(Not So) Fun Fact: Since the beginning of the conflict with Iran, U.S. consumers and businesses have paid an estimated $141 billion in additional energy costs, which amounts to more than $1,000 per household.

Legal Challenges Against Section 338 Tariffs

What’s Happening: On Tuesday, the Liberty and Justice Center (LJC) filed a lawsuit against the Trump Administration’s 50-percent Section 338 tariffs imposed in August on roughly $20 billion of Canadian imports. The lawsuit was filed on behalf of the Gellert Global Group, a U.S. food-importing business founded in 1945. LJC has been a leading challenger of President Trump’s various tariffs, with legal cases against the Section 122 tariffs, the Section 301 forced labor tariffs, and the International Emergency Economic Powers Act (IEEPA) tariffs which the Supreme Court struck down in February. The newly introduced lawsuit goes after both the legality and constitutionality of Section 338 of the Tariff Act of 1930, an untested tariff authority that the challengers argue is superseded by Section 301 of the Trade Act of 1974. The case against Section 338 will be examined by the United States Court of International Trade and may eventually reach higher courts, as was the case with the IEEPA legal challenge.

Why It Matters: The LJC case has important legal and economic consequences. First, let’s recall that Section 338 allows the president to impose tariffs up to 50 percent on countries that discriminate against U.S. commerce or treat U.S. goods unfairly through tariffs, import restrictions, or other regulatory hurdles that disadvantage U.S. goods in comparison to others. The president also has the ability to ban imports – as President Trump did with nearly $1 billion worth of Canadian goods – or implement “secondary tariffs” on other countries that benefit from the discrimination of U.S. products (read more here). The lawsuit argues that the Trump Administration’s invocation of Section 338 is the latest attempt by the executive branch to exercise tariff authority assigned to Congress and that it is a relic of an abandoned tariff policy eventually replaced by Section 301 of the Trade Act of 1974. While Section 301 allows the executive branch to implement tariffs to counteract unfair trade practices conducted abroad, there is a formal process of investigations, consultations, deadlines, and public comments that must be considered. Section 338 offers none of these processes. Were the administration’s use of this authority upheld, it would greatly expand executive power over trade, allowing tariffs, import bans, and “secondary tariffs” to be imposed virtually at the president’s whim.

The suit also argues that even if Section 338 is constitutional and not superseded by more recent trade laws, the Trump Administration still failed to satisfy the authority’s requirements. The cited measures of Canadian discrimination include retaliatory tariffs in response to newly imposed U.S. tariffs and a dairy quota system negotiated under the United States-Mexico-Canada Agreement. The challengers argue this does not constitute discrimination but is instead retaliation to U.S. trade policies. Additionally, the administration did not follow the statutorily required 30-day waiting period as products added to the Section 338 list on September 8 faced tariffs on September 15.

The economic implications of maintaining or striking down the Section 338 authority are equally important and are particularly concentrated among businesses heavily reliant on Canadian products or inputs. For instance, the plaintiff in the case, Gellert Global Group, has already paid more than $500,000 in Section 338 tariffs between September 16 and October 11. Further, the complaint states that the company would have to pay an estimated $40 million annually in additional costs if the tariffs remain in place – a substantial overnight tax hike for a business with approximately $1.7 billion in revenue. As the Shipment previously covered, roughly $20 billion worth of imports are impacted by the current tariffs and another nearly $1 billion in imports are fully banned. The Shipment estimates annual Section 338 tariff costs stand at roughly $4.2 billion for U.S. consumers and businesses. The Penn Wharton Budget Model places the 2027 costs at $4 billion, the Committee for a Responsible Federal Budget estimates $40 billion over 10 years, and the Tax Foundation estimates about $12–$21 billion over 10 years.

Looking Ahead: The next step in the Section 338 legal case will be a ruling by the United States Court of International Trade, a 3-judge panel that ruled against IEEPA last year. It is possible that the case goes to the U.S. Court of Appeals for the Federal Circuit as well as the Supreme Court depending on whether the administration seeks further judicial review of its tariff authorities. In the meantime, it will likely be at least a few weeks to a few months before importers see further clarity on the legality of Section 338 tariffs.