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TWN
Info Service on WTO and Trade Issues (Apr26/06) Imposing
Tariffs Declared a Sham The writer is a trade and investment lawyer at Third World Network. KUALA LUMPUR, Malaysia | 11 April 2026 (IDN) — Richard Woldenberg, CEO of Learning Resources, Inc., the educational toy company whose Supreme Court victory struck down President Trump’s IEEPA tariffs six weeks earlier, has filed a four-page submission to the U.S. Trade Representative (USTR) challenging the foundation of the Section 301 investigations into “structural excess capacity” across 16 economies. The short, plain-language submission may prove more consequential than the USTR’s own Federal Register notice that launched these investigations on 11 March. A Predetermined Tariff Strategy Woldenberg argues the decision to impose tariffs has already been made and precedes the investigation. President Trump stated his intention to replace the invalidated IEEPA tariffs with new levies under Section 301 barely three hours after the Supreme Court’s 20 February ruling, at a midday press conference. He spoke explicitly of replacing the hundreds of billions of dollars in revenue taken in by IEEPA tariffs. The USTR initiated the investigation 19 days later. Treasury Secretary Scott Bessent reinforced the impression by stating that 2026 tariff revenue would be “virtually unchanged.” Woldenberg’s conclusion is right: to impose tariffs under these conditions would, in his words, “make a sham of Sec. 301.” The procedural argument is not pedantic. It exposes a fundamental inversion at the heart of these proceedings. Flawed Logic and Weak Evidence Section 301 of the US Trade Act 1974 authorises the USTR to act against specific foreign acts, policies, or practices that are “unreasonable or discriminatory and burden or restrict U.S. commerce.” Past Section 301 investigations have identified particular measures up front: intellectual property infractions, discriminatory digital services taxes and specific regulatory barriers. The investigation then determined whether those measures warranted a tariff response. The current proceedings reverse this sequence. The USTR’s Federal Register notice uses the existence of trade surpluses as prima facie evidence of unfair practices, then works backwards to identify the policies that might explain them. As Peter Harrell, a former senior National Security Council official, has observed, this is fundamentally different from how the US Congress intended Section 301 to operate. The evidentiary basis is thin. The USTR cites global manufacturing capacity utilisation of between 75% and 75.9%, below its supposedly healthy rate of 80%. But that 80% benchmark derives from the steel sector, a commoditised industry with well-documented overcapacity. Applying this single-sector yardstick across all of global manufacturing, from semiconductors to toys, is not analytically sound. In certain consumer goods, spare capacity is a normal commercial feature: factories retain flexibility to meet demand fluctuations. In OEM (Original Equipment Manufacturer) markets, where production is made to order under a buyer’s intellectual property, overproduction without customer orders is a route to bankruptcy, not trade surpluses, Woldenberg points out from his own experience. The inclusion of certain economies further undermines the USTR’s logic. Singapore does not run bilateral goods trade surpluses with the US. The USTR’s own framework treats trade surpluses as an indicator of excess capacity, yet it targets economies that fail even this criterion. The notice hedges by acknowledging that excess capacity can exist in specific sectors even where overall trade is balanced, but this concession weakens the already tenuous link between aggregate trade data and the specific unfair practices Section 301 was designed to address. Burden of Proof Turned Upside Down What the investigation lacks is granular, economy-by-economy identification of actionable measures that would satisfy any burden of proof. The USTR lists seven broad categories of possible government intervention, from subsidised lending to suppressed wages, but presents them as a menu of possibilities rather than documented findings against specific countries. This asks respondent economies to disprove a generalised theory rather than requiring the USTR to prove specific harm. Woldenberg adds a further dimension. His companies faced a combined duties and tariff rate exceeding 100% in 2025. To remain viable, these costs are invariably passed on to families least able to afford them. When tariffs land on educational toys and classroom materials, they land on families at the lower end of the income spectrum, the consumers who spend the highest proportion of their earnings on precisely these goods. In effect, “a massive tax burden (the tariffs) is essentially being shifted from wealthy Americans to poorer Americans – a classic regressive tax scheme”. Tariffs as Revenue, Not Trade Policy This connects to the constitutional argument at the centre of Woldenberg’s submission. The US Supreme Court’s Learning Resources decision confirmed what the text of the Constitution makes plain: tariffs are taxes, and the authority to impose taxes resides with Congress under Article I, not with the Executive. Congress, in passing Section 301 of the Trade Act of 1974, did not abdicate its taxing power. It delegated limited, procedurally bounded authority to the Executive to impose tariffs in response to specific, documented foreign trade practices. Woldenberg argues that the President’s stated intent to raise revenue through tariffs, replacing what IEEPA had collected, is not consistent with those procedural and substantive limitations. Section 301 is not a free pass to tax Americans at will. It is a constrained instrument, and using it to backfill a revenue hole left by an unconstitutional tariff regime stretches it well beyond what Congress intended. The comment period closes on 15 April. Public hearings begin on 5 May. The Administration’s target for tariff imposition is approximately 24 July, coinciding with the expiry of the Section 122 placeholder tariffs of 10% imposed after the Supreme Court ruling. Arguably, Section 301 rests on firmer constitutional ground than IEEPA. Congress explicitly authorised tariffs under the Trade Act of 1974, and Woldenberg’s submission does not guarantee another victory. But it exposes a process that treats trade surpluses as presumptive wrongdoing, applies a benchmark from one sector across all manufacturing, targets economies that do not meet the US’s own criteria, and moves on a timeline driven by the Administration’s revenue needs. If the USTR cannot distinguish between structural overcapacity and a family-owned factory making educational toys to order, this is not a trade investigation. It is a revenue mechanism looking for a legal wrapper. [IDN-InDepthNews]
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