The U.S. just activated a trade law that’s been sitting dormant since 1974. Here’s what it means for your landed costs — and why USMCA-origin brands have a meaningful advantage right now.
- Last Updated: February 25, 2026
- Written by: GoBolt
If you’ve been tracking U.S. trade policy, you know the last few weeks have been a whirlwind. On February 20, 2026, the Supreme Court struck down the tariffs the Trump administration had imposed under the International Emergency Economic Powers Act (IEEPA), declaring that Congress — not the President — holds tariff authority. Within hours, the White House reached for a different tool: Section 122 of the Trade Act of 1974.
The result is a 15% global import surcharge that took effect on February 24, 2026, and runs for 150 days — until July 24, 2026. Currently set at 10%, the surcharge can be raised to a statutory maximum of 15% at any time
For brands importing goods into the U.S., the cost implications are immediate.
But if your goods are manufactured in Canada or Mexico and qualify under USMCA, there’s an important exemption that works in your favour.
Section 122 TL;DR
The U.S. levied taxes on shipments coming into the country. The Supreme Court said “those were illegal” and threw them out. The government pulled out an old law from 1974 called Section 122 and used it to put a 15% tax on almost everything being imported into the U.S. — basically, if a product crosses the border into America, it now costs 15% more.
That tax lasts until July 24th, then it automatically disappears (unless the government does something to keep it going).
Here’s the good part for USMCA brands: There’s a trade deal between Canada, the U.S., and Mexico called USMCA. Anything that qualifies under that deal gets to skip the 15% tax entirely. So Canadian brands shipping products into the U.S. through a proper Canadian supply chain? They’re largely protected from this extra cost — which is a real advantage over brands sourcing from other countries who have to eat that 15%.
What Is Section 122, and Why Does It Matter?
Section 122 of the Trade Act of 1974 authorizes the President to impose temporary import surcharges of up to 15% ad valorem — meaning as a percentage of the goods’ value — to address what the law calls “fundamental international payments problems.” In plain terms: large trade deficits.
This provision has been on the books for over 50 years, but has never been invoked until now. The administration cited a $1.2 trillion goods trade deficit as justification, initiating the surcharge at 10% — with authority to raise it to the statutory maximum of 15% at any point during the 150-day window.
Here’s what the surcharge means in practice for importers:
- The surcharge currently sits at 10% and applies on top of existing MFN (Most Favoured Nation) rates and Section 301 duties — it stacks. The government can raise it to 15% at any time.
- The one exception to stacking: goods already subject to Section 232 tariffs (steel, aluminum, copper, lumber, automobiles) are not hit with an additional surcharge on that portion.
- At 10%, the trade-weighted average U.S. tariff rate sits at approximately 11.6%, rising to 13.2% if the rate reaches the 15% ceiling — compared to 8.3% if no replacement tariff had been enacted.
- The surcharge is reported under HTSUS code 9903.03.01 for customs purposes.
What We're Seeing on the Ground
The surcharge has been initiated at 10%, with the authority to increase to a maximum of 15% — and we're seeing a reduction in tariffs for some China-origin goods depending on the HTS code. For all other origins, tariffs remain unchanged.
While the U.S. government retains the authority to raise it to 15% at any point during the 150-day window, our cross-border logistics team is currently seeing the surcharge applied at 10% for most shipments.
One exception worth noting: some China-origin goods are actually seeing a reduction in effective tariff rates depending on their HTS code, as Section 122 replaces the higher IEEPA rates that were in place before the Supreme Court ruling.
For all other origins, existing tariffs remain unchanged — the Section 122 surcharge stacks on top. And a reminder on USMCA: the exemption is only as strong as your paperwork. If a product has an invalid certificate of origin or fails rules of origin requirements, it will be subject to the full surcharge on top of base duties.
The USMCA Exemption: Good News for Canadian and Mexican Brands
Here’s the part that matters most if your goods qualify as USMCA-origin: goods entering the United States duty-free under the United States-Mexico-Canada Agreement (USMCA) are exempt from the Section 122 surcharge.
