Trump’s Dead Law, Revived: Why Canada Tariffs Could Fail in Court

A Law That Should Have Stayed Buried

Donald Trump reached into a 96-year-old statute most trade lawyers didn’t know existed and imposed a 50% tax on $20 billion in Canadian imports. Section 338 of the Tariff Act of 1930 — the same Smoot-Hawley Act economists blame for deepening the Great Depression — has sat unused since before the Cold War began.

Now it is the legal basis for the most aggressive unilateral trade action against America’s closest neighbor. And it has never been tested in court.

“This law is literally a blank canvas because it’s never been litigated,” said Ryan Majerus, a partner at King & Spalding and a former U.S. trade official.

That blankness cuts both ways. It gives Trump broad discretion. But it also means any challenge will be decided by judges reading the statute from scratch — with no precedent to guide them.

The Supersession Argument

The strongest case against the tariffs comes from the simple fact that Congress passed better laws after 1930.

The Trade Expansion Act of 1962 gave the president authority to impose tariffs on national security grounds. The Trade Act of 1974 created procedures for targeting unfair trade practices — including investigations, findings, and defined remedies. If Congress wanted Section 338 to remain operative, why draft these more specific grants of power with built-in constraints?

“There is a very strong argument that (Section 338) was superseded,” said Sara Albrecht, CEO of the Liberty Justice Center, which represented businesses that successfully challenged earlier Trump tariffs at the Supreme Court.

Georgetown legal scholars Peter Harrell and Jennifer Hillman made the same case in Reason earlier this month, tracing State Department records that show the U.S. contemplated using Section 338 against Spain in 1932 and Communist China in 1949 — and chose not to. After the Depression, American trade policy shifted toward negotiation, not unilateral sanction.

The Mismatch Problem

Even if Section 338 survives the supersession argument, the Canada tariffs face a second weakness: they do not match the statute’s text.

Section 338 authorizes tariffs that “offset” the harm caused by a foreign country’s discrimination against U.S. business. The Trump administration has not calculated the dollar amount of damage from Canada’s dairy, auto, or alcoholic beverage policies. Worse, it is taxing Canadian imports with no connection to those sectors — hockey sticks, cement, and other goods.

Harrell and Hillman also note that Canada’s dairy quota system discriminates against all foreign suppliers equally, not just the United States. And the U.S. agreed to that system when Trump himself negotiated the USMCA in his first term.

“It is incongruous, to say the least, for the United States to denounce as discriminatory the very terms it agreed to,” they wrote.

John Veroneau, former general counsel for the U.S. Trade Representative, pushed back. He argued the statute’s requirements are straightforward: does Canada tax U.S. imports more heavily than imports from other countries? If yes, the tariffs are justified. And in a twist he called a “perverse irony,” Canada triggered the statute’s invocation by imposing retaliatory tariffs on U.S. goods last year — precisely the kind of discrimination Section 338 was designed to address.

“Courts will rightly feel obliged in the face of any challenge to decide: Are the statutory requirements met or are they not met, however ludicrous the broader context might be,” Veroneau said.

Plaintiffs Are Hard to Find

The tariffs may be legally vulnerable. But vulnerability is not the same as a lawsuit.

No one has filed a challenge yet. The Liberty Justice Center has been shopping around for businesses willing to sue, with limited success. “I haven’t had a lot of response from plaintiffs,” Albrecht said. Suing the federal government is costly, slow, and uncertain — even when the legal theory is strong.

The scope of the tariffs also works against litigation. At 50% on $20 billion, they cover roughly 5% of total Canadian imports. Fewer companies are paying them, and fewer can claim concrete injury.

There is also a political path out. The U.S. and Canada broke off talks on August 21. If they resume and strike a deal — perhaps on dairy quotas or auto rules of origin — the tariffs could evaporate before any court ever sees them. “I’m hopeful that somebody blinks,” Albrecht said.

The Supply-Chain Shock

Whether or not they survive judicial review, the tariffs are already reshaping business decisions across North America.

Automakers are the most exposed. The U.S., Canada, and Mexico operate a single integrated auto industry — parts cross the border up to seven times during production. A 50% tariff on Canadian inputs effectively taxes North American manufacturing on its own soil. Companies that built their USMCA strategies on duty-free cross-border supply chains now face costs that make nearshoring to Mexico or reshoring to the U.S. suddenly more attractive — or at least more necessary to evaluate.

The uncertainty itself is the damage. Businesses plan around known rules. When the legal basis for those rules is a dormant Depression-era statute with no judicial interpretation, planners cannot model outcomes. Investment gets delayed. Contracts get renegotiated. Some get abandoned.

Canada’s retaliation — dollar-for-dollar tariffs on U.S. exports — adds a second wave of disruption. American farmers, already squeezed by trade uncertainty, now face lost markets. Manufacturers who sell into Canada see their customers cut orders or seek alternative suppliers.

Who Wins, Who Loses

Trump wins politically if the tariffs force concessions on dairy or auto policy. He has framed the move as standing up to Canadian protectionism, and the rhetoric plays well with his base.

But the legal risks are real. If a court strikes down Section 338 as superseded, it undermines not just this tariff but any future administration’s ability to rely on it. The precedent could flow both ways — constraining protectionist impulses and constraining liberal trade enforcement equally.

Canadian exporters lose immediately. U.S. exporters hit by retaliation lose too. American automakers and suppliers caught in the crossfire lose on both sides of the border. Consumers pay higher prices for goods ranging from cement to cars.

The businesses that might gain are those with enough capital and flexibility to reconfigure supply chains away from Canada — a move that is expensive, slow, and irreversible once committed.

What Happens Next

Three scenarios are plausible.

The first — and most optimistic — is a negotiated settlement. Both governments prefer de-escalation. Trade talk could resume, a dairy compromise could be struck, and the tariffs could be withdrawn before any lawsuit is filed.

The second is a legal reckoning. A plaintiff finally emerges — perhaps a Canadian exporter denied market access or a U.S. manufacturer crushed by retaliatory duties — and challenges the tariffs in federal court. The case would travel through the International Trade Court and likely reach the Federal Circuit, with the Supreme Court as the final arbiter. That timeline runs at least 18 to 24 months.

The third is endurance. The administration stakes its position, survives initial challenges on procedural grounds, and forces businesses to absorb the cost rather than litigate. Tariffs persist as a bargaining chip long after their legal footing erodes.

The first two Trump tariffs — the 2025 worldwide levy struck down under the IEEPA national emergency law, and the replacement levy rejected by the trade court — already show the pattern. The executive branch can impose quickly. The judiciary checks slowly. In between, economies adjust to rules that may not last.

That gap is where the real cost lives. Not in the tariffs themselves, but in the uncertainty they inject into contracts, investment, and the quiet architecture of North American supply chains that took decades to build.