A recent trade conflict between the United States and Canada has been stirred by an unexpected move from President Donald Trump. He resurrected a rarely used segment of the Tariff Act of 1930, known as Section 338, to impose a 50% tax on Canadian imports valued at $20 billion. This decision has led to reciprocal measures from Canada and has further complicated the diplomatic relations between the two countries.
Resurrecting an Old Statute
The Trump administration’s recent actions against Canada, aimed at addressing perceived discrimination against American dairy, auto, and alcoholic beverage exports, have drawn upon an obscure piece of legislation dating back to the Great Depression era. The Smoot-Hawley Act, responsible for the establishment of these tariffs, was initially designed to protect American industries during a time of economic hardship by raising import duties.
Though often criticized for its detrimental effects on global trade during the Depression, the act includes Section 338, which grants the president authority to levy tariffs up to 50% on nations that discriminate against U.S. businesses. Prior to Trump’s invocation, this section had never been actively employed by a sitting president.
Legal experts, including Ryan Majerus of King & Spalding, note that the statute has never been contested in court, leaving its current validity and applicability in question.
Legal Uncertainties and Historical Context
Trade law experts like Peter Harrell and Jennifer Hillman from Georgetown University have pointed out that the U.S. government considered utilizing Section 338 in past disputes but opted for negotiation over sanctions. As U.S. trade policy evolved, newer laws introduced specific conditions under which presidential tariff powers could be enacted, often involving national security or currency issues.
Critics argue that Section 338 might be outdated, considering subsequent legislative acts like the Trade Expansion Act of 1962 and the Trade Act of 1974, which offer alternative avenues for addressing unfair trade practices.
The Canadian Trade Dispute
The application of Section 338 in the case against Canada has drawn scrutiny. Analysts such as Harrell and Hillman highlight that the tariffs do not directly correspond to the estimated damages faced by U.S. businesses, and they target unrelated Canadian imports.
Moreover, the current trade terms, including Canada’s dairy market tariffs, were agreed upon in a North American trade agreement that Trump himself negotiated. This raises questions about the rationale behind labeling these terms as discriminatory.
Challenges in Court and Potential Resolutions
Despite the legal ambiguities surrounding the Section 338 tariffs, no lawsuits have been filed challenging them. The Liberty Justice Center is actively seeking plaintiffs to contest these tariffs, but CEO Sara Albrecht notes the difficulty in finding willing participants.
The impact of these tariffs is relatively minor compared to Trump’s previous global tariffs, affecting a smaller portion of imports and potentially fewer businesses. Albrecht remains hopeful for a diplomatic resolution between the U.S. and Canada to de-escalate the trade tensions.
