Prospective Legal Challenges to Trump's Section 338 Tariffs Against Canada
A guest post by Georgetown legal scholars Peter E. Harrell and Jennifer Hillman.
I have previously written about Donald Trump's threatened tariffs against Canada, using Section 338 of the notorious Smoot-Hawley Tariff Act of 1930. Today, I am pleased to present a guest post on this subject by Georgetown legal scholars Peter Harrell and Jennifer Hillman. Peter is Visiting Scholar at Georgetown's Institute for International Economic Law, an attorney in private practice, and one of the nation's leading experts on trade law. Jennifer Hillman is a professor of practice at the Georgetown University Law Center, a leading expert on international business and international trade, and co-director of the Center for Inclusive Trade and Development. They both played an important role in helping to develop the arguments that ultimately led to the invalidation of the IEEPA tariffs by the Supreme Court, in a case I helped litigate.
What follows was written by Peter Harrell and Jennifer Hillman, not me (Ilya Somin):
Prospective Legal Challenges to Trump's Section 338 Tariffs
On July 20, President Trump became the first President in history to impose tariffs under Section 338 of the Tariff Act of 1930, better known—and memorialized by actor Ben Stein in the movie Ferris Bueller's Day Off—as the Smoot-Hawley Tariff Act. Until Trump's second term, few trade lawyers were aware that Section 338 remained on the books or understood what it did. Trump's three separate Section 338 findings together impose a new 50% tariff on approximately $20 billion in annual U.S. imports from Canada. Trump and Canadian Prime Minister Mark Carney may yet negotiate a détente before the tariffs take effect on August 19, folding them into the ongoing negotiations over the USMCA. If the tariffs do come into force, however, they will face legal challenges that will likely narrow their scope, even if they do not succeed in throwing them out altogether.
Background on Section 338 and Trump's Action
Congress passed Section 338 (19 U.S.C. § 1338) to give the President authority to impose tariffs if a foreign country discriminates against U.S. products relative to how it treats products made by third countries.
Specifically, Section 338 provides that if the President "find[s] as a fact" that a country either (a) imposes on U.S. products "any unreasonable charge, exaction, regulation, or limitation which is not equally enforced upon the like articles of every foreign country," or (b) "discriminates in fact against the commerce of the United States, directly or indirectly, by law or administrative regulation or practice, by or in respect to any customs, tonnage, or port duty, fee, charge, exaction, classification, regulation, condition, restriction, or prohibition, in such manner as to place the commerce of the United States at a disadvantage compared with the commerce of any foreign country"—and if he further finds that the "public interest will be served" by imposing duties—the President shall "declare such new or additional rate or rates of duty as he shall determine will offset such burden or disadvantage, not to exceed 50 per centum ad valorem or its equivalent…."
Although Congress enacted Section 338 in 1930, it was largely a re-adopted and slightly modified provision of the Tariff Act of 1922, Section 317. John Veroneau and Catherine Gibson have traced the history of Section 317 and 338, and the principal purpose of Section 317 was to give the President a tool to encourage U.S. trade partners to grant the U.S. "MFN" status, e.g., that they offered the U.S. trade arrangements on the same terms that they offered other trade partners, and 317 and 338 were used as leverage in negotiations during the 1920s and 1930s. While neither statute was ever used to impose tariffs, State Department records make clear that the government contemplated using it several times in the 1930s and 1940s. In 1932, for example, the State Department indicated it was "seriously considering" using Section 338 against Spain. The last apparent consideration was in 1949, when the State Department considered using it to address potential trade issues with Communist China, while noting that any such use would have to rest on evidence of discrimination or unfair treatment, not merely on a partner's failure to comply with a trade agreement. But the historical record also indicates that no previous administration moved beyond such contemplation to actually impose tariffs under Section 338 in the 96 years since Congress enacted it.
The backdrop to the 338 action is the Trump Administration's frustration that the current negotiations over the USMCA are going better with Mexico than with Canada, and its desire to increase pressure on Ottawa.The stated justifications for the three actions are (a) Canadian tariffs on U.S. cars that do not comply with USMCA rules (which Canada adopted in retaliation for Trump's earlier tariffs last year); (b) a long-running U.S.-Canada dispute over U.S. access to Canada's dairy market; and (c) the fact that Canadian provincial governments, which operate liquor stores in Canada, largely stopped buying U.S. liquor as tensions between the U.S. and Canada escalated in early 2025.
The Arguments Against Section 338
The strongest arguments against Trump's 338 tariff actions are that he misapplied the statute.
First, Section 338 authorizes the President to impose tariffs to "offset such burden or disadvantage, not to exceed 50 per centum ad valorem or its equivalent, on any products of, or on articles imported in a vessel of, such foreign country."
The concept of using tariffs as an "offset" is common in trade law. Antidumping and countervailing duties, for example, are calculated to offset the amount of a foreign subsidy (in the case of a countervailing duty) or the margin of dumping (which occurs when a company sells abroad at less than fair value). The two key criteria of a tariff designed to "offset" a harm are (a) that the tariff apply to the goods that benefit from the practice being offset, and (b) that its amount match or approximate the value of that harm.
