to modify existing Section 301 tariff actions. The government is likely to argue that Section 301 confers broad discretion on the trade representative, that courts owe deference to the executive’s judgments about unreasonable foreign practices, and that the statute’s text does not require the kind of granular country-by-country tailoring the plaintiffs demand.
Stakes for the Federal Balance Sheet
The financial stakes of the new litigation are considerable, and they compound a refund exposure that is already historic. The forced labor tariffs apply to virtually all U.S. import trade, which ran at roughly 950 billion dollars of covered flows when the action was announced. At effective rates of 10 to 12.5 percent, the duties would collect on the order of 100 billion dollars or more over a full year if trade volumes held steady. Every month the tariffs remain in effect while their legality is contested adds to the potential refund bill if the government loses again.
That is not a hypothetical concern. The IEEPA experience demonstrated that courts are willing to order refunds at scale, and Customs and Border Protection has been forced to build new administrative machinery, the Consolidated Administration and Processing of Entries system, to process IEEPA refund claims in phases through this summer. A second refund program layered on top of the first would strain both the agency and the fisc. The Tax Foundation has estimated that the 2026 tariff regime amounts to an average tax increase of about 900 dollars per U.S. household, and that the tariffs have not meaningfully altered the trade deficit, a combination that features prominently in the states’ framing of the duties as an unlawful tax on their residents.
For the states themselves, standing rests on their role as large importers in their own right. State agencies, universities, and public hospital systems buy imported goods directly, from laboratory equipment to construction steel to pharmaceuticals, and they pay the tariffs on those entries. The refund demand in the complaint is limited to duties the states paid, but a ruling that the tariffs are unlawful would benefit every importer of record.
Trading Partners Watch From the Sidelines
Foreign governments have so far responded to the forced labor tariffs with objections rather than retaliation, in part because many of them are simultaneously negotiating with Washington on other fronts. The European Union’s foreign policy chief, Kaja Kallas, called the action a “negative surprise” and rejected the premise that the bloc fails to police forced labor in its supply chains, noting the EU maintains its own forced labor import regulation. Brazil rejected the 12.5 percent rate applied to its goods. Mexico’s economy minister played down the practical effect, saying Mexico does not see a change in the effective tariff it pays given overlapping programs and exclusions.
Several governments submitted formal comments during the abbreviated investigation period arguing, as the states now do in court, that the process was too fast to be genuine and that their domestic labor regimes were never seriously examined. Those submissions are now part of the administrative record the trade court will review, and plaintiffs are expected to lean on them heavily to show the agency had evidence before it that contradicted its conclusions.
The diplomatic restraint has limits. Trade officials in Brussels and Brasilia have both signaled that retaliation lists remain ready if negotiations sour, and the tariffs have complicated parallel talks on steel, digital taxes, and market access. A court ruling against the duties would spare trading partners a difficult choice between escalation and acquiescence.
What Importers and Exporters Should Do Now
For U.S. importers, the practical question is how to protect refund rights while the litigation runs. Trade counsel are broadly advising clients to keep meticulous entry records for all merchandise subject to the 10 and 12.5 percent duties, to consider protests and extensions of liquidation where appropriate, and to evaluate whether filing their own actions or awaiting the outcome of the pending cases better fits their exposure. The IEEPA refund process demonstrated that importers who preserved their claims early fared better than those who waited for the dust to settle.
Importers should also resist the temptation to treat the litigation as a reason to defer compliance. The duties are in force now, they are being collected now, and Customs has shown no inclination to suspend collection while courts deliberate. Companies that under-declare or misclassify to avoid the levies face enforcement exposure that no eventual refund ruling will cure.
For exporters and foreign suppliers, the immediate implication is pricing pressure. The 10 percent floor applies almost universally, which means sourcing shifts between covered countries offer little arbitrage. Unlike the country-specific tariff regimes of 2025, the forced labor action leaves few third-country routes around the duties, which was almost certainly part of its design.
