Trump’s Canada Tariffs Rely on Untested Law
To impose punishing tariffs around the world, President Trump has repeatedly turned to a series of decades-old, never-before-used trade powers, only to be slapped down by federal courts for overstepping the law.
But those past defeats have hardly deterred the president, who reprised that exact strategy this week to commence his new trade war against Canada — risking yet another round of costly legal wrangling for the White House.
This time, the uncertainty surrounds Section 338 of the Tariff Act of 1930, a little-known authority that allows the president to impose duties in response to unreasonable and discriminatory trade practices. On Saturday, Mr. Trump invoked that statute to impose a 50 percent tax — the maximum allowed — on a small subset of Canadian imports, claiming that one of America’s closest allies had mistreated U.S. industries.
Before this weekend, no president appears to have issued tariffs under Section 338, so Mr. Trump’s actions quickly raised novel legal questions about a law that had otherwise sat dormant.
Over that time, Congress also adopted additional statutes that better defined the president’s ability to issue tariffs without explicit authorization from lawmakers. To some trade lawyers, that legislative history created doubt as to whether Section 338 had essentially been rendered obsolete.
The complicated legal factors only raised the possibility that the Trump administration could soon find itself in a familiar bind: forced to defend the president’s sweeping assertions of power before a federal court. So far, those battles have gone poorly for Mr. Trump, whose signature, so-called reciprocal tariffs were struck down by the Supreme Court in February.
The defeat required the administration to pay back $160 billion in revenue, and it forced the White House to recalibrate its entire tariff strategy. But the replacement duties put forward by Mr. Trump have faced a similarly chilly reception. Using another decades-old provision of law, Section 122, the president imposed a nearly universal tax on imports that was declared illegal by a lower court this spring. The administration has appealed.
By Tuesday, no one had brought a similar lawsuit challenging the president’s use of Section 338 against Canada. But some trade lawyers said they believed the odds of a case could grow if Mr. Trump continued to ratchet up his attacks on America’s northern neighbor, and as the two countries drifted further apart on a deal that might ease the trade tensions.
“The law is nearly 100 years old,” said Patrick Childress, a partner at the law firm Holland & Knight. “It has never been tested in court, and it has never been used to implement tariffs, ever, in its existence.”
“It’s hard to assess how vulnerable a Section 338 challenge would be, simply because there’s no record of any judicial interpretation of this law,” he added. “It’s really hard to game out how these tariffs under Section 338 are going to play out in court.”
Under the 1930 law, a president can impose tariffs in response to a country that has placed “unequal impositions or discriminations” on American goods but not on the rest of the world. Mr. Trump cited that standard when he issued a set of proclamations targeting Canada in July, subjecting a small portion of its exports — including auto parts, hockey sticks and cheese — to tariffs meant to protect the “public interest.”
But the statute also goes one step further: If the tariffed country “maintained or increased its said discriminations” in response to the new duties, then the president may exclude some of those imported goods from the United States altogether.
Mr. Trump has not taken this extreme step with Canada, though the two sides have still escalated their threats against each other in recent days.
Canadian officials, who have promised to impose tariffs on a “dollar for dollar” basis, unveiled their full retaliatory plans on Tuesday, promising new tariffs on U.S. steel, dairy and clothing starting after Labor Day. The newly detailed threat came a day after Mr. Trump threatened new duties on Canada’s auto industry starting in January, though he did not specify what trade provision he would use to impose them.
“I deal with many countries, and Canada is easily the most difficult and unreasonable,” the president said on Tuesday on social media. “They feel entitled, but they are not a State, and will be entitled no longer!”
Unlike Mr. Trump’s earliest tariffs, the law he has cited to penalize Canada actually, explicitly authorizes duties, said Ted Murphy, a co-leader of the trade practice at the law firm Sidley Austin. But, he said, the use of Section 338 is still “somewhat risky,” partly because of its novelty.
Peter Harrell, a visiting scholar at Georgetown Law School, pointed to records showing that past administrations had considered invoking Section 338, only to seem to decide against it. If Mr. Tump’s use of the law reaches the courts, he predicted that judges may be asked to weigh in more directly on a series of substantive questions.
Do Mr. Trump’s tariffs on Canada truly address discriminatory practices against the United States? Are the levels of the tariffs properly calibrated against that discrimination? Or, perhaps, did Canadian officials subject much of the world to trade restrictions? And did they impose policies on U.S. goods only as a response to the trade brinkmanship coming from Washington?
“It requires discrimination against the U.S., relative to third countries,” Mr. Harrell said of the law. “And there’s a question of, what did that mean?”
Otherwise, much is “vague” about the 1930 tariff law, explained Scott Lincicome, the vice president for general economics at the Cato Institute, a libertarian-leaning group. Many key terms in the statute are undefined, he said.
Plus, the Treasury Department never issued regulations carrying out its provisions, according to Mr. Lincicome, even though the law designated the agency to do so as needed.
Mr. Lincicome and others further pointed to a bevy of laws that had been adopted by Congress in the years after it enacted Section 338. Some of those statutes more narrowly, or perhaps restrictively, set boundaries on the president’s tariff powers — and may take precedence now.
One of those laws is the Trade Act of 1974, which includes Section 301, a tool that the president may use to investigate unfair trade practices and impose tariffs in response. It is more settled legal ground, though Mr. Trump’s aggressive use of it this year — targeting dozens countries in bulk — has produced its own legal challenge pending before the courts.
Mr. Childress said that the 1974 law may have “implicitly” rendered obsolete the powers made possible by Section 338, and that it could one of the dicier issues that judges may have to decide.
The matter could land in the hands of the Court of International Trade, which has repeatedly taken issue with Mr. Trump’s expressions of tariff authority. To that end, another loss for the president could further restrain his powers to impose duties without Congress.
But, in victory, “you have to expect we’re going to see a lot of 338 use,” explained Mr. Harrell, adding that it would become a “very flexible tool for him.”