Trump's Section 338 tariffs fail to meet either criterion. They target a vast array of products beyond the scope of the purported Canadian discrimination, including hockey sticks and cement, rather than being tailored to cars, dairy products, and alcohol; the motor-vehicle action covers no motor-vehicle tariff lines at all. Moreover, even if Section 338 can be read expansively to authorize tariffs on a broad set of Canadian products, the offsetting requirement should still require the Administration to tailor the value of the tariffs to approximate the harm Canada's discrimination allegedly inflicts. The Administration's fact sheet on the Section 338 tariffs alleges that Canada's discrimination against the U.S. auto sector cost $5.6 billion in lost auto sales. Yet the corresponding proclamation imposes a 50% tariff on roughly $19.3 billion in U.S. imports—on the order of $10 billion in annual duties, or nearly twice the harm the Administration itself alleges.
A second argument against Trump's application of the statute is that Canada's alleged discrimination against U.S. autos, dairy, and alcohol do not fit within the statute's purpose, which as discussed above was [either] to address unreasonable charges or regulations that discriminate against U.S. products compared to the treatment given to the products of all other foreign countries, or to address discrimination in the application of customs duties or practices to American goods compared to others. Here, the alleged discrimination with respect to dairy products, for example, relates to which Canadian entities are permitted to obtain the necessary quota to qualify for duty-free imports. Canada does not permit retail purchasers (as opposed to wholesalers or distributers) to receive duty-free quota allocations to buy American cheese or other dairy products. However, Canada places those same restrictions on purchases from all other trading partners except the European Union, which bargained for better treatment under the recently concluded Canada-EU Comprehensive Economic and Trade Agreement (CETA). As such, Canada's dairy practices do not treat American goods differently than those from "every foreign country." The Trump Administration's expansive interpretation of the statute suggests that any differential treatment by any country against the U.S. compared to other countries would effectively allow the President to impose up to 50% tariffs on imports from any country that had trade agreements with others but not with the United States. Given the more than 380 preferential trade agreements entered into between some combination of all of the United States' trading partners, such an interpretation could open the door to tariffs on almost everything the U.S. imports.
Moreover, Section 338 was designed to give the President a tool to prod countries to accord U.S. MFN trade privileges and reduce other discrimination. Yet the United States's existing agreement with Canada –the USMCA agreement—does just that, giving the U.S. better than MFN treatment for its trade with Canada—no further prodding needed.
A third potential problem with Trump's interpretation of Section 338 is that he does not appear to have relied on the International Trade Commission (ITC) to conduct fact-finding on the alleged discrimination.
Admittedly, the language of Section 338 on its surface appears to authorize the President himself to engage in direct fact-finding, providing that he may impose tariffs "[w]henever the President shall find as a fact" discrimination. Congress placed Section 338, however, in the part of the Smoot-Hawley Tariff Act governing the duties and responsibilities of Tariff Commission, the ITC's predecessor, and subsection (g) states that "it shall be the duty of the commission to ascertain and at all times to be informed whether any of the discriminations against the commerce of the United States…are practiced by any country; and if and when such discriminatory acts are disclosed, it shall be the duty of the commission to bring the matter to the attention of the President, together with recommendations." As Mona Paulsen has argued, and as Veroneau and Gibson point out, from the 1920s through the 1940s both the Executive Branch and the Tariff Commission itself appear to have understood that the Commission would be responsible for initial fact-finding and for recommending factual determinations to the President. There is no evidence that the ITC investigated Canada prior to the President's action.
Each of the three actions also suffers from its own deficiencies. The alcohol action targets decisions that Canadian provinces made as purchasers of liquor, not as customs authorities; such commercial decisions, unrelated to customs or import requirements, would seem to fall outside a provision aimed at "customs, tonnage, or port dut[ies]" and comparable regulatory impositions.
The dairy action, as noted above, rests on quota levels and terms that the United States itself negotiated in the USMCA and that Congress approved. Irrespective of the original intent of 338, is incongruous, to say the least, for the United States to denounce as discriminatory the very terms it agreed to.
Stepping back from these issues of statutory construction, as the historian and former State Department official Philip Zelikow has argued, Congress may have implicitly repealed Section 338 in the 1960s and 1970s when it overhauled U.S. trade statutes. In Zelikow's view, Section 252 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974—which Trump is now relying on as the legal basis for his global tariffs—"cover the whole subject" that Section 338(d) formerly addressed, and thus implicitly repealed it. Admittedly, an implied-repeal argument faces a high bar, and other scholars, notably Yale Law Professor Jed Rubenfeld, have argued that Section 338 remains fully in force. The courts will have to resolve this debate.
Conclusion
Trump's use of Section 338 is entirely consistent with his aggressive interpretation and use of a host of U.S. trade statutes. These include the first-ever use of Section 122—his initial round of "fallback" tariffs after the Supreme Court ruled in February that he could not rely on a 1977 emergency powers statute to impose tariffs—his unprecedented recent use of Section 301 to impose tariffs on countries accounting for approximately 99% of U.S. trade, and 17 Section 232 national security investigations, more self-initiated cases than all previous Presidents combined. If the courts uphold Trump's use of Section 338 against Canada, Section 338, too, seems likely to become an oft-used tariff statute. The best structural solution to all these tariffs, and the one consistent with the Constitution's assignment to Congress of the power "[t]o lay and collect Taxes, Duties, Imposts and Excises," would be for Congress to enact a comprehensive overhaul of U.S. trade law. Until that happens, however, there are strong arguments that the courts should, at the very least, narrow the scope of Section 338.