For the states, the case is also about precedent. If the administration can respond to each judicial defeat by relabeling the same tariffs under a new statute faster than courts can adjudicate them, then judicial review of trade action becomes an exercise in chasing a moving target. The complaint asks the court to say clearly that statutory authority matters, that process matters, and that the executive cannot simply outrun the judiciary with serial invocations of the trade laws.
Who Actually Pays, and What the Economy Shows So Far
Beneath the legal arguments lies an economic record that both sides will invoke. The states’ complaint frames the tariffs as a tax on their residents, and the weight of evidence from the past eighteen months of tariff policy supports the claim that most of the burden lands inside the United States. Import prices on covered goods have not fallen enough to absorb the duties, which means U.S. importers, and ultimately consumers and businesses, have paid the majority of the cost. The Tax Foundation’s estimate of roughly 900 dollars in added annual costs per household reflects that pass-through, and the organization notes that the succession of tariff regimes has not meaningfully altered the trade deficit they were nominally meant to address.
The macroeconomic picture complicates any simple narrative, however. Services activity accelerated in July even as input cost measures reached multi-month highs, and equity markets have continued to set records, suggesting an economy that has so far absorbed the tariff shock without stalling. Administration officials point to that resilience, along with tariff revenue running at historically high levels, as vindication. Critics respond that revenue built on legally fragile duties is a fiscal trap: every dollar collected under a tariff later ruled unlawful becomes a dollar owed back, with interest, and the government is already contesting the mechanics of the largest refund program in customs history.
For businesses, the practical consequence of this fiscal overhang is uncertainty about forward pricing. An importer negotiating 2027 supply contracts today cannot know whether the forced labor duties will exist next summer, whether they will have been replaced by a fourth regime, or whether refunds will eventually offset amounts now being paid. That uncertainty has itself become a cost. Surveys of sourcing executives show companies maintaining geographic diversification but pushing suppliers for better terms rather than relocating production, a wait-and-see posture that reflects how many times the rules have changed since early 2025.
A Coalition Built for the Long Haul
The composition of the plaintiff coalition matters for how the litigation will unfold. The 25 states bring resources that private plaintiffs cannot match: attorneys general offices with standing appellate practices, the ability to coordinate discovery and briefing across jurisdictions, and the political durability to sustain a case through years of appeals. New York’s leadership of the coalition, announced jointly by Attorney General James and Governor Hochul, signals that the states intend to treat the case as a flagship constitutional confrontation rather than a technical customs dispute.
The states also bring a distinctive injury theory. Beyond their direct purchases as importers, several states argue that the tariffs raise the cost of public procurement broadly, inflate infrastructure budgets funded by state taxpayers, and depress economic activity within their borders in ways that reduce tax revenue. Courts have accepted versions of these theories in the IEEPA and Section 122 litigation, and the earlier 24-state Section 122 case provides a recent template: state coalitions have now prevailed against the administration’s tariffs twice at the trade court level.
The administration’s litigation posture, meanwhile, has hardened. The president has publicly criticized the courts’ interventions in trade policy and vowed to appeal every adverse ruling, and the Justice Department has pursued aggressive positions on remedies, arguing even after losing on liability that refunds should be sharply limited. Observers expect the same two-track strategy here: defend the Section 301 action vigorously on the merits while preparing fallback authorities in case the courts strike again.
The Road Ahead
The Court of International Trade is expected to consolidate or coordinate the state and business challenges, and briefing will unfold over the coming months. Whatever the trade court decides, an appeal to the Federal Circuit is close to certain, and few observers doubt the question will eventually be put to the Supreme Court, which has now twice confronted the administration’s tariff program and twice found legal defects.
The administration has given no indication it would stand down in defeat. The president has continued to press new trade actions, including the Section 338 duties on Canadian goods set to take effect August 19 and ongoing Section 232 national security investigations covering semiconductors, pharmaceuticals, and critical minerals. If the forced labor tariffs fall, few in Washington expect the tariff project to end with them. A fourth legal vehicle would likely be waiting in the garage.
For now, the duties remain in force, the revenue continues to flow, and half the states in the union are betting that the third version of the administration’s global tariff will meet the same fate as the first two. Importers, exporters, and trading partners have little choice but to plan for both outcomes at once.