Trump's Tariffs Make a Comeback: Will the Dollar Get Short-Term Support but Face Medium-Term "Backlash"?

Reuters Finance News — The United States has launched a new round of Section 301 investigations, citing “overcapacity” and “trade surplus” as reasons to impose tariffs on multiple trading partners. This move is seen as a long-term alternative to the temporary global tariffs that are about to expire.

The dollar has received temporary support due to increased predictability from the policy “shift,” but if trading partners respond strongly, medium-term pressure on the dollar may emerge. Global trade uncertainties are intensifying, with supply chain restructuring and inflation risks rising simultaneously. On Monday, the dollar index fluctuated downward, currently trading around 100.25, down about 0.25% intraday, after reaching a nine-and-a-half-month high of 100.54 in the previous trading day.

U.S. initiates Section 301 investigation to replace revoked tariffs; allies call for adherence to existing agreements

After the USTR launched a new round of Section 301 investigations, major trading partners have urged the Trump administration to honor previously agreed tariff agreements.

While countries somewhat understand the U.S. intent to restore pre-judgment tariff levels from the Supreme Court, they strongly oppose the U.S. using “overcapacity” and “trade surplus” as reasons to initiate investigations, viewing this as deviating from the spirit of existing agreements and warning of potential new legal and trade disputes.

Temporary 10% global tariffs set to expire after Supreme Court ruling

In February, the Supreme Court ruled that tariffs imposed by Trump under 1970s emergency laws were unlawful. Trump then temporarily imposed a 10% global tariff under Section 122 of the Trade Act of 1974, valid for 150 days, which is about to expire.

Last week, the USTR, under Robert Lighthizer, launched a Section 301 investigation citing structural overcapacity and trade surpluses as “unfair practices.” This move is viewed as a long-term replacement for the temporary tariffs.

USTR considers tariffs on most trading partners due to overcapacity and trade surpluses

Grier indicated that the U.S. seeks policy continuity and plans to adhere to earlier agreements with South Korea, Japan, and the EU, but emphasized that Section 301 will cover structural excess capacity in manufacturing and unfair trade practices.

If the investigation finds harm to U.S. commercial interests, targeted tariffs may be authorized. The U.S. aims to complete the investigation and take action before July, but the formal process under Section 301 typically takes over a year, creating significant time pressure.

South Korea understands U.S. intentions but hopes for compliance; Japan and EU share similar stance

South Korea’s trade minister expressed understanding of the U.S. desire to restore tariffs to pre-judgment levels. Last year, the Korea-U.S. agreement saw the Korean parliament approve measures to facilitate $350 billion in U.S. investments this week. As part of the agreement, Korea expects the U.S. to honor commitments.

Japan and the EU also have similar agreements on tariff caps (most EU goods capped at 15%), and hope the U.S. will keep its promises. Allies generally worry that Section 301 could become a new tool to bypass existing agreements.

Singapore strongly refutes U.S. trade surplus accusations

Singapore officials and experts strongly counter the U.S. claims of a trade surplus with Singapore, pointing out that the actual situation is the U.S. has a surplus with Singapore.

Singaporean experts note that “anticipating tariffs” and “suddenly being accused of unfair trade” are two different things, with the latter causing greater impact. The region feels surprised and confused, believing the Section 301 rationale lacks sufficient basis.

Legal battles may ensue; investigation process is lengthy, U.S. aims for July completion

Section 301 requires formal investigation, public consultations, hearings, and negotiations with trading partners, typically taking over a year. The U.S. hopes to accelerate and complete by July, but procedural rigidity is evident.

Trading partners may file WTO complaints or retaliate, increasing legal risks. Allies urge the U.S. to honor existing agreements and avoid unilateral actions that could damage mutual trust. In the short term, global trade uncertainties are likely to increase, with supply chain restructuring and inflation pressures possibly intensifying.

This policy shift’s impact on the dollar has evolved into a complex narrative involving U.S. fiscal credibility, monetary policy independence, and global investor confidence. Initially, markets will focus on the positive aspect of the policy “shift” (increased predictability), which could give the dollar temporary support.

However, as investigations deepen and trading partners respond clearly, large-scale countermeasures or WTO lawsuits could gradually exert downward pressure on the dollar.

Summary

After the U.S. launched Section 301 investigations, major trading partners urged the Trump administration to honor previous tariff agreements. South Korea, Japan, and the EU understand the U.S. intent to restore tariffs to pre-judgment levels but expect the U.S. to keep its commitments. Singapore strongly refutes U.S. trade surplus claims, stating the opposite.

USTR’s initiation of investigations based on overcapacity and trade surpluses is seen as a long-term plan to replace the temporary 10% global tariffs. Allies worry that Section 301 could become a new tool to bypass agreements, raising legal risks. The U.S. hopes to complete by July, but the formal process is lengthy, and trading partners may retaliate or bring WTO disputes.

Global trade uncertainties are increasing, with supply chain restructuring and inflation pressures possibly intensifying. Investors should closely monitor investigation progress, responses from trading partners, and high-level U.S.-China meetings, remaining alert to the risk of a new round of tariff conflicts.

As of 10:19 Beijing time, the dollar index is at 100.25.

(Editor: Wang Zhiqiang HF013)

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