Anticipated Legal Challenges to Trump’s Section 338 Tariffs Imposed on Canada

Previously, I discussed President Donald Trump’s threatened duties on Canada by invoking Section 338 of the infamous Smoot-Hawley Tariff Act of 1930. Today, I am glad to present a guest contribution on this topic from Georgetown’s own legal scholars Peter Harrell and Jennifer Hillman. Peter serves as a Visiting Scholar at Georgetown’s Institute for International Economic Law, practices as an attorney, and stands among the nation’s leading authorities on trade law. Jennifer Hillman holds a professorship of practice at the Georgetown University Law Center, is a distinguished expert in international business and trade, and co-directs the Center for Inclusive Trade and Development. Both scholars contributed significantly to shaping the arguments that ultimately led the Supreme Court to strike down the IEEPA tariffs in a case in which I was counsel.

What follows was authored by Peter Harrell and Jennifer Hillman, not by me (Ilya Somin):

 

Prospective Legal Challenges to Trump’s Section 338 Tariffs

 

On July 20, President Trump became the first U.S. chief executive to levy duties under Section 338 of the Tariff Act of 1930, a statute better known—thanks in part to actor Ben Stein’s depiction in Ferris Bueller’s Day Off—for Smoot-Hawley. Up until his second term, only a small circle of trade practitioners understood that Section 338 remained on the books or grasped its practical reach. The three independent findings under Section 338 currently result in a new 50% tariff targeting roughly $20 billion of annual U.S. imports from Canada. Negotiations between Trump and Canadian Prime Minister Mark Carney may yet produce a détente before the tariffs take effect on August 19, potentially folding them into the ongoing talks around the USMCA. If, however, the tariffs come into force, they are likely to face legal challenges that may narrow their scope, even if they do not wholly overturn them.

Background on Section 338 and Trump’s Action

Congress enacted Section 338 (19 U.S.C. § 1338) to empower the President to levy tariffs when a foreign nation discriminates against U.S. goods relative to the treatment afforded products from 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 largely reaffirms and slightly adapts a provision from the Tariff Act of 1922, Section 317. John Veroneau and Catherine Gibson have traced the lineage of Sections 317 and 338, explaining that the core aim of Section 317 was to grant the President leverage to encourage U.S. trading partners to grant “Most Favored Nation” (MFN) status—ensuring that the United States could obtain trade terms comparable to those offered to other partners. In the 1920s and 1930s, 317 and 338 were used as bargaining tools in negotiations. Although neither statute had ever been employed to impose tariffs, State Department records show that the government contemplated doing so on several occasions in the 1930s and 1940s. For instance, in 1932 the State Department indicated it was “seriously considering” using Section 338 against Spain. The last time the matter was seriously considered was in 1949, when the State Department weighed applying it to potential trade frictions with Communist China, while stressing that any such action would need evidence of discrimination or unfair treatment, not simply a partner’s noncompliance with a trade agreement. Yet the historical record also makes clear that no previous administration moved beyond contemplation to actually impose Section 338 tariffs in the ensuing 97 years since its enactment.

The backdrop to the 338 move is the Trump Administration’s frustration with the U.S.-Mexico portion of the USMCA talks progressing more smoothly than those with Canada, and its desire to increase pressure on Ottawa. The stated grounds for the three actions are: (a) Canadian duties on U.S. cars that allegedly fail to comply with USMCA terms (which Canada enacted in response to Trump’s earlier tariffs last year); (b) an extended U.S.–Canada dispute over access to Canada’s dairy market; and (c) the fact that some Canadian provincial governments—operators of liquor stores—largely ceased buying U.S. liquor as tensions between the two countries flared in early 2025.

The Arguments Against Section 338

The most robust objections to Trump’s Section 338 tariffs argue that the statute was misapplied.

First, Section 338 authorizes the President to impose duties 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 notion of using tariffs to “offset” a harm is familiar in trade law. Antidumping and countervailing duties, for example, are designed to counter the effects of a foreign subsidy (countervailing duties) or to offset the margin of dumping (where a firm exports at a price below fair value). The two central criteria for a tariff intended to “offset” a harm are: (a) the tariff should apply to the goods that benefit from the practice being offset, and (b) the tariff’s magnitude should correspond to the value of the harm being addressed.

