INTRODUCTION
On Friday night the U.S. Trade Representative Jamieson Greetold reporters “Canada declined to finalize the trade deal under the terms agreed earlier this week. Despite the U.S. offer to Canada to receive the best treatment of any major exporter to our market, new demands and walk backs of other commitments by Canada upended the careful balance reached in the past days.”. Prime Minister Mark Carney has on the other hand – blamed the Trump administration for adding additional requests at the last minute. This short essay has the purpose of analyzing the collateral consequences of the decision to abruptly interrupt any negotiations from a legal standpoint.
IN DEPTH
The collapse of the Canada-U.S. trade negotiations on August 21, 2026, has resulted in the implementation of new U.S. tariffs affecting approximately $20 billion in Canadian exports, and in a “dollar-for-dollar” response from Canada.
On July 20, 2026, weeks before the collapse of the negotiations between the U.S. and Canada, President Donald Trump issued three proclamations, imposing an additional 50% tariff on certain Canadian products under Section 338 of the Tariff Act of 1930, which origins need to be found in Section 317 of the Tariff Act of 1922. Section 338 authorizes the president to impose “new or additional duties” on countries that have discriminated against U.S. commerce. The new and additional duties are in addition to the existing duties, taxes and fees. Unlike other trade mechanisms (such as Section 301 or Section 232), Section 338 empowers the President to act unilaterally through a proclamation without requiring a prior formal investigation by the U.S. Trade Representative or a lengthy administrative review. The rational basis under Section 338 is based upon the President’s ability to prove that a foreign country, Canada in this case, is actively maintaining an “unreasonable charge, exaction, regulation, or limitation” that specifically discriminates against or disadvantages U.S. commerce. One of the issues of the application of Section 338, is that it gives complete power to the President to impose up to 50% tariffs based on his finding of foreign discrimination. The law does not require formal evidentiary hearing, fact-finding investigation or judicial review. The President’s official proclamation serves as the legal basis for the tariffs, making the finding an executive decision rather than a proven court fact.
A second issue that has arisen about the use of Section 338 is its domestic legal uncertainty. Section 338 is a Depression-era statute that went entirely unused for nearly a century. Its boundaries have never been tested in moder federal courts. Furthermore, many legal scholars from organizations like the Cato Institute point out that Section 338 bypasses modern multilateral dispute mechanisms under the World Trade Organization (WTO) Most-Favored-Nation rules. The definition of discrimination within the meaning of Section 317, is a question not without difficulties. In Wallace McClure’s 1924 book A New American Commercial Policy, As Evidenced by Section 317 of the Tariff Act of 1922, discrimination in international trade is defined as the unequal, preferential, or prejudicial treatment inflicted by a foreign government upon the commerce or citizens of the United States relative to other nations. The use of the word “discrimination”[1] suggests the intention of the framers of the Section to guarantee “American exporters substantial equality of treatment . . .”. Section 302 of the Tariff Act of 1922 places in the hands of the President power to penalize the commerce of any foreign country which imposes on its imports, including those coming from the United States, duties which he deems to be “higher and reciprocally unequal and unreasonable.
One of the historical examples that McClure offers in his book, is the relationship between the U.S. and Canada, describing how Great Britain and Canada were imposing upon imports from the United States “duties that are unequal to and heavier than the duties which it places upon similar goods imported from the other. […] such treatment constitutes a discrimination against the United States.” [2] Nonetheless, it is important to also look at the case-by-case exceptions that characterize the idea of discrimination. For instance, we can dispute whether Canadian duties are based on bona fide regulations for the promotion of health and the avoidance of adulteration. The determination of the bona fide exception remains as difficult as the determination of discriminatory practices from foreign countries. Even though the statutory trade authorities delegated by Congress allow the President to execute these proclamations, this long-dormant Great Depression-era statute, faces scrutiny and potential legal challenges from impacted industries. In 2024, the Cato Institute[3] criticized Section 338 of the Tariff Act of 1930 as an archaic, vague, and dangerous “tariff button” that allows the executive branch to bypass Congress and impose unilateral economic harm. Similar to invalidated emergency powers (under the IEEPA), using Section 338 turns the presidency into a “tariff switch”, creating paralyzing volatility and complexity for global supply chains, domestic industries, and international investments. The 50% additional duty applied under Section 338 of the Tariff Act of 1930 pushes tariffs far beyond the maximum bound rates the U.S. committed to under GATT Article II. GATT Article I requires Most-Favored-Nation treatment, meaning trade advantages or restrictions must apply equally to all WTO members. Targeting specific countries like Canada with unilateral penalty duties breaches this core nondiscrimination principle
CONCLUSIONS
Moving toward trade isolationism can be a very treacherous move. The idea that the President of the U.S. can unilaterally decide what constitutes “discriminatory practice” from a foreign country should be a concern for businesses and consumers. This time, we should not expect courts to save us. It is time for Congress to reclaim its constitutional authority over U.S. trade policy and limit the erratic and costly behavior of a single man, who is largely acting by vindictiveness rather than a legal and economic consequences of his actions.
[1] Wallace McClure – A New American Commercial Policy, 1922
[2] Id. at 244
[3] https://www.cato.org/commentary/trump-says-he-wants-global-tariffs-could-he-actually-do-it
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