The tariff is not final. If adopted, it would use a trade law route the administration opened in March to challenge alleged Chinese overcapacity, adding new duties while trying to preserve a one year U.S. China truce and a planned September meeting between Trump and Xi Jinping.
President Donald Trump is moving toward another tariff on Chinese imports, but the latest step is narrower and legally different from the sweeping duties the Supreme Court struck down in February. The Associated Press reported that the administration is considering a 7.5% levy tied to its investigation of what it calls structural excess manufacturing capacity in China.
Three people familiar with the deliberations told AP that the plan was still being finalized, and two said 7.5% was under consideration. Reuters separately reported Bloomberg’s account of the same proposed rate but said it had not independently verified the report. As of Aug. 25, neither the White House nor USTR had publicly confirmed a final 7.5% overcapacity tariff.
A tariff still under review
The distinction between considering a tariff and imposing one is central to the story. AP’s sources described internal deliberations that could still change, leaving the final rate, product scope, exemptions, effective date and implementation details unsettled. The administration has not yet publicly turned the reported 7.5% figure into a final action.
AP reported that administration officials view 7.5% as a level that could penalize China without blowing up the broader trade détente. The tariff is being discussed ahead of an expected White House meeting between Trump and Chinese President Xi Jinping in late September, giving the administration an incentive to show pressure without recreating last year’s sharp escalation.
That calibration also reflects the structure of the current U.S. China relationship. Trump and Xi reached a one year trade arrangement in October 2025, and the White House extended the suspension of heightened reciprocal tariffs through November 2026. The two governments also expanded economic commitments during Trump’s May 2026 visit to China.
A new tariff therefore would not arrive in a vacuum. It would be layered onto a managed truce containing tariff suspensions, agricultural purchase commitments, rare earth provisions and other negotiated measures. The question is whether Washington can add pressure over industrial policy while keeping the wider bargain intact.
Why Section 301 matters
The administration’s legal route is as important as the proposed rate. On March 11, USTR opened Section 301 investigations into China and 15 other economies over alleged structural excess capacity and production in manufacturing. The Federal Register notice said the inquiries would examine whether foreign acts, policies or practices are unreasonable or discriminatory and burden or restrict U.S. commerce.
Section 301 of the Trade Act of 1974 is a long standing trade enforcement mechanism. It allows USTR to investigate foreign practices and, after making the required findings, determine whether responsive action is appropriate. Those actions can include tariffs and non tariff measures. The process also calls for consultations, public comments and hearings.
That makes Section 301 materially different from the emergency power theory at issue in the Supreme Court case. The March investigation was formally opened, comments were requested and hearings began in May. USTR’s notice said it would decide whether the practices under investigation are actionable and, if so, what response to take.
The legal process does not guarantee that a 7.5% tariff would survive any future challenge. But it gives the administration a statute that expressly operates in the trade remedy field and comes with procedures designed to connect a response to specific findings about foreign conduct.
What the investigation alleges
USTR’s March notice describes overcapacity as production capacity that is not adequately disciplined by domestic or global demand, particularly when government policies encourage firms to maintain or expand uneconomic capacity. The agency argues that the result can be overproduction, persistent trade surpluses and pressure on manufacturers in other countries.
China is the investigation’s most prominent target. USTR cited China’s record goods trade surplus, falling export prices and capacity utilization data as evidence of structural imbalance. The agency identified sectors including machinery, automobiles and auto parts, steel, aluminium, plastics, chemicals, ships, electronics and other manufactured goods.
The scale of China’s export machine is not disputed. Chinese customs data showed exports rose 5.5% in 2025 to about $3.77 trillion while imports were roughly flat at $2.58 trillion, producing a record surplus of nearly $1.2 trillion. Exports to the United States fell sharply, but shipments to other major markets increased.
What remains contested is the diagnosis. A large trade surplus does not, by itself, prove that every industry has excess capacity or that Chinese exports are priced unfairly. USTR’s case depends on linking particular government policies and production patterns to a burden on U.S. commerce, rather than simply pointing to the headline surplus.
China rejects the overcapacity case
Beijing has spent weeks preparing its rebuttal. In late July, China’s Ministry of Commerce released a position paper arguing that excess capacity is a dynamic feature of market economies and that there is no universally accepted international definition that automatically converts high output or a trade surplus into an unfair trade practice.
The Chinese government says its manufacturing strength reflects scale, innovation, supply chain depth and global demand, not a deliberate plan to dump unwanted goods abroad. It also argues that industrial subsidies are widely used by major economies and that trade imbalances reflect savings, investment, demand and the international division of production.
