'Vicious cycle': What you need to know about Trump's Great Depression-era tariff tool

CTV's Chief Financial Correspondent Amanda Lang weighs in on whether Canada should respond to new U.S. tariff threats and how both economies are affected.

WASHINGTON — Donald Trump is ramping up pressure on Canada by threatening to use an obscure Great Depression-era legal tool to impose new tariffs — and it’s not clear whether there are any guardrails to rein in the president’s power.

Trump on Monday signed orders to use Section 338 of the Tariff Act of 1930 to slap 50 per cent tariffs on a wide array of Canadian goods, ranging from hockey sticks and wine to cement.

The new duties would not go into effect until Aug. 19. Unlike most of Trump’s other tariffs, these tariffs would have no exemptions for goods compliant under the Canada-U.S.-Mexico Agreement on trade, better known as CUSMA.

“Because Section 338 is an untested authority from the Great Depression era, we do not have a road map for how this will play out,” said Ryan Majerus, a Washington-based partner in the international trade team at the law firm King & Spalding.

United States Trade Representative Jamieson Greer has said the measure is a response to provincial bans on U.S. liquor, Canada’s supply managed dairy system and quotas on certain U.S. vehicles.

But this latest tariff threat may also put heavy pressure on Canada as the negotiations on the trilateral trade pact continue.

Prime Minister Mark Carney said Tuesday that he spoke with Trump earlier in the day and they agreed to intensify trade talks.

“This announcement is clearly focused on gaining leverage in the (CUSMA) talks, but it remains uncertain if the tariffs will be applied,” Majerus, a former assistant general counsel at the Office of the U.S. Trade Representative during the first Trump administration, said in an email.

The continental trade pact was negotiated during the first Trump administration to replace the North American Free Trade Agreement. The negotiations were sometimes contentious but ultimately all three countries hailed CUSMA as a success.

The Trump administration said earlier in July that it would not be renewing the trade agreement. That decision triggers rolling annual reviews for up to 10 years, at which point CUSMA would expire unless all parties agree to an extension.

Mexico and Washington have launched official CUSMA negotiations but Ottawa has not yet started trade talks with the U.S.

Greta Peisch, the former general counsel for the Office of the U.S. Trade Representative under former president Joe Biden, said Section 338 “is being used at this time for a relatively narrow purpose — to address alleged discriminatory practices by Canada where the United States has not seen progress in the context of the (CUSMA) renegotiation.”

“Section 338 relates to instances when a foreign country discriminates against the commerce of the United States and puts it at a disadvantage as compared to third countries,” Peisch, a partner at Wiley Rein in Washington, D.C., said in an email.

The statute allows for tariffs up to 50 per cent. No investigation is required and there is no limit on how long the tariffs can stay in place.

While the statute itself talks about the U.S. International Trade Commission informing the president of unfair trade practices, it’s not clear a referral from the commission is required to implement tariffs or keep them in place.

Peisch said she doesn’t necessarily think the Trump administration sees the statute as its tariff tool of choice. The U.S. Supreme Court earlier this year struck down Trump’s use of the Emergency Economic Powers Act, better known as IEEPA, for his sweeping and erratic “Liberation Day” tariffs and fentanyl-related duties.

To rebuild that tariff wall, the Trump administration has launched probes under Section 301 of the Trade Act of 1974 into 60 countries, including Canada, citing claims of forced labour in supply chains.

Greer suggested this week those Section 301 duties — 10 per cent on Canada — could be coming soon.

Alfredo Carrillo Obregon, a trade policy analyst at the Washington-based Cato Institute, said he’s not convinced the Trump administration won’t be inclined to use this new tariff tool more often if the courts allow it. He said the new tariffs targeting Canada demonstrate “the dangers of (Section) 338.”

“If the U.S. can impose a tariff on a country and the country retaliates against the U.S. only, then the U.S. could point to that as being a sort of discriminatory trade practice and post tariffs under 338,” he said.

“(It’s) sort of this vicious cycle that never ends.”

Majerus, Peisch and Obregon all said they expect that if the new duties go into force, they’ll be challenged in court.

And since the nearly 100-year old statute has never been used for tariffs before, it’s not clear how that would play out.

“It’s really complicated at this point to tell,” Obregon said.

Kelly Geraldine Malone, The Canadian Press