What are Section 338 tariffs and how are they able to bypass CUSMA? – National

U.S. President Donald Trump‘s latest tariff threat against Canada is based on a nearly 100-year-old trade statute that has never been used to impose tariffs before — and not even goods covered under the Canada-U.S. Mexico Agreement on free trade (CUSMA) are safe.

Trump signed three executive orders Monday to impose a 50 per cent tariff on many Canadian goods under Section 338 of the U.S. Tariff Act of 1930, which allows a president to tariff any country that “discriminates” against U.S. commerce.

In this case, Trump took aim at Canada’s retaliatory tariffs on U.S. autos and the provincial and territorial boycotts of American alcohol, as well as Canada’s longstanding supply management system for its dairy industry that limits foreign imports.

The White House made clear the tariffs, which will take effect 30 days after the orders were signed, “apply to all covered goods regardless of whether a good originates under” CUSMA, which remains in place despite the U.S. not agreeing to a full extension this month.

Economic experts are so far unable to say how that’s possible, noting they expect the issue to be decided in the courts.

“At this point, your guess is as good as mine as to how exactly they can bypass CUSMA,” Moshe Lander, a professor of economics at Concordia University, told Global News.

“The reality is that nobody knows, because it’s just never been used.”

Here’s what to know about the statute Trump is using, how it stands up against CUSMA, and what could happen next.

The statute in question is contained in the Tariff Act of 1930, which enacted the so-called Smoot-Hawley tariffs, named after the Republican lawmakers who introduced the legislation during Herbert Hoover’s presidency.

Until now, the act was arguably most famous for its mention during an iconic scene from the classic 1986 film Ferris Bueller’s Day Off, in which a droning high school teacher played by Ben Stein tries to teach Bueller’s class about the tariffs’ impact on the American economy.

Section 338 of the act gives the president authority to determine “as a fact” whether a country’s trade policies discriminate against the U.S. and declare new or additional tariffs in response by proclamation:

“Whenever the President shall find as a fact that any foreign country places any burden or disadvantage upon the commerce of the United States by any of the unequal impositions or discriminations aforesaid, he shall, when he finds that the public interest will be served thereby, by proclamation specify and 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, on any products of, or on articles imported in a vessel of, such foreign country.”

The statute further allows the president to block imports from that country altogether if the “discriminatory” trade practices continue despite the new tariffs.

A report this March from the Congressional Research Service noted Section 338 has never been used to impose tariffs before, but may have been used as “leverage” in past trade negotiations.

Trump’s new tariff threat marks the first time he has explicitly made clear that goods traded under CUSMA are not exempt. In the past, such as with the tariffs enacted over fentanyl concerns, Trump exempted CUSMA products after the fact and would later include the carve-out in his tariff orders.

CUSMA itself does not contain a clause regarding punitive measures to address “discrimination” by one party against another and it also doesn’t explicitly mention if Section 338 is overridden by the agreement.

Gary Hufbauer, a non-resident senior fellow at the Peterson Institute for International Economics, said in an interview that in the U.S., “black-letter” or settled law treats the newest statute or legal order as superior to an older one.

In this case, despite CUSMA being newer than the Tariff Act, Hufbauer said Trump’s executive orders would be treated as the newest statute.

“The president can draw on one of those (earlier statutes) and override an earlier commitment on tariffs made in a trade agreement,” he said — in this case, CUSMA.

“Statutes don’t die of old age.”

Economists including Lander have noted that the U.S. has not yet withdrawn from CUSMA altogether, meaning the 30-day countdown to the new tariffs could be used as leverage in renegotiating the agreement.

“Trump’s never liked free trade,” Lander said. “Any attempt that he can take to disrupt trade is certainly something that he supports.”

Economists are so far mixed on whether the courts will side with Trump or businesses that rely on Canadian imports in a future legal challenge of Section 338.

Hufbauer, for one, put the odds at 50-50 and noted any challenge — much like the one that led to the U.S. Supreme Court striking down Trump’s “reciprocal” and fentanyl emergency tariffs — could take well over a year before a final ruling.

Canada could challenge the tariffs once they’re enacted to the World Trade Commission or the CUSMA dispute panel, but Hufbauer said Trump “takes a really dim view” of such tribunals and may not recognize their authority.

Peter Harrell, a visiting scholar at Georgetown Law School who studies international economics, said in a post on X that legal arguments could be made that a president can only enact tariffs under Section 338 following an investigation by the U.S. International Trade Commission that finds Canada’s trade practices discriminatory.

However, the Congressional Research Service report notes that Section 338 only charges the commission with “‘ascertain(ing)’ and informing the President of relevant instances of discrimination,” and that the final finding of “fact” is up to the president himself.

“By authorizing the President to impose tariffs ‘whenever he shall find as a fact’ that discrimination has occurred, however, (Section 338) does not appear to condition the President’s authority on such a finding by the (commission),” the report says.

Harrell added a future case may also end up determining whether the Tariff Act has been “implicitly repealed by later statutes” and defining more clearly what “discrimination” actually means in order to trigger tariffs.

That could set a precedent for Section 338 just as the U.S. Supreme Court did for the president’s use of the International Emergency Economic Powers Act (IEEPA), which Trump invoked for past tariff actions.

In the meantime, Hufbauer said Trump may well use Section 338 against other countries he finds have treated the U.S. unfairly — though notably not China, the only other country besides Canada that Trump has noted retaliated against his tariffs.

“I think they will find it easier to use either Section 301 (of the U.S. Trade Act of 1974, which targets “unfair” trade restrictions) or national security tariffs for China in particular,” Hufbauer said.

“No court is going to say that China’s not a national security threat. … The same can’t be said for Canada.”

—With files from Global’s Uday Rana