Published by Global Banking and Finance Review
Posted on February 12, 2025
By David Lawder
WASHINGTON (Reuters) - President Donald Trump is likely to dust off a 1930 trade law largely forgotten for decades to back his new reciprocal U.S. tariffs that will match other countries' higher import taxes, trade and legal experts say.
Trump has said the new U.S. tariff rates would take effect "almost immediately," and Section 338 of the Trade Act of 1930 would give him a quick path to imposing them.
The law, threatened but never used to impose tariffs, appears only sporadically in government records. It allows the president to impose duties of up to 50% against imports from countries that are found to discriminate against U.S. commerce.
This authority could be triggered when the president finds that a country has imposed an "unreasonable charge, exaction, regulation or limitation," that is not equally enforced upon all countries.
It also can be triggered by discrimination in custom duties or other fees, regulations or other restrictions that "disadvantage" U.S. commerce.
Trump, who has long complained about the U.S. charging lower tariff rates than most other countries, has said his new reciprocal tariffs would take effect almost immediately. The European Union's 10% autos tariff, four times the 2.5% U.S. passenger car rate, is a particular sore spot for the president.
"I think that is exactly the path that they're going to follow," Dan Cannistra, a partner in the Crowell & Moring law firm, said of Section 338.
"They're going to tell the EU: 'You're giving Korea zero percent on cars, you're giving 10% to the U.S. You're discriminating against us."
FAST-ACTING
Trade tools that Trump used in his first term would take longer to impose tariffs, including the Section 232 national security statute for steel and aluminum and the Section 301 unfair trade practices law for Chinese imports. These require investigations and public comment, which can take months.
So far in his new term, Trump has favored tools that allowed immediate action on tariffs. These included a first-ever use of the International Emergency Economic Powers Act to impose tariffs - 10% on Chinese goods and a March deadline for 25% tariffs on Mexican and Canadian goods over fentanyl and border security.
On Monday, Trump simply modified his previous Section 232 metals proclamation to quickly raise aluminum tariffs to 25% - matching steel tariffs - and to cancel all exemptions from steel and aluminum duties, effective March 12.
Section 338 is in that same category of fast-acting remedies, allowing the president to act unilaterally and impose tariffs in 30 days, said Nazak Nikakhtar, a former senior Commerce Department official during Trump's first term.
Nikakhtar, now a partner at the Wiley Rein law firm, said Trump's first term trade team researched scenarios for using Section 338 but went with more familiar tools.
"The conclusion was that it was a valid law. Congress could have repealed it, but it didn't, Nikakhtar said. "Its benefit is that it's more immediate."
A White House spokesperson did not respond to a Reuters request for comment on the potential use of Section 338.
BEGGAR THY NEIGHBOR
The Trade Act of 1930 that includes Section 338 is better known for massive U.S. tariff increases and subsequent retaliation that economic historians say worsened the 1930s Great Depression.
After World War Two, countries sought to standardize global tariff rates to avoid a return of the pre-war "beggar-thy-neighbor" economic policies marked by competitive trade restrictions and currency devaluations.
The resulting mutually agreed Most Favored Nation (MFN) tariff rates formed the basis of the 1947 General Agreement on Tariffs and Trade (GATT) and its 1995 successor, the World Trade Organization.
John Veroneau, whose 2016 research helped renew interest in Section 338, said a unilateral move by Trump to impose such tariffs would effectively blow up the MFN system.
"It would be an earthquake in Geneva to announce U.S. intentions to move away from unconditional MFN and negotiate our tariff schedules on a bilateral basis," said Veroneau, a former deputy U.S. trade representative during the George W. Bush administration and a partner in the Covington & Burling law firm.
He said the Franklin Roosevelt administration had threatened to impose Section 338 tariffs in the 1930s against France, Germany, Spain and Japan, but never did so.
As communist forces consolidated control of China in 1949, a telegram from then-Secretary of State Dean Acheson mentions Section 338 as a potential remedy against Chinese "Commie commercial policy" discriminating against U.S. commerce. Acheson notes the president could exclude Chinese imports altogether.
The telegram is the last known official U.S. government reference to the law, Veroneau said.
DIFFERING RATES
It's unclear whether Trump's action will be broad or targeted to a few sectors or countries. But the core of Trump's tariff action will be aimed at bringing U.S. tariffs into line with the often higher rates of other countries.
White House economic adviser Kevin Hassett said on Monday that India's high tariffs lock out imports.
The U.S. trade-weighted average Most Favored Nation tariff rate is about 2.2%, according to World Trade Organization data, compared to 12% for India, 6.7% for Brazil, 5.1% for Vietnam and 2.7% for European Union countries.
Although the tariff rates had been agreed by U.S. administrations over time, Cannistra said he believed Trump's use of Section 338 would hold up to a legal challenge because the evolution of the tariff system is "riddled with inconsistencies" that have been negotiated by countries to protect their economic interests.
"There is no finding other than that discrimination exists, and you could find it probably in 30 seconds looking at the competing tariff schedules," Cannistra said.
In addition to differing tariffs, Nikakhtar said Trump could include countries' regulatory practices that work to exclude U.S. products as discriminating against U.S. commerce, such as import restrictions on genetically modified crops or vehicle safety or emissions standards in the EU and Japan.
(Reporting by David Lawder; Editing by Lincoln Feast.)
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