U.S. President Donald Trump said on the 20th (local time) that he would impose an additional 50% tariff on some products from Canada, a closest ally. Attention is focusing on the fact that, in the process, he pulled out a law enacted during the Great Depression that had never been used.
According to major foreign media on the 22nd, the tariff targets Canadian goods that receive duty-free benefits under the United States-Mexico-Canada Agreement (USMCA). President Trump signed a proclamation imposing an additional 50% tariff on some Canadian goods, including wine, hockey sticks and cement. It is expected to affect about $20 billion worth of Canadian products.
What stands out is that President Trump imposed the tariff based on Section 338 of the 1930 Trade Act. Also known as the "Smoot-Hawley Tariff Act," Section 338 allows the president to impose tariffs of up to 50% indefinitely on imports from a country if a foreign government discriminates against U.S. trade activities or treats U.S. corporations less favorably than companies from other countries. Because this provision stipulates that the tariff takes effect 30 days after the president has released the imposition, the Canada tariff is scheduled to take effect starting Aug. 19.
Last year, President Trump imposed tariffs on most U.S. trading partners based on the International Emergency Economic Powers Act (IEEPA), but that law has no explicit provisions on tariffs. Accordingly, in February, the U.S. Supreme Court found that the IEEPA does not grant the president authority to impose tariffs, and the administration had to find another legal basis.
According to Bloomberg News, all other laws place certain constraints on the president imposing tariffs on other countries. Section 122 of the 1964 Trade Act, which the administration used to replace the IEEPA tariffs after they were invalidated, limits the tariff rate to 15% or less and recognizes its effect for only up to 150 days.
Also, Section 301 of the same law, which the administration seeks to use to rebuild a global tariff regime, requires the Office of the United States Trade Representative (USTR) to conduct a prior investigation and a public comment process. In contrast, Section 338 has far looser procedural requirements than Section 301, allowing the administration to impose tariffs more quickly.
Section 338 is assessed as granting the president very strong authority to impose tariffs, with only a maximum 50% tariff cap. James Kim, a partner at the large U.S. law firm ArentFox Schiff, said, "The biggest advantages of Section 338 are speed and directness," adding, "It is a law designed to respond to the situation the administration alleges, namely retaliatory measures against U.S.-made products."
However, this tariff is also likely to become embroiled in legal action. Previously, tariffs that President Trump imposed on trading partners based on the IEEPA and Section 122 of the Trade Act were each entangled in lawsuits. In particular, given that the IEEPA tariffs were invalidated by the U.S. Supreme Court, there is an assessment that courts are less likely than before to readily accept the administration's broad interpretation of the Trade Act.
CNN also reported on the 21st in an article titled "Trump's 50% tariff on Canada is a warning to the rest" that this tariff measure is sending a message to other U.S. trading partners that "you could be next."
If the courts find that tariffs based on Section 338 of the Trade Act are lawful, the impact is expected to be significant. Stephen Brown, North America chief economist at Capital Economics, said that if the court recognizes President Trump's use of Section 338 of the Trade Act, it could become a useful tool in future trade negotiations, adding, "The Trump administration is now mobilizing new ways to impose tariffs."