The longstanding trade relationship between the United States and Canada faces a new challenge as President Donald Trump has decided to leverage a rarely used trade measure dating back to the Great Depression. This bold move involves imposing hefty tariffs on Canadian goods, escalating tensions with a crucial ally amid growing economic concerns.
Trump’s 50% Tariffs on Canadian Goods
On Monday, Trump announced a 50% tariff on certain Canadian imports, sparking fears of rising costs for American consumers already burdened by inflation. These tariffs, justified under Section 338 of the Tariff Act of 1930, target products like hockey sticks and beer, claiming Canada’s discriminatory practices against U.S. exports of autos, alcohol, and cheese.
The Impact on Trade Relations
The decision to impose these tariffs comes in retaliation for Canada’s previous tariffs, imposed due to the U.S.’s demand for Canada to curb fentanyl smuggling. This ongoing trade spat has soured relations, prompting Canadian boycotts of American goods, including a ban on U.S. alcoholic beverages in many provinces.
The tariffs are set to be implemented on August 19, coinciding with the ongoing renegotiations of the US-Mexico-Canada Agreement (USMCA), potentially serving as a bargaining chip for the U.S. in these discussions.
An Obscure Trade Weapon Revived
Section 338 allows the president to impose significant tariffs on countries perceived to discriminate against U.S. businesses without requiring an investigation or time limit on the tariffs’ duration. Although never before utilized, it was a tool during the 1930s trade negotiations.
Trade lawyer Ryan Majerus noted, “It’s completely untested,” highlighting the unusual nature of Trump’s move. The tariffs’ legal resilience remains uncertain, as questions arise over the necessity of an investigation by the U.S. International Trade Commission before implementation.
Economic Ramifications
Canada, America’s second-largest trading partner, could face significant economic repercussions from these tariffs. While the U.S. imported $389 billion worth of Canadian goods last year, including crude oil and autos, the new tariffs will affect approximately $20 billion of Canadian imports, according to economist Stephen Brown from Capital Economics.
Despite the relatively small scale, Brown suggests that the tariffs will have more substantial consequences for Canada than the U.S., as they raise the U.S. tariff rate on Canadian imports from 3.1% to 5.6%.
Implications for U.S. Consumers
While some critical imports like energy and motor vehicles are excluded from the tariffs, a wide range of other goods, including construction materials and agricultural products, will see a price increase. Previously exempt items under USMCA are now subject to tariffs, potentially burdening American consumers further.
Barry Appleton, a law professor, remarked, “Anything that got exempted before is basically going to be covered now.” Greg Husisian of Foley & Lardner echoed concerns about the tariffs’ impact on consumer costs, noting that they come at a time when consumers are already feeling the strain of inflation.
Challenges and Legal Uncertainties
Amidst the ongoing adjustments to trade policy, Trump’s tariffs face potential legal challenges. The Supreme Court previously struck down similar tariffs imposed under the International Emergency Economic Powers Act, deeming them an overreach of presidential authority. Section 338 tariffs could face similar scrutiny, as trade experts question their legal standing.
Peter Harrell from Georgetown University highlighted potential weaknesses in the legal framework of Section 338, suggesting the tariffs might be contested in court. Trade lawyer Ryan Majerus also expressed doubts, stating, “There’s at least a fair probability it will get overturned.”
