Small Business Liberation 2.0 Act

Bill Number

S. 4038

Origin Chamber

Senate

Congress

119th Congress, Session 2

Policy Area

Foreign Trade and International Finance

Status

Introduced

Latest Action

2026-03-10: Read twice and referred to the Committee on Finance.

Last Updated

2026-03-30T23:06:15Z

AI-Generated Summary

Purpose

The "Small Business Liberation 2.0 Act" (S. 4038) aims to protect small businesses from import duties imposed by the President under section 122 of the Trade Act of 1974—authority used for balance-of-payments issues, such as addressing trade deficits. It exempts small businesses from these duties and includes measures to stop price gouging (unfairly raising prices) on affected goods, ensuring consumers are not overcharged due to such duties.

Key Provisions

• Definitions:
• "Covered duty" refers to tariffs imposed or planned under the specified Trade Act authority starting January 20, 2026.
• "Covered good" includes final products (ready for sale), components (parts incorporated into final products), and U.S.-assembled goods containing these, whether duties are active or announced.
• "Small business concern" uses the standard definition from the Small Business Act (generally, businesses with fewer than 500 employees, depending on industry).
• "Duty-related shock date" is a date when duties or planned duties affect goods in five or more tariff categories within a 30-day period.
• "Planned duty" means a duty announced publicly by high-level officials like the President or U.S. Trade Representative.
• Other terms include "final good" (consumer-ready product), "ultimate parent entity" (top company in a corporate structure), and "unfair leverage" (for larger entities able to absorb costs or ramp up U.S. production).

• Exemption and Refunds for Small Businesses:
• Small businesses are fully exempt from covered duties on imported goods they use or import.
• The President must refund any such duties already paid, within 90 days of the bill's enactment.

• Prohibition on Price Gouging:
• For five years after a covered duty takes effect, increases, or is announced, no one can sell or offer covered goods at "unreasonably high prices" in the U.S.
• An unreasonably high price is one that rises more than the direct costs from the duty plus any legitimate additional business costs (e.g., not using the duty as an excuse for unrelated hikes).
• Baseline prices are based on the average over the 180 days before the duty or announcement.
• Small businesses are exempt from this rule.
• Applies to anyone in the supply chain (e.g., manufacturers, retailers), regardless of position.

• Presumption of Violation:
• On a "duty-related shock date," non-small businesses with "unfair leverage" (e.g., large size or ability to absorb costs) are presumed to violate the rule if they charge above the 180-day baseline average.
• This presumption can be rebutted with clear evidence that price increases fully match duty costs and justified extras.
• The Federal Trade Commission (FTC) can define additional "unfair leverage" traits via regulations and adjust thresholds for inflation.

• Enforcement and Regulations:
• The FTC enforces violations as "unfair or deceptive acts" under the Federal Trade Commission Act, with full investigative and penalty powers (e.g., fines, injunctions).
• States can sue on behalf of residents for injunctions, damages, or other relief, after notifying the FTC (which can intervene).
• No preemption of state or local laws.
• Within 180 days, the FTC must create a consumer reporting system (phone, mail, website) for potential gouging and rules for investigations.
• The FTC consults other agencies (e.g., U.S. Trade Representative, Customs and Border Protection) for regulations.

• Reporting Requirements:
• The U.S. International Trade Commission (ITC) and Bureau of Labor Statistics (BLS) must submit annual public reports to Congress on non-small business prices, focusing on covered goods; BLS may add new survey questions if data is insufficient.
• The FTC submits annual reports on its enforcement, including effects on consumer prices overall.

Significant Changes to Existing Law

• Tariff Exemptions: Previously, section 122 duties applied broadly to imports without exemptions for small businesses; this bill carves out relief specifically for them, including refunds for past payments.
• Anti-Gouging Framework: Introduces a new, duty-specific price gouging ban tied to trade actions, enforced by the FTC—unlike general consumer protection laws, it uses presumptions based on baselines and leverage, and exempts small sellers.
• Expanded Oversight: Enhances FTC and state roles in trade-related consumer protection; mandates interagency reporting on prices, which wasn't required before for these duties.
• Planned Duties Coverage: Extends rules to announced-but-not-yet-imposed duties, a novel preemptive approach.

Potential Impacts

• On Government Agencies: The President loses revenue from small business imports and must process refunds; FTC gains enforcement workload and rulemaking duties; ITC and BLS face new annual reporting obligations, potentially requiring data upgrades.
• On Citizens (Consumers): Could lower costs for goods affected by duties by curbing gouging, with easier reporting of issues; benefits everyday buyers of imported or assembled products (e.g., electronics, apparel).
• On Businesses: Small businesses (importers, users) save on duties, aiding competitiveness; larger firms face scrutiny on pricing, possible fines, and pressure to justify increases, but can rebut claims.
• On International Relations: May soften U.S. tariff impacts on small-scale trade, signaling protection for domestic small entities; could strain relations if seen as limiting presidential trade flexibility, especially amid global tensions.

Main Stakeholders Affected

• Small Businesses: Primary beneficiaries through duty exemptions and anti-gouging immunity, especially importers or those using foreign components.
• Larger Corporations and Supply Chain Players: Subject to pricing restrictions, presumptions of violation, and FTC/state enforcement; includes manufacturers, retailers, and their parent companies.
• Consumers: Protected from excessive price hikes on tariff-affected goods via reporting and enforcement.
• Government Entities: FTC (lead enforcer), President (refunds and duties), states (litigation rights), ITC/BLS (reporting), and trade agencies (consultation).
• Trading Partners: Indirectly affected if U.S. small business exemptions reduce tariff bite on imports from their countries.

Notable Legal, Constitutional, or Political Implications

• Legal: Bolsters FTC authority under the commerce clause by treating trade-duty gouging as unfair practices; allows state parens patriae actions (suing as "parent" for residents), expanding federal-state coordination without overriding local laws. Presumptions shift burden to defendants, potentially easing prosecutions but raising due process concerns if rebuttals are hard.
• Constitutional: Limits presidential trade powers (Article II) by exempting small businesses from broad duties, possibly challenging executive discretion; aligns with Congress's commerce regulation role (Article I) but could face lawsuits over retroactive refunds or pre-duty announcements.
• Political: Sponsored by Democratic senators, it targets potential future tariffs (e.g., post-2026), framing small business relief and consumer protection as bipartisan priorities; may influence trade policy debates by tying duties to domestic price controls, appealing to pro-small business voters while critiquing unchecked executive trade actions.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Markey, Edward J. [D-MA]

Cosponsors (7)

Sen. Hirono, Mazie K. [D-HI], Sen. Schumer, Charles E. [D-NY], Sen. Gillibrand, Kirsten E. [D-NY], Sen. Hickenlooper, John W. [D-CO], Sen. Klobuchar, Amy [D-MN], Sen. Van Hollen, Chris [D-MD], Sen. Rosen, Jacky [D-NV]

Recent Actions

• 2026-03-10: Read twice and referred to the Committee on Finance.
• 2026-03-10: Introduced in Senate

Bill Versions

• Small Business Liberation 2.0 Act — issued 2026-03-10 — PDF (16 pages)