Trump’s Section 338 tariffs fail to satisfy either criterion. They target a broad array of goods beyond the alleged scope of Canadian discrimination, including hockey sticks and cement, rather than focusing on cars, dairy products, and alcohol; in fact, the action addressing motor vehicles contains no motor-vehicle tariff lines at all. Moreover, even if Section 338 could be interpreted expansively to authorize tariffs on a wide swath of Canadian products, the offsetting requirement still demands that the value of the tariffs be tailored to approximate the injury Canada is alleged to impose. The Administration’s fact sheet accompanying the Section 338 tariffs asserts that Canada’s discrimination against the U.S. auto sector cost $5.6 billion in foregone auto sales. Yet the proclamation imposes a 50% tariff on roughly $19.3 billion of U.S. imports—roughly $10 billion in annual duties, nearly double the magnitude of the claimed harm.

A second argument against the administration’s use of the statute is that Canada’s alleged discrimination against U.S. autos, dairy, and alcohol does not align with the statute’s objective, which, as noted above, is either to counter unreasonable charges or regulations that discriminate against U.S. goods relative to those of all other foreign countries, or to address discrimination in the application of customs duties or practices to American goods compared with others. Here, the claimed discrimination around dairy purchases concerns which Canadian entities are allowed to obtain the quota needed to qualify for duty-free imports. Canada restricts duty-free quotas to wholesalers or distributors rather than individual retail buyers. Yet those same restrictions apply to all trading partners except the European Union, which secured better terms under the Canada–EU Comprehensive Economic and Trade Agreement (CETA). Consequently, Canada’s dairy practices do not treat American products differently from those of “every foreign country.” The expansive reading of Section 338 urged by the Administration would, in effect, permit a 50% tariff on imports from any country that has trade agreements with others but not with the United States. Given the more than 380 preferential trade agreements among U.S. trading partners, such an interpretation could render tariffs on nearly everything the United States imports.

Moreover, Section 338 was designed to give the President a mechanism to nudge countries toward offering MFN treatment and to reduce other forms of discrimination. Yet the United States already has a working agreement with Canada—the USMCA—that grants the United States stronger-than-MFN treatment in its trade with Canada—eliminating the need for further coercion.

A third potential problem with Trump’s reading of Section 338 is that it does not appear to rely on the International Trade Commission (ITC) for fact-finding about the alleged discrimination.

Admittedly, the language of Section 338 on its face seems to authorize the President to conduct direct fact-finding, stating that he may impose duties “[w]henever the President shall find as a fact” discrimination. Yet Section 338 sits in the portion of the Smoot-Hawley Tariff Act that governs the duties and responsibilities of the Tariff Commission, the ITC’s predecessor, and subsection (g) makes clear 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 noted, from the 1920s through the 1940s both the Executive Branch and the Tariff Commission appear to have understood that the Commission would be responsible for initial fact-finding and for advising the President with factual determinations. There is no evidence that the ITC conducted a Canada-specific investigation prior to the President’s action.

Each of the three actions also suffers from its own shortcomings. The alcohol measure targets decisions made by Canadian provinces as liquor purchasers—commercial decisions unrelated to customs or import requirements—and thus seems outside a clause aimed at “customs, tonnage, or port dut[ies]” and related 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. Regardless of the original policy aims of Section 338, it would be incongruous to denounce as discriminatory the very terms that the United States agreed to.

Beyond these statutory construction questions, the historian and former State Department official Philip Zelikow has argued that Congress may have implicitly repealed Section 338 in the 1960s and 1970s when it modernized U.S. trade statutes. In Zelikow’s view, Sections 252 of the Trade Expansion Act of 1962 and 301 of the Trade Act of 1974—which Trump now relies on as the legal basis for his global tariffs—“cover the entire 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 contended that Section 338 remains fully in effect. The courts will ultimately decide this debate.

Conclusion

Trump’s use of Section 338 aligns with his broader pattern of aggressive interpretation and deployment of U.S. trade statutes. This includes his first foray with Section 122—his initial set 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 application of Section 301 to impose duties on a broad set of trading partners accounting for roughly 99% of U.S. commerce, and the 17 Section 232 national-security investigations, more such independent actions than by all previous presidents combined. If the courts sustain Trump’s use of Section 338 against Canada, 338 itself could become a frequently invoked tariff tool. The most structurally sound remedy for this entire tariff landscape, and one that would align with the Constitution’s grant to Congress of the power “to lay and collect Taxes, Duties, Imposts and Excises,” would be for Congress to enact a comprehensive reform of U.S. trade law. Until such reform occurs, there are strong arguments that the courts should, at a minimum, narrow the scope of Section 338.