The USD surged against most major currencies overnight after the Office of the US Trade Representative (USTR) unveiled a new legal pathway to reinstate country-specific tariffs. After legal setbacks — including a Supreme Court ruling against broad IEEPA tariffs in February and a Court of International Trade decision striking down Section 122 tariffs last month — the Trump administration shifted to Section 301 of the Trade Act of 1974 as its latest trade enforcement tool.
The USTR identified 60 trading partners for allegedly failing to adequately restrict goods produced through forced labour. The proposal would impose an additional 10% tariff on 16 economies, including the EU, UK, Canada, Mexico, and Taiwan, for inadequate enforcement of existing bans. A further 12.5% tariff would apply to 44 economies, including China, Japan, South Korea, India, Australia, and Singapore.
Markets initially viewed the announcement as an escalation in trade tensions, driving a sharp move into the USD. However, the proposal must still complete the Section 301 process. Public comments are due by July 6, with hearings beginning on July 7. The administration appears to be fast-tracking the process so any new tariffs can take effect before the temporary Section 122 tariffs expire on July 24.
While the immediate reaction has supported the USD, the broader implications are more complex.
The US no longer holds the same economic leverage over its allies as it did in past trade disputes. Since Trump 2.0, tariff escalation and geopolitical shocks have reshaped policy priorities, making retaliation increasingly viewed as economic self-preservation rather than a negotiating tactic. By targeting 60 economies under a legal rationale that many governments may challenge, Washington risks turning a bilateral pressure strategy into a broader multilateral response. Instead of isolating rivals, the measures could encourage greater coordination among countries that traditionally align with the US. Signs of this are already emerging. The EU and members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) have stepped up discussions on coordinated trade responses and alternative market arrangements that reduce reliance on US demand.
As a result, while the USD may gain from near-term safe-haven flows, the longer-term outlook is less clear. If the Section 301 initiative accelerates the formation of a broader anti-tariff coalition, it could strengthen trends Washington has sought to avoid: deeper integration among non-US blocs, greater diversification away from US markets, and a gradual erosion of US influence over the global trading system ahead of the November 3 US midterm elections.
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