President Donald Trump has triggered a new phase in the trade dispute with Canada by invoking a rarely used and largely forgotten 1930 statute to impose tariffs on Canadian imports. Last week, the administration applied a 50% tariff on $20 billion worth of Canadian goods under Section 338 of the Tariff Act of 1930. This measure prompted an equivalent retaliatory response from Canada, escalating tensions between the two neighboring countries.
Section 338, part of the Smoot-Hawley Tariff Act—named after its congressional sponsors—is historically associated with the Great Depression and is not widely known among trade experts today. Under this provision, the president may impose tariffs of up to 50% on imports from countries that discriminate against U.S. businesses. However, prior to Trump, no president had utilized this authority, leaving many legal questions about its contemporary applicability unresolved.
Some trade lawyers argue that the statute may be legally obsolete due to subsequent trade legislation that defines and restricts presidential tariff powers. Critics note that newer laws, such as the Trade Expansion Act of 1962 and the Trade Act of 1974, provide the president with authority to address unfair trade practices and national security concerns, potentially superseding Section 338. Additionally, these laws impose procedural requirements, including investigations prior to tariff implementation, which were not evidently followed in imposing the current Canada tariffs.
Legal scholars have pointed out other potential weaknesses in the Trump administration’s approach. For instance, Section 338 is intended to authorize tariffs that offset specific harms caused by foreign trade discrimination. Analysts contend that the administration did not establish a clear calculation of damage from Canadian policies affecting U.S. dairy, auto, and alcoholic beverage exports. Furthermore, the tariffs extended to Canadian goods not directly related to these sectors, such as hockey sticks and cement.
Observers also highlight the complexity of Canada's dairy protection system, which applies tariffs on imports exceeding quota limits not only to U.S. products but to other trading partners as well. Moreover, the U.S. had previously accepted this system within the North American trade agreement negotiated during Trump's earlier tenure, raising questions about the consistency of the current tariff stance.
On the other hand, proponents contend that Canada’s retaliatory tariffs on U.S. goods last year constitute discriminatory practices justifying Section 338’s invocation. John Veroneau, a former general counsel for the U.S. Trade Representative, argued that courts will ultimately determine whether legal requirements are met regardless of broader political considerations.
This is not the first instance in which some of Trump’s tariff strategies have faced judicial setbacks. Earlier this year, the U.S. Supreme Court invalidated a broad national security-based tariff program initiated in 2025, and subsequent attempts to replace those revenue streams have also faced legal challenges.
To date, no formal lawsuits have been filed challenging the Section 338 tariffs on Canada, partly due to difficulties in finding affected businesses willing to sue. The tariffs represent a smaller fraction of Canadian imports compared to Trump’s prior global tariff initiatives, which limits the pool of potentially injured parties.
With diplomatic talks between the U.S. and Canada suspended since August 21, hopes remain that negotiations might resume to resolve the trade dispute. Legal experts and advocates express cautious optimism that a compromise could eventually end the standoff without prolonged litigation or further escalation.