Policy Memo
Topline
Section 338 of the infamous Smoot-Hawley Tariff Act of 1930 lets the President respond to foreign trade discrimination in three ways—additional duties on products, import bans, or duties on a country’s industries—if two triggers are first met: the President must identify specific burdensome and discriminatory acts by a foreign government and show that action serves the public interest. The President has done neither of these.
Plymouth Institute for Free Enterprise
TOPLINE: Section 338 of the infamous Smoot-Hawley Tariff Act of 1930 lets the President respond to foreign trade discrimination in three ways—additional duties on products, import bans, or duties on a country’s industries—if two triggers are first met: the President must identify specific burdensome and discriminatory acts by a foreign government and show that action serves the public interest. The President has done neither of these.
Further, the administration’s newest Section 338 tariffs on Canada fail to pass legal muster in four important ways:
The Court of International Trade is set to decide what, if any, provisions of Section 338 survive congressional amendments that have been made to the act over the past 96 years.
BACKGROUND: On October 23, President Trump signed a proclamation that drops 22 tariff lines and adds 100 to the 50% duties he first levied on Canadian goods on July 20. A tariff line is the smallest individual product classification listed in a country’s customs tariff schedule, and each line represents a specific product or subcategory and carries a tariff rate. The new tariff lines run from shampoo and chest freezers to handheld electrical tools. Those duties already reach wine, furniture, cement, clothing, fishing rods, and hockey equipment. Section 338 is a Smoot-Hawley provision passed in 1930 that, until this summer, no president had used to impose a tariff. The administration reached for this power, dormant for nearly a century, after the Supreme Court struck down the International Emergency Economic Powers Act (IEEPA) tariffs in February and the Court of International Trade held the Section 122 tariffs unlawful in May.
The administration had argued in court last year that if the Supreme Court struck down the IEEPA tariffs, no alternative tariffs would be available to recreate the revenue that would be lost. As soon as the Supreme Court ruled against the misuse of IEEPA to impose tariffs, however, the Trump administration backtracked on this claim and resorted to a series of unlawful uses of Section 122 tariffs and Section 301 tariffs followed by the most recent Section 338. In each instance, the Trump administration relied on unsubstantiated, arbitrary allegations that 60 countries had failed to ban forced labor.
To remedy discrimination by a foreign country against U.S. commerce, subsection (d) allows the imposition of a rate the President determines “will offset such burden or disadvantage.” Each Section 338 proclamation sets the duty at the maximum 50% regardless of any measured burden. The stated aim is to “spur Canada to remove” the alleged discriminatory practices, and the White House describes the effort as restoring “reciprocity.” This is the same economically outlandish rationale for the reciprocal tariffs the Supreme Court struck down under IEEPA. In reality, it is clear that the administration is imposing tariffs at a rate designed to secure negotiation leverage, not to “offset” any alleged discriminatory trade practices by Canada. Certainly, the administration has not made any showing, much less a good-faith one, that Canada has, in fact, engaged in such practices.
From an economic perspective, these tariffs are certainly not in the public interest of Americans. Analysts at the Peterson Institute for International Economics (PIIE) point out that a 50% import tax does not extract reciprocity from foreign governments. Instead, 85% to 95% of these costs are borne directly by American importers and consumers, driving up supply chain costs and risking domestic manufacturing disruptions. President Trump's 50% Section 338 tariffs on Canadian imports have harmed Americans by raising household and business costs, disrupting supply chains, and shrinking trade. According to the Tax Foundation, Trump’s broader tariffs and trade actions are estimated to cost the average U.S. household roughly $820 to $1,100 per year.
