This weekend we witnessed a first-time use of Smoot-Hawley in American history: Trump actually deployed Section 338 of the Depression-era law. IMO, this is serious.
I want to thank readers for their kind words about the WSJ article and video reporting on our gathering in Maine and quickly get to the subject that requires a Sunday night quick note.
We are in a high-stakes trade war with our NORAD defense partner and closest neighboring ally, with whom we share a 3000-mile border. We started the war and just made it a lot worse. In my opinion, the risk attached to that trade war is huge. And the winner already is Putin, who sits across the Arctic with grand designs and has now enlisted North Korea’s Kim as his partner.
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I’ve excerpted key points from Canadian Prime Minister Mark Carney’s official statement. I advise readers to read all of it. Here’s the link; the excerpts follow:
We have recognized from the beginning that America has changed, and that we will not return to our old relationship. Our government understood, before many, that America is altering all its trade relationships. Putting tariffs on its closest allies and charging for access to its vast market…
At midnight tonight, the US intends to impose a 50% tariff on roughly $28 billion of Canadian goods. Canada will match those tariffs dollar for dollar to protect our workers and businesses….
I have decided to suspend trade negotiations with the US and have directed Canada’s negotiators to return to Ottawa. They have worked hard, in good faith, to defend the interests of Canadians throughout these negotiations up until the very last minute. However, last-minute changes in the US proposed terms were unfair, uneconomic, and called into question the reliability of any deal….
Carney describes how Canadian policy has changed. Then this:
We are advancing nearly $500 billion in major infrastructure projects. In parallel, we are unlocking new export markets for Canadian businesses. Our existing free trade deals already provide Canada with preferential access to 1.5 billion consumers, and we are on track to double that market access by the end of this year.
We are playing with fire, as I see it, and Trump has burned our fingers. Let me quickly demonstrate. Here’s an excerpt from a LinkedIn post, “THIS IS NOT GOING TO END WELL FOR THE UNITED STATES” by Vincentius Liong/Leong 梁国豪:
Carney spent decades in international finance, governed the Bank of Canada through the global financial crisis, governed the Bank of England through Brexit, chaired the Financial Stability Board and worked with governments and markets around the world. Now he is using that experience to change Canada’s position permanently. Canada has signed more than 20 economic and security deals across five continents in the past year, while pursuing additional agreements and partnerships across Europe, Asia, the Middle East and South America. That gives Canadian resources more potential customers, creates competition for what Canada produces, attracts investment and gives Canada greater negotiating power.
Read the full post here: https://www.linkedin.com/posts/vincentius-liong_this-is-not-going-to-end-well-for-the-united-activity-7497222456273932288-YxDJ/
Here’s American history for a century. Look for yourself. You decide if this is a good idea for our country. Donald Trump remains the only president to threaten and enforce the 50% tariffs using the Smoot-Hawley framework, but multiple modern presidents starting with Herbert Hoover have enacted other tariffs exceeding 10%.
Herbert Hoover (1930)
- 60% average duties: Signed the broad Smoot-Hawley Tariff Act into law.
- 0% used: Never threatened or used the bill’s specific 50% Section 338 retaliatory power.
Richard Nixon (1971)
- 10% surcharge: Imposed a temporary blanket import tax to protect the US dollar.
Ronald Reagan (1987)
- 100% tariffs: Enacted punitive duties on Japanese computers, televisions, and power tools.
Bill Clinton (1995)
- 100% threat: Threatened luxury Japanese auto imports before a last-minute deal was struck.
George W. Bush (2002)
- 8% to 30% tariffs: Placed temporary safeguard protections on imported international steel.
Barack Obama (2009)
- 35% duties: Levied protective trade penalties specifically on Chinese vehicle tires.
Joe Biden (2024)
- 25% duties: Maintained existing broad tariffs and raised steel, aluminum, and EV battery rates.
- 50% duties: Enacted sharp industrial protection hikes on Chinese semiconductors and solar panels.
- 100% duties: Imposed a complete blocking tariff specifically targeting Chinese electric vehicles.
Donald Trump (2018, 2025–2026)
- 15% to 25% duties: Levied steel, wood, polysilicon, and international furniture trade penalties.
- 50% Smoot-Hawley threat: Threatened Canada with Section 338 of the 1930 Smoot-Hawley law.
- 50% Smoot-Hawley enforcement: Became the first president to officially implement the 50% Smoot-Hawley tariff.
Kotok Note
I had an email exchange with some folks this morning.
I wrote:
Carney is polling only 18 pts. negative by retaliation, which is a retaliation he must do. This is our Canadian ally with a named beach next to ours at Normandy. I’ve walked it on one of my visits to all 5 beaches. It’s madness. Even Hoover realized that using the 50% tariff was a mistake, notwithstanding the fact that he asked Congress for that authority. He never used that authority. Every other president made the same decision after thinking it through. All advisers explained why not to use Section 338 in SMOOT!
The actual use of this Smoot-Hawley-era weapon is a first. You can only do something once as a first, and after that the risks shift. Trump and his tariff team have blundered. Greer may realize it but is too deep to extract from the mistakes. Bessent knows but has no choice but to defend his president’s position. Rubio gets it, too. Lutnick is failed in policy. Warsh has a huge plate. Thune knows but wants to keep the Senate majority, which these tariffs have endangered. Johnson can do nothing. We’re 10 weeks from midterms.
So, we are in the worst of the worst of the worst of a situation. Trump dropped a Hiroshima tariff and received a Nagasaki tariff response.
Carney is very smart and skilled and will do everything he thinks is right for his country. I agree with him. He acted decisively and had no other choice.
But you and I have no say in this matter. Neither do our countrymen. They are too busy being distracted by the Washington speedway and the back-lawn wrestling contests.
I got this reply:
I agree. The “Nagasaki” to be destroyed is likely Detroit. When Russia defaulted in 1998, people sought to excuse its incompetence by asserting US trade policy. Diane Swonk correctly noted that the US traded more in a day with Canada than with Russia in a year. Southern Ontario is less than a day by truck from both NYC and Chicago. My GM friends used to refer to Toronto as a suburb of GM because so much of its production [was] centered there. The links are less today, but still vital.
Dear reader, you can use a tool widely judged to be forbidden only one time to make a point. After that, Pandora’s box rules apply. Trump has dropped the Hiroshima tariff and got nothing in return. Carney responded with Nagasaki tariff because Trump gave him no choice.
The art of the deal failed miserably.
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