Last week, President Donald Trump signed a Section 232 proclamation imposing tariffs on wood and wood products—everything from construction lumber to cabinets and vanities.
As with all of Trump’s sectoral Section 232 actions, the tariff is especially well received by domestic producers, as Section 232 tariffs are by default deployed globally. This is a welcome development for manufacturers who have spent countless resources fighting transhipment, whereby products’ countries of origin are falsely labeled to avoid country-specific tariffs.
But this Section 232 action is the best yet, as it gave American producers something even more; it hopefully will serve as a template for all future tariff actions.
Tucked away near the end of the proclamation, in paragraph 17, the president directed the Department of Commerce to prepare a process for producers to request a switch from percentage-based duties, known formally as “ad valorem” tariffs, to equivalent specific or compound rates. That’s the breakthrough tariff supporters have been asking for—because it addresses long standing problems with ad valorem tariffs.
What’s the downside to ad valorem tariffs? They are assessed against whatever the importer claims they paid overseas. WTO customs rules define that price in ways that reward fraudsters. Under the WTO valuation regime, the primary basis is the importer’s “transaction value,” i.e., whatever they claim to have paid overseas. The vulnerabilities are obvious: (1) supplying fake invoices—how will Customs ever know? (2) transfer-pricing tricks that depress the declared value when the overseas entity and the U.S.-based importer are related; (3) foreign currency depreciation that silently shrinks the duty owed because the exporter’s currency weakens. Fraud is so easy, you basically have to do it, or your competition will.
We used to have rules to stop this kind of thing. For example, Section 482 of the Tariff Act of 1930 required those foreign invoices to be certified by the nearest American consular office abroad. Globalists didn’t like that, so they had it banned by the WTO, and Section 482 was repealed. We also used to have “minimum customs valuation rules” rules, which essentially said, “the tariff is 20%, but if the invoice price is less than $X-per-[some metric], then the invoice price shall be treated as if it was $X.” This too was banned by the WTO, with the ban promptly codified by Congress.
‘Specific tariffs’ don’t rely or even care about overseas invoices. Rather, the tariff is assessed on what actually shows up in our ports by a unit of volume that can be counted, measured, or weighed by U.S. customs officers. For example, the Tariff Act of 1789 set tariffs so: “50¢ per pair of boots” and “4¢ per pound of cheese”.
The father of the American System himself prioritized specific over ad valorem tariffs. Henry Clay pressed for specific duties precisely because ad valorem rates were a magnet for “false valuations” and “double invoices,” and Congress answered by replacing many ad valorem rates with specific duties in the Whig-backed 1842 Tariff. The core insight hasn’t aged: The more a duty relies on a number the foreign seller can manipulate, the less protective it becomes. The 1842 shift to specific duties was an anti-fraud measure as much as a policy statement—and that logic belongs in today’s tool kit.
That’s why the wood proclamation’s invitation to deploy specific and compound rates matters so much. It acknowledges that percentage tariffs can be whittled down in the real world and that a sturdier architecture—anchored in units, not paperwork—sometimes has to take their place. It also creates a channel for producer input, so Commerce can target conversions to the exact HTS lines where invoice games and undervaluation are most corrosive. That’s how you turn headline rates into actual industrial protection.
Now to the other half of the story—the giant misstep in the current aluminum and steel 232 tariffs. On June 4, the administration doubled the ad valorem rate to 50 percent. That made for tough-sounding headlines.
But someone got too clever by half, and they changed the way the tariff was assessed. Instead of applying the 50 percent tariff against the importer’s purchase price, the proclamation said the duty was to be assessed only on the value of the steel or aluminum content. The non-metal content is carved out and left the “reciprocal” tariff labyrinth.
If you’ve been following along, you know that “value” is shakier than a fiddler's elbow at a barn dance. Indeed, the “metal-content-only” valuation approach is a loophole big enough to drive a truck through. At least with normal ad valorem tariffs, the tariff is applied against the importer’s purchase price, and the importer is under U.S. jurisdiction (at least theoretically—we won’t get into the problem of Non-Resident Importers here). So for U.S.-based importers, we could—again, in theory—audit their books, and arrest them for fraud.
But the “metal-content” approach severed even this enforcement path: After all, how is the importer supposed to know the “value” of the metal?
Well, U.S. Customs and Border Protection answered that question in their official F.A.Q.: “The value of the steel/aluminum content should be determined in accordance with the principles of the [WTO] Customs Valuation Agreement, as implemented in 19 U.S.C. 1401a.”
Put more simply: the “value” is whatever the overseas fabricator claims they paid for the metal in their country.
Subscribe Today
Get daily emails in your inbox
This is ridiculous. There’s no way for an importer to verify what their overseas supplier paid for something. So now we cannot even in theory enforce against invoice fraud.
Fortunately, Monday’s wood proclamation points to the path forward. Commerce should replicate the wood model in metals: allow producers to ask for product tariffs to be converted to specific or compound rates that charge by the ton, the kilogram, or a mixed per-unit-plus-percent formula. Stop letting importer paperwork set the duty owed.
The final lesson: This “metal content” valuation problem first appeared back in the February 18 steel and aluminum proclamations, but it was limited to a much smaller subset of goods not included in the main metal chapters of the tariff schedule. The June 4 proclamation expanded this bad approach. This serves as a valuable lesson that bad ideas need to be nipped in the bud, even if the immediate impact is negligible.