The fight over Canada’s dairy quotas is a perfect example of how these tariffs burden the American public. These quotas were agreed upon at the time of the USMCA negotiations, and they have never been exceeded. AAF has long backed targeted tariffs on hostile nations (e.g., China). But Canada is one of our closest allies, neighbors, and friends, and is our second-largest trading partner after Mexico. Canada is not a hostile regime. American families and businesses bear the burden of these duties. In addition to higher prices, U.S. trade with Canada has fallen $50 billion since the March 2025 tariffs on Canada with no boost to U.S. manufacturing. Some states have suffered disproportionately, including North Dakota and Montana, where Canada accounts for more than 75% of goods trade. In short, the Section 338 tariffs have been a disaster for Americans.
In 1974, Congress wrote a newer law for a virtually identical problem to that addressed by the Tariff Act of 1930. In doing so, Congress impliedly repealed Section 338. Section 301 of the Trade Act of 1974 (19 U.S.C. §§ 2411–2420) empowers the President to act when a foreign country’s practice is “unreasonable or discriminatory and burdens or restricts United States commerce,” nearly identical to Section 338’s own trigger. Unlike the dormant powers under the prior legislation, Section 301 provides a specific process to address such disputes: an investigation, 30 days’ notice, a hearing for any interested person who asks, and a determination published in the Federal Register, usually within a year.
When a court determines that the two statutes are completely incompatible or that the later act covers the entire subject matter of the earlier one and is clearly intended as a substitute, it will rule that the later act repealed the prior act by implication.
The following are prominent U.S. federal cases addressing the argument of repeal by implication:
The Issue: Investors brought an antitrust lawsuit alleging that investment banks formed a cartel during initial public offerings (IPOs). The banks argued that federal securities laws implicitly repealed (or preempted) the application of antitrust laws in this specific context.
The Ruling: The U.S. Supreme Court adopted the implied repeal argument, holding that the securities laws and antitrust laws were clearly incompatible here. Because the SEC has explicit authority to regulate IPO marketing practices, allowing antitrust lawsuits would create a serious risk of conflicting legal standards.
The Issue: The Court examined a conflict between two federal statutes governing redistricting: a 1941 act providing for at-large elections if a state failed to redistrict after a census and a 1967 act requiring states to elect representatives from single-member districts.
The Ruling: Justice Stevens, joined by Justices Souter and Breyer, recognized an implied repeal, concluding that the single-member district requirement in the later 1967 legislation effectively replaced and repealed by implication the at-large provisions of the older 1941 law where they directly conflicted. A plurality instead read the 1941 provision to apply only when neither the state legislature nor the courts could redistrict in time for an election.
The Issue: This case evaluated whether the broad venue provisions of the Securities Exchange Act of 1934 implicitly repealed the highly specific venue provisions governing national banks in the National Bank Act of 1864.
The Ruling: While the Supreme Court ultimately ruled against a repeal in this specific instance because a general statute rarely repeals a specific one, the opinion sets out the two categories still used today to identify a valid implied repeal, either of which is sufficient if the intent to repeal is clear: (1) where provisions in the two acts are in irreconcilable conflict, or (2) if the later act covers the whole subject of the earlier one and is clearly intended as a substitute.
The Issue: Tynen was indicted under an 1813 federal statute for a crime related to the forgery of citizenship papers. However, in 1870 Congress passed a comprehensive act dealing with the exact same offenses but modifying the definitions and altering the punishments.
The Ruling: The Supreme Court held that the 1813 act was repealed by implication. The Court stated that when a later statute covers the whole subject matter of a former one, introduces new regulations, and provides a different penalty, the older act must give way.
These procedures stand in stark contrast to Section 338, which permitted a unilateral presidential finding with no investigation, comment period, or hearing required. The Section 338 tariff power has remained dormant since the passage of the Act more than 90 years ago. Congress has since outlined a specific procedure (Section 301) for the same conduct described in Section 338. The President may not use a dormant general power to circumvent Congress’s clear subsequent directive: that power has been impliedly repealed or, at a minimum, cannot be used to bypass that later statutory framework. In a 1979 report, the U.S. International Trade Commission described Section 338 as an obscure, never-used provision that had been overshadowed by newer enactments.
