News of fresh 50 percent tariffs on Canadian imports has sent shockwaves through the textile and apparel sector.

Unlike previous trade actions taken by the Trump administration, which have largely skirted products covered by existing free trade agreements, the duties announced Monday will apply to product categories covered by the United States-Mexico-Canada Agreement (USMCA), expressly targeting a range of fabrics and finished clothing.

That’s cause for alarm for Kim Glas, president and CEO of the National Council of Textile Organizations, who told Sourcing Journal that USMCA-qualifying exports account for a whopping 52 percent of the goods American mills and textile makers sell beyond the domestic market. In other words, Mexico and Canada alone take in more than half of the fabrics exported by the U.S., and are the country’s two biggest customers.

“I’m already hearing from members who are who are extremely concerned—looking for secondary suppliers, figuring out what kind of impact this will have to their ultimate customer in terms of pricing,” she said. “People are just sorting this news out… but the initial response from several NCTO members who are working with Canadian suppliers or companies indicates this will have a severe harm on the industry.”

The USMCA, and the North American Free Trade Agreement before it, have facilitated the seamless cross-border exchange of parts and pieces that make up a finished product. A typical value chain for apparel made in North America might include Canadian fibers transformed into fabric by an American mill and sent to Mexico for cut-and-sew. Those goods, touched by a multitude of workers across three countries, are sold back into the U.S. market duty free.

While Glas said she believes the administration is using the tariffs as a way to “amplify” its displeasure about market access issues for American goods being sold into Canada, “our industry is caught up in this,” she said. “We’re not an individual named Trade in any of these probes for unfair competition,” like autos, dairy and alcohol, “but we’re the ones who are going to feel the impacts, and the impacts will be pretty immediate.”

With USMCA negotiations in less-than-desirable shape, the threat of tariffs may be the “leverage” needed to jumpstart serious conversations, she believes. “But will these issues be resolved in a couple of weeks?” Glas queried. “This just injects uncertainty into the market at a time when things are already uncertain, and it will have unintended consequences.”

Will these tariffs happen?

Legal minds largely surmised that the threat of duties (which won’t take effect for weeks) likely amounts to a bargaining chip—one that Trump believes will give the U.S. the upper hand in contentious USMCA talks.

“The first question is, ‘Will this ever go into play?’ Because it’s not supposed to happen until August 19, and there are going to be a lot of negotiations,” said Lizbeth Levinson, partner and co-chair of the International Trade Practice Group at Fox Rothschild LLP. “I think this is another example of Trump threatening and then not following through because he wants to get a reaction.”

Trump has a “chip on his shoulder” about the USMCA and Canada’s retaliatory stance on certain American exports that makes him eager to penalize the country, she said—and he also wants to erect new building blocks to carry out his tariff-driven trade strategy now that the International Emergency Economic Powers Act (IEEPA) duties have been rendered defunct. Adding insult to injury, the federal government is in the process of refunding the $166 billion in duties it collected under the IEEPA regime.

“Everybody’s very cognizant of the fact that the Section 122 duties are expiring this week, and he’s going to want to replace them,” she said, referring to the 10 percent global duties recently deemed unlawful by the Court of International Trade. “And we’ve all been talking about Section 301,” she said. The implementation of those duties—the result of investigations into 60 U.S. trading partners—could be announced as soon as Thursday.

There are enough balls in the air to dizzy an expert juggler. So with regard to this week’s round of tariff threats, Levinson said, “Who knows if it will actually happen. But if it does happen, textiles are one of the targets—there’s no question about that.”

It’s notable that textiles were among the products targeted by the trade action, given its scope.

“If you look at the volume of items subject to tariffs, it’s only about 5 percent of the value of U.S. imports from Canada,” Dave Townsend, partner in Dorsey & Whitney’s International Trade Group, remarked. “With that said, the tariff lists include a wide-range of products. I think part of the reason they did not exempt USMCA-qualifying goods is to more clearly signal to Canada the impact the tariffs would have.”

