Trump invokes obscure 1930 Tariff Act to impose 50% tariff on Canadian imports

In launching a trade war with Canada, President Donald Trump invoked a 96-year-old statute so obscure that many trade lawyers were unaware it remained in effect.

The Section 338 Tariff

One week ago, Trump used Section 338 of the Tariff Act of 1930 to impose a 50% tax on $20 billion worth of Canadian imports. The move prompted dollar-for-dollar retaliation from Ottawa and further strained relations between the neighboring countries and longtime allies.

The president's Section 338 tariff authority has never been used—let alone tested in court.

"This law is literally a blank canvas because it's never been litigated," said Ryan Majerus, a partner at King & Spalding and a former U.S. trade official.

It remains unclear whether Trump's latest Canada tariffs could survive a legal challenge. Some lawyers argue that the Depression-era law has been rendered obsolete by more recent trade legislation.

Reviving a Depression-Era Law

To sanction Canada for allegedly discriminating against U.S. dairy, auto, and alcoholic beverage exports this summer, the Trump administration reached back to the Great Depression.

The 1930 tariff legislation is known as the Smoot-Hawley Act, named after its congressional sponsors. With the U.S. and world economies in collapse, Congress raised tariffs on hundreds of imports to protect American farmers and manufacturers.

Economists and historians widely criticize these tariffs for shutting down world commerce and worsening the Great Depression. (Trump, who proudly calls himself "Tariff Man," holds a different view, arguing that Smoot-Hawley levies simply came too late to rescue the American economy.)

In addition to raising tariffs, lawmakers in 1930 gave the president new power to impose them independently: Section 338 authorizes presidential tariffs of up to 50% on imports from countries that have discriminated against U.S. businesses.

Before Trump, no president had actually used the statute.

"Until Trump's second term, few trade lawyers were aware that Section 338 remained on the books or understood what it did," legal scholars Peter Harrell and Jennifer Hillman of Georgetown University wrote earlier this month in Reason magazine.

They cite State Department records showing the U.S. considered using Section 338 in trade disputes—against Spain in 1932 and against newly Communist China in 1949—but never did. After the Depression, U.S. policy focused more on negotiations than sanctions to open foreign markets. Section 338 sat unused in the law books.

Superseded by Newer Laws

Over time, the United States passed new trade laws. Some ceded tariff power to the president—a power the U.S. Constitution originally granted to Congress. However, the new laws also limited presidential authority to specific circumstances, including:

• National security threats
• Foreign currency crises

These laws also required the government to carry out investigations and meet other procedural requirements beforehand.

"There is a very strong argument that (Section 338) was superseded," said Sara Albrecht, CEO of the Liberty Justice Center, a libertarian advocacy group that represented businesses that successfully challenged earlier Trump tariffs at the Supreme Court.

Albrecht questions why Congress would have passed the Trade Expansion Act of 1962 (allowing for national security tariffs) and the Trade Act of 1974 (giving the president power to address other countries' unfair trade practices) if it intended for Section 338 to remain in force.

Legal Weaknesses in the Canada Tariffs

Legal experts identify additional vulnerabilities in the Section 338 tariffs.

Harrell and Hillman write in Reason that Section 338 only authorizes tariffs that "offset" the harm caused by a foreign country's trade practices. However, in targeting Canada, the Trump administration made no attempt to calculate the dollar amount of damage from alleged discrimination against U.S. farmers, automakers, and alcoholic beverage marketers. The U.S. also targeted Canadian imports unrelated to those disputes, including hockey sticks and cement.

Harrell and Hillman further note that Canada's protection of its dairy market does not single out U.S. farmers for discrimination—the rules apply to many other Canadian trading partners as well.

Moreover, the United States agreed to the Canadian system—in which Canada imposes stiff tariffs on dairy imports exceeding a quota—in a North America trade pact that Trump himself negotiated with Canada and Mexico during his first term. Harrell and Hillman write that it is "incongruous, to say the least, for the United States to denounce as discriminatory the very terms it agreed to."

John Veroneau, former general counsel for the U.S. Trade Representative, said the Section 338 tariffs are straightforward in their application.