Article I, Section 8, of the U.S. Constitution gives Congress, not the President, the power to lay duties. In February, the Supreme Court held in Learning Resources v. Trump that the power to regulate importation does not include the power to impose tariffs, because a tariff is a tax. Of course, Section 338 levies “duties” rather than tariffs. But that is a distinction without a difference because the term “duties” raises the same constitutional problem. Article I, Section 8, clearly states: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises.” Imposing a 50% tax on any product of an ally for as long as the President likes on the basis of a unilateral finding rests on an argument nearly identical to the IEEPA argument made by the administration and rejected by the Court.
The Framers placed the taxing power with Congress deliberately. Among the colonists’ grievances against the Crown was that the British Parliament had “impos[ed] taxes on us without our consent” following the French and Indian War to pay off the war debt. Declaration of Independence para. 19 (U.S. 1776). The Court later observed that “the power to tax involves the power to destroy,” McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 431 (1819), and the founding generation did not treat the imposition of duties on imports as a separate category of power that the President could exercise. The ratification debate over “external” taxation of imports, as distinct from “internal” taxation, was a debate over how much taxing power Congress should hold, not over whether the executive could exercise it. See The Federalist Papers No. 30 (Alexander Hamilton) (Clinton Rossiter ed. 2003) (1961). See generally Brief of Amici Curiae Advancing American Freedom et al., Part I.A, Learning Resources, Inc. v. Trump, Nos. 24-1287 & 25-250 (U.S. filed Oct. 24, 2025) (“AAF Amicus Br.”).
The White House says the new action will “restore reciprocity,” the rationale of the reciprocal tariffs the Court threw out. Retaliation is not legal discrimination. Under Section 338, tariffs can only be levied if a foreign country “discriminates” against U.S. goods by treating them worse than imports from other countries. In ongoing litigation at the U.S. Court of International Trade—such as Gellert Global Group Corp. v. Trump—plaintiffs note that Canada’s trade actions are lawful counter-tariffs responding to prior U.S. tariffs, rather than systemic discrimination. Also, Section 338 follows IEEPA and Section 122 as the latest statute pressed to that end.
In the Section 122 case, AAF showed that the government used an obsolete statistic abandoned in 1976 (the “basic balance”) to defend the tariffs retroactively and avoid paying out an estimated $22 billion in refunds. The basic balance statistic combined the current account (the part of the balance of payments that records current economic activity, such as trade and income flows) with long-term capital flows to identify persistent economic trends. Basic balance still captured only part of the picture because it left out short-term financial flows, which is why a deficit in it does not show a deficit in the balance of payments as a whole. It was completely abandoned by the Department of Commerce in 1976 because it proved to be highly inaccurate, unreliable, and conceptually flawed in a post-Bretton Woods system of floating exchange rates.
Liberty Justice Center has argued that if Section 338 is interpreted to grant the President a virtually unlimited and sweeping authority to impose massive tariffs or outright import bans whenever he chooses, it unconstitutionally delegates legislative power without meaningful statutory limits.
The Constitution vests “[a]ll legislative Powers” of the national government “in a Congress of the United States,” U.S. Const. art. I, § 1, and the nondelegation doctrine is the Court’s rule for enforcing that vesting. The doctrine “bars Congress from transferring its legislative power to another branch of Government.” Gundy v. United States, 588 U.S. 128, 132 (2019) (plurality opinion). To determine whether a delegation of power is constitutional, the Court asks whether Congress supplied an “intelligible principle” to guide the executive, J.W. Hampton, Jr., & Co. v. United States, 276 U.S. 394, 409 (1928), and it has recently stressed that “[t]he ‘guidance’ needed [from Congress] is greater . . . when an agency action will ‘affect the entire national economy’ than when it addresses a narrow, technical issue.” FCC v. Consumers’ Research, No. 24-354, slip op. at 11 (June 27, 2025) (quoting Whitman v. American Trucking Ass’ns, Inc., 531 U.S. 457, 475 (2001)). Congress must make clear both “the general policy” the executive must pursue and “the boundaries of [its] delegated authority.” Id. (quoting American Power & Light Co. v. SEC, 329 U.S. 90, 105 (1946)). Fifty percent duties on a long and growing list of goods from the country’s second-largest trading partner plainly affect the national economy. AAF Amicus Br. Part I.B.
