Tariffs, Trade, and the Dairy Industry: Understanding the USTR Section 301 Investigation

Introduction

On March 11, 2026, the Office of the United States Trade Representative (USTR) opened a Section 301 investigation into sixteen of the country’s largest trading partners, including China, the European Union, Mexico, Japan, Korea, and much of Southeast Asia. The investigation was launched roughly three weeks after the Supreme Court invalidated the legal authority the administration had been using to impose its tariff regime. Dairy is not a primary target. USTR is focused on steel, semiconductors, batteries, automobiles, and similar capital-intensive sectors. But “processed food and beverages” appears on the covered-sectors list, and the question of how foreign governments respond to new U.S. tariffs is where dairy enters the picture.

This article explains how the administration arrived at this point, what Section 301 is and what it can do, why the timing matters for the U.S.-Mexico-Canada Agreement (USMCA), and what dairy industry participants should track over the next several months.

How the Administration Got Here

The current administration uses tariffs as a central tool of economic policy. The President invoked the International Emergency Economic Powers Act (IEEPA) to impose two sets of tariffs. The first, in February 2025, targeted Canada, Mexico, and China and was tied to declared emergencies over fentanyl trafficking and immigration. The second, announced on April 2, 2025 and known as the “reciprocal” tariffs, applied a 10 percent baseline duty to imports from almost every U.S. trading partner, with higher country-specific rates layered on top (Congressional Research Service [CRS], 2026). At their peak, these tariffs raised the effective U.S. tariff rate by roughly five percentage points. Stated administration goals included reducing the U.S. trade deficit, encouraging reshoring of manufacturing, and creating leverage to negotiate bilateral trade agreements on terms more favorable to the United States.

The IEEPA tariffs were challenged in federal court by a coalition of small businesses and state attorneys general. On February 20, 2026, the U.S. Supreme Court ruled 6–3 in Learning Resources, Inc. v. Trump that IEEPA does not authorize the President to impose tariffs. Chief Justice Roberts, writing for the majority, held that the power to tax imports belongs to Congress under Article I and cannot be read into IEEPA’s general authority to regulate importation (Learning Resources, Inc. v. Trump, 2026). The decision invalidated both the reciprocal tariffs and the fentanyl tariffs and opened the door to refunds for importers who had paid duties under those orders.

The administration preserved the tariff framework using other legal authorities. Within hours of the ruling, the President signed a proclamation imposing a 10 percent temporary import surcharge under Section 122 of the Trade Act of 1974, which permits balance-of-payments tariffs for up to 150 days (Ropes & Gray, 2026). Section 232 tariffs on steel, aluminum, and other designated sectors remained in place. Treasury Secretary Bessent stated publicly that combining Section 122, Section 232, and Section 301 actions “will result in virtually unchanged tariff revenue in 2026,” signaling intent to rebuild the previous tariff structure under different statutes. The Section 301 investigation announced on March 11 is the first step in that effort.

What the Section 301 Investigation Is and What It Can Do

Section 301 of the Trade Act of 1974 authorizes USTR to investigate whether the acts, policies, or practices of a foreign country are (1) unreasonable or discriminatory and (2) burden or restrict U.S. commerce. If USTR finds both, the President may impose tariffs, restrict investment, or pursue negotiations. The first Trump administration used Section 301 to impose tariffs on Chinese imports beginning in 2018. Those tariffs remained in effect through the Biden administration and several were increased in 2024.

The current investigation covers sixteen economies: China, the European Union, Singapore, Switzerland, Norway, Indonesia, Malaysia, Cambodia, Thailand, Korea, Vietnam, Taiwan, Bangladesh, Mexico, Japan, and India (USTR, 2026a). USTR’s legal theory is structural excess capacity, defined as manufacturing capacity that persistently exceeds domestic and global demand and is sustained through subsidies, state-directed lending, or preferential access to inputs. USTR contends this capacity undermines U.S. efforts to onshore manufacturing and rebuild industrial supply chains. The evidentiary basis cited in the Federal Register notice is the existence of persistent trade surpluses, either globally or bilaterally with the United States. Covered sectors include aluminum, automobiles, batteries, cement, chemicals, electronics, energy goods, glass, machine tools, machinery, non-ferrous metals, paper, plastics, processed food and beverages, robotics, satellites, semiconductors, ships, solar modules, steel, and transportation equipment.

The timeline is aggressive. Written comments were due April 15, 2026. Public hearings were held May 5 through May 8 at the U.S. International Trade Commission in Washington, D.C. USTR has stated it intends to complete the investigation and be positioned to impose tariffs by approximately July 24, 2026, which aligns with the expiration of the Section 122 surcharge (White & Case, 2026).

The USMCA Review and Why the Timing Matters

USMCA enters its first joint review on July 1, 2026, roughly three weeks before USTR’s target date for Section 301 action. The joint review is a built-in feature of USMCA. Every six years, the three parties must affirm whether they wish to extend the agreement for another sixteen years. If any party declines, the parties move into annual reviews until they reach agreement or the agreement expires in 2036 (CRS, 2025).