That does not end the dispute. The International Monetary Fund, in its 2026 assessment of China, said industrial policy subsidies combined with weak domestic demand had contributed to rapid industrial production, greater reliance on manufacturing exports and downward pressure on export prices. The IMF warned that those dynamics were generating international spill overs and overcapacity concerns.
The disagreement is therefore not simply about whether China exports a great deal. It is about why it does so, whether government support distorts production decisions, and when competitive prices become evidence of a policy driven imbalance that trading partners can legitimately counter.
How the duties could stack
A 7.5% tariff would not replace all other China duties. It would sit on top of a complicated tariff structure that already includes older Section 301 tariffs from Trump’s first term, later changes maintained under President Joe Biden, product specific duties and new second term measures.
The most immediate layer is the forced labor action announced in July. USTR imposed Section 301 duties on 60 economies after concluding that failures to impose or effectively enforce bans on imports made with forced labor burdened U.S. commerce. China falls into the group generally subject to a 12.5% rate, although the action contains product exemptions.
For Chinese goods subject to that 12.5% duty, an additional 7.5 percentage points would bring those two second term Section 301 layers to 20% before considering any older China tariffs or other product specific levies. The actual rate on a particular shipment would depend on its tariff classification and applicable exclusions.
That matters for U.S. importers. A U.S. International Trade Commission study of the 2018 2021 Section 301 tariffs found full pass through of those duties to prices paid by importers for directly affected goods, although companies varied in how much of the higher cost they later absorbed or passed along to their customers.
The Supreme Court changed the route
The administration’s new approach follows a major legal defeat. On Feb. 20, the Supreme Court held that the International Emergency Economic Powers Act, or IEEPA, does not authorize the president to impose tariffs. The ruling invalidated the statutory basis Trump had used for broad reciprocal duties and drug related tariffs.
The Court did not hold that presidents can never impose tariffs under authority delegated by Congress. Its decision focused on IEEPA. The majority concluded that the emergency statute’s power to regulate importation did not amount to a clear authorization to levy taxes or duties, especially on the scale claimed by the administration.
That distinction explains why Section 301 has become so important. Unlike IEEPA, the Trade Act expressly creates a trade enforcement process. Trump has already used that route this year for the forced labour tariffs, and USTR is continuing the separate overcapacity investigations that began in March.
In practical terms, the Supreme Court ruling did not end Trump’s tariff agenda. It narrowed one legal avenue and pushed the administration toward statutes with more specific trade powers, defined procedures and factual predicates. The China overcapacity case is an early test of how far that post ruling strategy can go.
Why the truce constrains Trump
The proposed rate also has a diplomatic logic. Trump and Xi agreed in October 2025 to a one year de escalation that included lower or suspended tariffs, pauses in export control measures and Chinese commitments involving agricultural purchases and rare earth supplies. The White House extended the suspension of heightened reciprocal tariffs until Nov. 10, 2026.
Then, in May, Trump travelled to China and the two leaders announced additional economic arrangements. The White House said Xi would visit Washington in the fall and described new U.S. China boards intended to manage trade and investment. It also announced Chinese commitments involving Boeing aircraft, U.S. agricultural products and market access for American beef and poultry.
A tariff imposed just before Xi’s expected Washington visit would therefore send two signals at once. It would tell domestic manufacturers that the administration is willing to act on its overcapacity case, while telling Beijing that Washington is trying to stay below the threshold of a broader rupture.
Whether Beijing accepts that distinction is another question. China’s embassy told AP that economic disputes should be handled through bilateral talks rather than unilateral tariff measures. A measured rate may reduce the risk of escalation, but it cannot eliminate the possibility of retaliation or a tougher Chinese negotiating position.
What happens next
The next meaningful development is not another anonymous source report; it is a formal decision. Under the Section 301 process, USTR must determine whether the conduct under investigation is actionable and, if so, decide what response is appropriate. A final action would clarify the tariff rate, covered products, exemptions and effective date.
The administration also has to decide whether China will be treated differently from the other 15 economies under investigation. USTR’s March inquiry covers the European Union, Japan, South Korea, India, Mexico, Vietnam, Taiwan and several Southeast Asian and European economies in addition to China. No equivalent final overcapacity action for that full group has yet been announced.
For businesses, the most important details will be scope and stacking. A nominal 7.5% rate can have very different consequences depending on whether it applies broadly, excludes sensitive inputs, overlaps with older Section 301 tariffs or interacts with other product specific duties.
For the U.S. China relationship, timing may matter just as much as rate. The administration is trying to build a new tariff on a legal foundation it believes is stronger while preserving a truce that remains useful to both sides. Until a formal action is issued, however, 7.5% remains a reported proposal not a tariff already in force.
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