Justice Gorsuch has described how to better apply the test. A court should ask whether the statute assigns the executive only the responsibility to make factual findings, whether it sets out the facts the executive must consider and the criteria for measuring them, and “most importantly,” whether Congress, rather than the executive branch, made the policy judgments. Gundy, 588 U.S. at 166 (Gorsuch, J., dissenting). Read as written, Section 338 supplies real answers to the first two questions: a finding of discrimination against U.S. commerce, a rate that “will offset” the burden or disadvantage, a cap of 50%, and a 30-day wait. The administration’s reading discards those requirements. On its theory, the President alone decides whether discrimination exists, which goods to target, what rate to charge, and how long the duties last, and he may rewrite the list at will, as the October 23 proclamation did. Those are policy judgments belonging to Congress alone. If the administration’s reading is correct, Section 338 delegates what the Constitution forbids; if the statute means what it says, the proclamations exceed it. Either way, the duties cannot stand. AAF Amicus Br. Part II.
Defenders of the proclamations may respond that foreign affairs call for special deference to the Executive. But the powers exercised are not foreign affairs powers in the abstract. The President clearly is exercising the powers to tax and to regulate commerce with foreign nations, which Article I, Section 8, vests specifically in Congress. U.S. Const. art. I, § 8, cls. 1, 3. Even if the President holds general authority over foreign affairs, the Constitution excludes from it the foreign affairs powers it assigns to Congress. This is in stark contrast to cases involving statutes where Congress made the policy and the President exercised discretion after finding a fact required by the statute. In Marshall Field & Co. v. Clark, 143 U.S. 649 (1892), Congress itself prescribed in advance the duties to be collected once the President found a trading partner’s exactions on American products to be reciprocally unequal and unreasonable. In Cargo of the Brig Aurora v. United States, 11 U.S. (7 Cranch) 382 (1813), the President determined only whether France or Great Britain had revoked its trade barriers. And in Zemel v. Rusk, 381 U.S. 1, 17 (1965), the Court cautioned that it is not the case that “simply because a statute deals with foreign relations, it can grant the Executive totally unrestricted freedom of choice.” Section 338, as the administration reads it, leaves the finding, the target, the rate, and the duration to the President. AAF Amicus Br. Part III.
The stakes extend beyond this dispute. If the President’s reading of Section 338 were upheld, the only remedy would be for Congress to amend or repeal the statute, and the President would very likely veto that bill. Congress would then need two-thirds of both chambers to recover a power the Constitution gives it alone, the same supermajority required to propose a constitutional amendment. That is why AAF has argued that such a reading turns the amendment process on its head. AAF Amicus Br. Part IV.
CONCLUSION: The Court of International Trade should declare the President’s invocation of Section 338 tariffs to be unlawful and should order refunds, with interest, from the date the importer had to pay them. The court should also issue an injunction against further implementation of these Section 338 proclamations and hold that Section 301 governs this dispute. Congress should pass the Trade Review Act of 2025 (S. 1272, H.R. 2665) and repeal whatever the courts may say remains of Section 338, along with the other delegations of its tariff power. A never-used statutory provision enacted 96 years ago should not be used to impose yet another new tax on Americans. The administration’s invocation of the Smoot-Hawley Tariff Act of 1930 to confer virtually unrestricted tariff-setting discretion is comparable to relying on pre-Fourteenth Amendment unrestricted states’ rights doctrine to justify limiting congressional law-making power. The administration’s action is unauthorized by the tariff laws and should be held invalid on that ground.