Mexico is the largest U.S. dairy export market and is named in the Section 301 investigation. Canada is not in the Section 301 investigation but is part of the USMCA review and remains the subject of long-running U.S. dairy industry concerns over tariff-rate quota administration and protein pricing. USTR Ambassador Greer has stated publicly that USMCA will not receive a rubber-stamp extension. Announced priorities for the review include rules of origin, non-market inputs into North American supply chains, and what Greer has described as the effects of industrial overcapacity on the three economies (Supply Chain Dive, 2025). That last item connects the USMCA review directly to the Section 301 investigation.

Two negotiations are running in parallel with overlapping leverage. Section 301 action against Mexico in late July creates retaliation risk against U.S. dairy exports at the same moment the United States is asking Mexico for concessions in the USMCA review. Mexico has retaliated against U.S. dairy before. Whether it does so again depends on how the Section 301 action is structured and how the USMCA negotiations proceed.

Why This Matters for U.S. Dairy

Dairy sits on both sides of this equation, but the exposure is not symmetric. On the import side, the effect is modest. The United States imports specialty cheeses from Italy and France, butter from Ireland, and certain whey and lactose products from the European Union. Tariffs on EU dairy would raise costs for specialty importers and ingredient buyers. U.S. dairy imports are small relative to total domestic production.

The export side is where the real risk sits. The United States exports roughly sixteen to eighteen percent of its milk production on a solids basis. Mexico is by a wide margin the largest customer, followed by Canada, China, Japan, Korea, and Southeast Asia. Mexico, China, Japan, Korea, Vietnam, Indonesia, Malaysia, and Thailand are all on the Section 301 target list. If any of these economies respond to new U.S. tariffs with retaliation, U.S. dairy is among the products historically targeted.

The 2018 and 2019 trade conflict is the relevant reference point. When the first Trump administration imposed Section 301 tariffs on China and Section 232 tariffs on steel and aluminum, China, Mexico, Canada, the European Union, India, and Turkey imposed retaliatory tariffs on U.S. agricultural exports. Total U.S. agricultural export losses over that period were estimated at more than $27 billion, with dairy losses concentrated in exports to China, Mexico, and Canada (U.S. Department of Agriculture Economic Research Service [USDA ERS], 2022). USDEC tallied a 47% decline in U.S. dairy exports to China over the December 2018 to November 2019 period (U.S. Dairy Export Council [USDEC], 2020). African Swine Fever in China contributed to the decline by reducing Chinese feed-whey demand, but retaliatory tariffs were a substantial independent factor (USDA ERS, 2022). Mexico imposed retaliatory tariffs of 20 to 25 percent on most U.S. cheese categories. Federal trade mitigation payments offset a portion of producer-level losses, but market share, once lost, proved difficult to recover in several product categories.

The exposure points worth tracking in 2026 are the same product and country pairs that moved in 2018 and 2019: whey and lactose to China, cheese to Mexico, nonfat dry milk to Southeast Asia, and lactose, permeate, and whey protein concentrate to Japan and Korea.

Broader Policy Considerations

Three structural points are worth naming. First, the legal theory USTR is using treats trade surpluses as evidence of unfair trade practice. U.S. dairy itself runs persistent surpluses with almost every country it exports to. A framework that reads surplus as evidence of subsidy cuts against the industry’s own export story and the argument that U.S. dairy competes on efficiency, scale, and comparative advantage.

Second, tariffs imposed through Section 301 are more durable than tariffs imposed through IEEPA. Section 301 tariffs persist across administrations and require formal investigations and findings to remove. The 2018 China Section 301 tariffs were retained by the Biden administration. Tariffs imposed through this investigation are likely to outlast the current administration regardless of subsequent political shifts.

Third, uncertainty itself carries a cost. Forward contracts, export financing, and capital allocation decisions depend on reasonably stable trade conditions. Tariff and retaliation risk that cannot be hedged through conventional market instruments shows up as narrower margins, reduced forward pricing opportunities, and slower capital investment decisions.

What to Watch

Market uncertainty affects trade flows. Buyers and sellers facing potential July tariff actions consider that in forward commitments now. The substantive questions are which countries face tariffs, at what rates, on which products, and how those countries respond. Any partial determinations between now and mid-summer, the USMCA joint review beginning July 1, and the administration’s target date of approximately July 24 for Section 301 action will together shape the second half of 2026 and the conditions facing U.S. dairy heading into 2027.

For readers interested in the primary sources, the Federal Register notice initiating the investigation (Docket No. USTR-2026-0067), the Supreme Court’s decision in Learning Resources, USDA Economic Research Service Report No. 304 on the 2018–2019 retaliation episode, and Congressional Research Service report R48787 on the USMCA joint review process all provide the detail behind the summary above.