In a controversial move, President Donald Trump has initiated a trade dispute with Canada by invoking a rarely-used provision of a 1930 trade law. Specifically, Trump applied Section 338 of the Tariff Act of 1930 to impose a 50% tariff on $20 billion worth of Canadian imports. This decision has led to immediate retaliation from Canada, exacerbating already strained relations between the two countries, which have long been considered allies.
The invocation of Section 338 is notable as it has never been previously used, and its legal robustness remains uncertain. Legal experts like Ryan Majerus, a partner at King & Spalding and a former trade official, describe the statute as a "blank canvas" due to its lack of judicial interpretation. There are ongoing debates among trade lawyers regarding whether the law is still applicable or if it has been rendered obsolete by more recent trade legislation.
The Tariff Act, often referred to as the Smoot-Hawley Act, was enacted during the Great Depression to protect American industries by raising tariffs on numerous imports. Economists and historians widely criticize these tariffs for exacerbating the economic crisis, yet Trump has a different interpretation, claiming that they were poorly timed rather than ineffective.
Section 338 permits the president to impose tariffs of up to 50% on imports from countries that discriminate against U.S. businesses. Historically, no president prior to Trump has utilized this authority. Trade scholars note that prior to Trump's second term, few were aware that Section 338 was still in effect. Attempts to invoke this section were considered in past decades but were never executed, as U.S. trade policy shifted towards negotiation rather than punitive measures.
Over the years, other trade laws have been enacted, which have limited presidential authority to impose tariffs in certain circumstances, such as national security threats or foreign currency crises. Critics argue that Section 338 has been effectively superseded by newer laws like the Trade Expansion Act of 1962 and the Trade Act of 1974, which established specific conditions under which the president can impose tariffs.
Legal analysts have highlighted potential weaknesses in the Section 338 tariffs, claiming that the Trump administration has not sufficiently calculated the economic damage caused by Canada’s alleged trade discrimination against U.S. dairy, auto, and alcohol imports. Moreover, the administration's actions target Canadian goods unrelated to these sectors, raising questions about the rationale behind such tariffs.
Furthermore, experts assert that Canada’s dairy protection policies are not uniquely discriminatory, as they apply similarly to other trading partners. It's also pointed out that the U.S. agreed to Canada's dairy tariff structure in trade agreements that Trump personally negotiated, undermining the basis for claiming discrimination.
John Veroneau, a former general counsel for the U.S. Trade Representative, argues that the tariffs could be justified by the fact that Canada has previously imposed higher taxes on U.S. imports compared to those from other countries. This could lead courts to evaluate the statutory requirements of Section 338, regardless of the broader context of the trade dispute.
No lawsuits have yet been filed challenging the Section 338 tariffs, despite efforts from the Liberty Justice Center to find plaintiffs willing to take action. Legal obstacles make it challenging for businesses to pursue litigation against government actions, especially when the impacted tariffs are relatively small compared to prior measures. There are indications that the U.S. and Canada may resume negotiations to resolve the issue, which both countries may prefer to avoid escalating tensions.