Asked whether he believes the purpose of the tariff action is to exert sway over USMCA talks or simply to execute a power move against a country Trump has treated with specific contempt, Josh Teitelbaum, trade and policy expert and senior counsel at Akin Gump Strauss Hauer & Feld LLP, said, “I think the answer is, ‘Why choose just one?’”

Teitelbaum said there are reasons Trump likely finds the trade statute—Section 338 of Tariff Act of 1930, known colloquially as Smoot-Hawley—appealing as a tool for this round of tariffs, whatever the motivation.

“Under the statute, he can impose a tariff of up to 50 percent and no earlier than 30 days. So, he’s imposing the tariff as high and as fast as the law allows,” he said. “The 30-day waiting period means that there will almost certainly be some activity on the part of the Canadians to try to address the underlying issues to prevent the tariffs from going into effect.”

But why not use a more surgical approach, targeting consequential categories like steel and aluminum, as the administration did with the Section 232 duties? “The products that the administration chose to tariff are not the hypersensitive ones—like autos, energy, or fertilizer—that have caused the president to step back from the brink in the past,” Teitelbaum said. “In other words, while there is no exemption for USMCA-qualifying goods, the fact that they strategically chose these products over others means this was the surgical choice.”

Because the tariffs—however high—impact such a small percentage of Canadian imports to the U.S. market, “It is almost an issue of ‘Why bother?’” said Nicole Bivens Collinson, International Trade and Government Relations Practice leader at Sandler, Travis & Rosenberg, P.A. “Combining this minimal approach with the fact that USMCA-eligible goods aren’t exempted tells me that the action is likely intended more to get Canada to the negotiating table for the USMCA reboot than as a punitive action,” she assessed.

The pressure created by looming double-digit tariffs could also help the U.S. Trade Representative move the needle on its desired amendments to the USMCA. “While the Canadians say they are working with the U.S., one could say that they are offering to discuss issues they need to discuss without making any offers, solutions or recommendations,” Collinson added, highlighting the intractability of the situation. Some “additional pressure” could prompt a resolution.

…And if they do happen, will they stick?

Many are dubious that the administration’s end game is to impose new 50 percent duties in earnest. But if they do take effect, there’s a slim-to-zero chance they’ll go unchallenged by importers.

Section 338 allows the president to impose tariffs of up to 50 percent if he finds that a country is discriminating against U.S. exports relative to the exports of other nations. It’s a never-before-used provision of the Smoot-Hawley Tariff Act, a now widely-panned piece of protectionist trade legislation credited with worsening the impacts of the Great Depression by triggering trade wars across the globe.

“Section 338 hasn’t been used as a basis for tariffs before, and it has thus not been reviewed by a court. For that reason alone, I expect challenges should Section 338 tariffs come into effect,” Townsend said.

When it comes to the durability of the legislation against legal attacks, “we frankly just don’t know because this is the first time that Section 338 has been invoked to impose a tariff since it was first passed in 1930,” Teitelbaum added.

Collinson said she believes “someone will challenge these tariffs”— “either the authority to impose them under Section 338 or under the USMCA provisions.” The USMCA guarantees free trade for covered goods, and the new tariffs are a “violation” of the trilateral trade pact that includes Canada and the U.S., Canadian Prime Minister Mark Carney emphasized this week.

The law requires that the U.S. International Trade Commission review the trade action and advise the president on its impacts, but because Section 338 has never been used, no rules or regulations have been drafted by the Treasury Department, and that is also required by law, Collinson said.

Levinson said some trade lawyers are exploring whether Smoot Hawley’s powers have been “superseded” by the Trade Act of 1962, a later trade statute which “puts more brakes on what the president could do than the 1930 law did.”

In any case, “All this will be subject to litigation,” she said with confidence.

“We sued on the Section 301 tariffs in 2018. We sued on Section 232 and we’re suing on Section 301 now, and IEEPA and Section 122,” she added. “Every trade action has been the subject of litigation, and this is just wide open for it.”