US Launches Section 301 Investigation: How Tariff Risks Impact Inflation and Supply Chains

The United States Trade Representative (USTR) has recently initiated investigations under Section 301 of the Trade Act of 1974 against 16 economies globally, signaling a renewed reliance on tariffs as a tool of pressure in US trade policy. It is important to note that this action is merely the beginning of the investigation process and does not immediately impose tariffs. Whether remedial measures will be taken, which products will be covered, and the level of tariffs will depend on the investigation's findings and independent rulings.

Although actual tariffs have not yet been implemented, the market has already reacted to the potential risks. Companies are reassessing their procurement strategies and adjusting inventory levels to cope with possible future cost increases. Once tariffs are eventually imposed, the cost of imported goods will be partially passed on to end consumers, especially affecting commodity-intensive categories such as electronics, machinery, and household appliances. Supply chains may also be forced to restructure, shifting to alternative suppliers in non-targeted countries, thereby extending delivery cycles and increasing compliance costs. This will place greater pressure on small and medium-sized enterprises (SMEs), squeezing their profit margins and increasing their working capital needs.

Controversy is growing regarding the method of calculating tariffs. Some economists point out that the model used by the US overestimates the sensitivity of foreign suppliers to price changes, resulting in calculated tariff rates that are far higher than what actual economic logic supports. Brent Neiman, a University of Chicago economist and former Treasury official, stated bluntly that the current formula may be calculating tariff rates that are more than four times higher than reasonable values. At the same time, the US business community is also concerned that excessively high tariffs will not only fail to accurately target so-called "unfair trade practices" but will also harm their own industrial chains. The Chinese Ministry of Commerce has responded strongly, condemning the US for abusing Section 301, characterizing it as a unilateral protectionist act, and warning that this move will increase procurement costs for US domestic industries and undermine the stability of bilateral economic and trade relations. Goldman Sachs has also issued a risk warning, stating that even if courts limit the President's ability to use emergency powers to impose tariffs, tools such as Section 301 and Section 122 remain broadly applicable and could trigger a dual pressure of sustained inflation and slower economic growth. Currently, not all of the 16 economies under investigation have been publicly disclosed, but it is known that the focus is on industries with prominent overcapacity issues, such as steel, aluminum products, new energy equipment, and related semiconductor fields. Companies need to closely monitor the progress of the investigation and develop contingency plans in advance to reduce the operational risks arising from policy uncertainty.