This mirrors how USMCA goods were treated under the previous IEEPA tariff regime. If your products qualify for USMCA duty-free treatment under General Note 11 of the HTSUS, the 15% surcharge does not apply to them.
For brands manufacturing in Canada or Mexico with a USMCA-compliant supply chain — including those fulfilling from Canadian or Mexican warehouses and shipping cross-border to U.S. consumers — this exemption is meaningful. It means:
- No additional surcharge on USMCA duty-free goods entering the U.S. — regardless of whether the rate sits at 10% or rises to the 15% ceiling.
- USMCA-origin products that already benefit from duty-free treatment continue to do so through July 24, and likely beyond.
- Brands manufacturing within USMCA countries maintain a cost advantage over non-USMCA importers facing the full surcharge.
The key is ensuring your products genuinely qualify at the HTSUS code level. USMCA eligibility isn’t determined by general category — it requires meeting specific rules of origin for each product. Work with your customs broker to validate classification before assuming the exemption applies.
The CAFTA-DR Exemption for Section 122
The Section 122 proclamation also introduces a formal exemption for textile and apparel articles entering duty-free under the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). This covers goods from Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.
This is new as a standalone carve-out — under the previous IEEPA tariff regime, only some of these countries had equivalent treatment through separate bilateral deals. The CAFTA-DR exemption now formalizes duty-free treatment for qualifying textile and apparel imports from these six countries.
If your supply chain involves finished goods or components from CAFTA-DR countries, confirm with your customs broker whether your products qualify for duty-free entry under the agreement — and therefore exemption from the Section 122 surcharge.
Other Key Exemptions
Beyond USMCA and CAFTA-DR, approximately 1,100 product codes are exempt from the surcharge, detailed in Annexes I and II of the proclamation. Key categories include:
- Section 232 goods: Steel, aluminum, copper, lumber, and automobiles (no stacking, as noted above)
- Critical products: Minerals, pharmaceuticals, energy inputs, and civil aircraft parts and components
- Goods in transit: Products loaded and in transit before 12:01 a.m. EST on February 24, 2026, and entered for consumption before February 28 are exempt
Exemptions must be validated at the exact 10-digit HTSUS code level — broad product categories aren’t sufficient. Check each SKU individually.
What Happens to Section 122 After July 24?
The surcharge is explicitly temporary. It cannot extend past July 24, 2026 without a Congressional vote — and Congressional Republicans have already expressed frustration with current trade policy, making extension uncertain.
That said, “temporary” doesn’t mean “followed by nothing.” The administration has already announced accelerated Section 301 investigations covering most major trading partners on issues like industrial overcapacity, forced labor, and digital services taxes. These could replace the Section 122 surcharge with more targeted, longer-duration tariffs.
Three scenarios importers are planning for:
- Congressional extension of Section 122 (considered unlikely given political dynamics)
- New targeted tariffs under Section 301 authority — potentially higher and more permanent for specific goods or countries
- Return to lower baseline tariffs with no immediate replacement
The uncertainty makes long-term supply chain planning difficult. Some importers are front-running the July 24 expiration, accelerating shipments now in case more restrictive measures follow.
For brands with USMCA-origin goods, the calculus is different — but it’s still worth building contingency plans for what post-July 24 looks like.
What to Do Now
If you’re importing goods into the U.S. — or supporting brands that are — here are the immediate steps:
- Validate your HTSUS classifications at the 10-digit code level and confirm whether USMCA, CAFTA-DR, or annex-based exemptions apply to your products.
- Update your landed cost models to reflect the current 10% surcharge on non-exempt goods — and model the 15% ceiling scenario so you’re not caught off guard if the rate increases.
- Talk to your customs broker about proper filing under HTSUS 9903.03.01 and FTZ privileged foreign status requirements if applicable.
- Document everything — the Section 122 surcharge is eligible for duty drawback, meaning you can potentially recover up to 99% of surcharges paid on goods that are later exported.
- Build scenario plans for what post-July 24 looks like for your import strategy, including under a Section 301 replacement.
