President Donald Trump has reignited trade tensions with Canada by invoking a little-known law from 1930, potentially altering the landscape of North American trade relations. This unprecedented move has left legal experts scrambling to understand the implications of a statute that most believed had become obsolete.
Last week, Trump utilized Section 338 of the Tariff Act of 1930 to impose a 50% tariff on $20 billion of goods imported from Canada. This decision prompted an immediate response from Canada, implementing equivalent retaliatory measures (read more here), further straining the diplomatic ties between the two nations.
Reviving a Dormant Law
The Tariff Act, better known as the Smoot-Hawley Act, was originally designed during the Great Depression to protect American industries by raising tariffs on numerous imports. It is largely criticized for exacerbating global economic hardships during that period. Despite its notoriety, the Act also provided the U.S. president with the authority to impose tariffs unilaterally, a power that remained unused until Trump’s administration.
Trade lawyers, including Ryan Majerus from King & Spalding, note the unprecedented nature of Trump’s actions: “This law is literally a blank canvas because it’s never been litigated.” This raises questions about the legal sustainability of these tariffs, as many believe subsequent trade laws have rendered Section 338 obsolete.
Shifting Legal Landscape
Over the decades, U.S. trade policy evolved to favor negotiations over unilateral sanctions, leaving Section 338 largely forgotten. Legal scholars Peter Harrell and Jennifer Hillman highlight that while the U.S. considered invoking Section 338 in past disputes, it never did so, opting instead for diplomatic resolutions.
Modern trade laws have expanded presidential powers but with significant procedural requirements and limitations for national security and other specific threats. Sara Albrecht of the Liberty Justice Center argues that these newer laws have likely superseded Section 338, questioning its current applicability.
Contention Over Dairy and Beyond
The core of the dispute lies in accusations of Canadian discrimination against U.S. exports such as dairy, automobiles, and alcoholic beverages. However, experts like Harrell and Hillman point out that the U.S. has not demonstrated the economic harm necessary to justify the tariffs under Section 338. Furthermore, the tariffs encompass unrelated Canadian imports, such as hockey sticks, complicating the legal justification.
Criticism also arises from the fact that the U.S. previously agreed to Canada’s dairy tariff structure in a trade agreement negotiated by Trump, making the current objections appear contradictory.
Legal Challenges and Future Negotiations
Despite these concerns, finding plaintiffs willing to challenge the tariffs has proven difficult. The Liberty Justice Center has struggled to find businesses ready to engage in a legal battle over the tariffs. Albrecht admits, “Anytime you want to sue the government, it’s a hard proposition.”
The tariffs in question affect a smaller portion of trade compared to previous tariffs, which may result in fewer companies stepping forward to claim injury. Meanwhile, both nations might return to negotiations to resolve the conflict and avoid further economic disruption (read more here).
