Trump’s Tariffs Will Have Another Day in Court

U.S. President Donald Trump is facing yet another court challenge to his tariff-driven war on trade, after an unbroken string of prior defeats that leave the future of his mercurial trade policy increasingly uncertain. Last week, the same company that successfully challenged Trump’s global tariffs under the 1977 International Emergency Economic Powers Act filed suit against his latest attempt to reach back in time. At issue is Trump’s use of an obscure and never-used statute, Section 338 of the 1930 Trade Act, to punish Canada for its allegedly discriminatory behavior toward U.S. commerce. U.S. President Donald Trump is facing yet another court challenge to his tariff-driven war on trade, after an unbroken string of prior defeats that leave the future of his mercurial trade policy increasingly uncertain. Last week, the same company that successfully challenged Trump’s global tariffs under the 1977 International Emergency Economic Powers Act filed suit against his latest attempt to reach back in time. At issue is Trump’s use of an obscure and never-used statute, Section 338 of the 1930 Trade Act, to punish Canada for its allegedly discriminatory behavior toward U.S. commerce. This new trade fight may not be as clear-cut as some of the prior Trump defeats in court, though. The central thrust of the lawsuit challenging Sec. 338—part of the notorious Smoot-Hawley law that ushered in the Great Depression—is that the law was explicitly designed for a different world. The statute, which had never been used and in fact was unknown even to many trade experts until Trump resurrected it, was designed to give the United States a way to push back against countries such as France and Great Britain that were discriminating against U.S. exports as part of “imperial preference”—a circling of the wagons that gave preferential treatment to colonies at the expense of global trade in the dawning days of the depression. The statute was “all about imperial preferences,” said Sara Albrecht, the chairman and chief executive of the Liberty Justice Center, which filed the lawsuit on behalf of a U.S. business harmed by Trump’s latest trade spat. And even more clearly, the statute was meant to give the White House a tool to deter other countries from discriminating against U.S. exports—not a cudgel to wield against countries (such as Canada) whose tariffs on U.S. goods were dollar-for-dollar retaliation for Trump’s first round of trade restrictions. “Retaliation is not discrimination,” Albrecht told Foreign Policy. But even if the narrowly tailored 1930 statute were valid for modern-day trade fights, that doesn’t matter, the suit (and many scholars) argue, because Sec. 338 is—legally speaking—dead and buried. That 1930 law has been updated and superseded not once but twice in later legislation, first through the 1962 Trade Act and later in Section 301 of the 1974 Trade Act. Everything that was in the old statute was rehashed in more modern law—and, according to established legal doctrine, that Hoover-era law has arguably been implicitly repealed. What’s more, the updated version of the statute includes a lot more limits and safeguards, including formal investigation of alleged wrongdoing by other countries. The tool that Trump has turned to for his fourth bite at the apple would dodge all those limits. “Congress did not intend to leave in place a parallel authority that would allow the President to impose the same remedies, for the same conduct, free of every one of those safeguards,” the plaintiffs argued in their lawsuit before the U.S. Court of International Trade. The Trump administration has leaned heavily on that updated version of the statute—Sec. 301 of the 1974 Act—for many of its tariffs, from the first-term duties on Chinese exports to the second-term attempt to slap tariffs on every U.S. trading partner. (Those tariffs are also currently facing an uphill battle in court.) But if Sec. 338 is still valid, scholars such as Philip Zelikow argue, then Sec. 301 cannot be. That would mean that the main weapon the Trump administration is relying on to continue global tariffs in the wake of this year’s Supreme Court setback is itself invalid: Trump cannot have his cake and eat it, too. The whole battle over Trump’s tariffs comes at a time when the United States continues to pursue elusive trade deals with major partners, including Canada. Trump administration officials have said that a deal with Canada—with whom the United States has had a free-trade agreement since the 1990s—is close, but Canadian officials say a final agreement remains far off. This latest clash over what seems to be an arcane relic of U.S. trade legislation is important because of the way that the Trump administration has sought to weaponize trade to a much greater degree in the second term than in the first. During Trump’s first term, his administration relied on relatively targeted and legally defensible authorities to slap tariffs on big trading partners. But starting early in his second term, Trump sought to hike tariffs on every country in the world, starting with a novel use of a Carter administration-era law that had never been used to impose tariffs—and with good reason, as the Supreme Court later ruled. That 1977 law doesn’t give the president the power to levy tariffs, even for a self-proclaimed national-security “emergency,” such as a half-century of persistent trade deficits. Undeterred, the Trump administration replaced the outlawed first batch of tariffs with a new tranche under a provision of the 1974 Trade Act. That, too, was struck down by courts, but it had expired by then anyway. So the administration reached for a third option, also under the 1974 law, which hit 99 percent of U.S. trade with tariffs on the grounds that every U.S. trading partner was lax on combating forced labor in supply chains. That attempt, too, is under legal challenge, and it’s likely to be struck down. And then Trump reached even further back in the history books to find a way to punish Canada for retaliating against his previous rounds of tariffs by invoking, for the first time, a statute that even protectionist President Herbert Hoover was loath to sign into law. The irony is that all of Trump’s efforts to hike import duties paid by U.S. businesses and consumers by every means possible is that they have conspicuously failed to achieve any of their stated goals. Exports are falling and imports are rising, widening the very trade deficit that Trump said was a national emergency. Tariffs have failed to drive a manufacturing renaissance, either in employment or the construction of new factories. Nor have the tariffs been a reliable source of additional revenue for a government saddled with a huge budget deficit and $40 trillion in debt: Net tariff revenues as a share of overall revenues are actually lower than at any time in the past decade, in part because courts have made the U.S. government refund tariffs collected illegally. And increasing the price of nearly everything from nearly every country in the world has exacerbated inflation, which is a problem for the Trump administration as it tries to grapple with an affordability crisis ahead of the midterm elections. U.S. inflation is now running at 3.7 percent year-on-year, higher than when Trump took office, fueled by higher energy prices (fruit of the Iran war), tariffs, and the artificial intelligence build-out. That self-inflicted higher inflation makes a serious case for the Federal Reserve to hike interest rates this week—the very opposite course of what Trump has advocated for years. The through line of all of Trump’s second-term tariff fights, from the Rose Garden “Liberation Day” tariff announcement that slapped duties on penguins to his efforts to resuscitate moribund trade relics to punish Canada, is that Congress is missing in action. Despite a handful of tepid attempts early in Trump’s second term to wrest back the constitutional powers of taxation from the White House, there have been no serious legislative efforts to reverse nearly a century of congressional delegation of trade authority to the executive branch. “If Congress were doing its job, we wouldn’t be in this place,” said Albrecht of the Liberty Justice Center. That may soon change. U.S. midterm elections are only a week away, and Democrats are widely predicted to win back the House of Representatives and perhaps even control of the Senate. Trump’s one-man war on trade (and trade law) may soon have an expiration date.