U.K. artificial intelligence cloud computing firm Nscale is looking to raise $3.5B in new financing, with Nvidia (NVDA) and hedge fund Third Point likely participating, Bloomberg reported.
Nscale could sell as much as $1.5B in convertible notes, and Third Point, which is run
WASHINGTON — In firing up a trade war with Canada, President Trump turned to a 96-year-old statute so obscure that many trade lawyers didn’t even know it was still on the books.
Trump invoked Section 338 of the Tariff Act of 1930 on Aug. 24 to slap a 50% tax on $20 billion worth of Canadian imports. The move prompted dollar-for-dollar retaliation from Ottawa and strained already-tense relations between the neighbors and longtime allies.
The president’s Section 338 tariff authority has never been used, let alone tested in court. “This law is literally a blank canvas because it’s never been litigated,’’ said Ryan Majerus, a partner at law firm King & Spalding and a former U.S. trade official.
So it’s unclear whether Trump’s latest Canada tariffs could survive a legal challenge, and some lawyers argue that the Depression-era law has been rendered obsolete by more recent trade laws.
To sanction Canada allegedly for discriminating against U.S. dairy, auto and alcoholic beverage exports this summer, the Trump administration reached back to the Great Depression.
The 1930 tariff legislation is known as the Smoot-Hawley Tariff Act after its congressional sponsors. With the U.S. and world economies in collapse, Congress raised tariffs on hundreds of imports in an attempt to protect American farmers and manufacturers.
The tariffs are notorious among economists and historians for shutting down world commerce and making the Great Depression worse. (Trump, who proudly calls himself “Tariff Man,” has a different view, arguing that the Smoot-Hawley levies simply came too late to rescue the American economy.)
In addition to raising tariffs themselves, lawmakers in 1930 gave the president new power to impose them himself: Section 338 authorizes presidential tariffs of up to 50% on imports from countries that have discriminated against U.S. businesses.
Before Trump, no president had actually used the statute.
“Until Trump’s second term, few trade lawyers were aware that Section 338 remained on the books or understood what it did,” legal scholars Peter Harrell and Jennifer Hillman of Georgetown University wrote this month in the libertarian magazine Reason.
Harrell and Hillman cite State Department records to show that the U.S. considered using Section 338 in trade disputes — against Spain in 1932 and against newly communist China in 1949 — but never did. After the Depression, U.S. policy focused more on using negotiations — rather than sanctions — to open foreign markets.
So Section 338 sat moldering in the law books.
As the years went by, the United States passed new trade laws. Some of them ceded to the president tariff power, which the Constitution originally granted to Congress. But the new laws also limited the president’s authority to certain circumstances — including dealing with national security threats and foreign currency crises — and required the government to carry out investigations and meet other procedural requirements beforehand.
“There is a very strong argument that [Section 338] was superseded,” said Sara Albrecht, chief executive of the Liberty Justice Center, a libertarian advocacy group that represented businesses that successfully challenged the earlier Trump tariffs with the Supreme Court.
If Congress wanted the president to retain Section 338 power, Albrecht asks, why did lawmakers pass the Trade Expansion Act of 1962, which allowed for national security tariffs? And the Trade Act of 1974, which gives the president power to go after other countries’ unfair trade practices?
Legal experts see other weaknesses in the Section 338 tariffs.
Harrell and Hillman, for instance, write in Reason that Section 338 authorizes only tariffs that “offset” the harm that a foreign country’s trade practices do to American companies. But in targeting Canada, they note, the Trump administration made no attempt to calculate the dollar amount of damage arising from discrimination against U.S. farmers, automakers and marketers of alcoholic beverages. And the U.S. went after Canadian imports unconnected to those trouble spots, including hockey sticks and cement.
Harrell and Hillman also say that Canada’s protection of its dairy market does not single out U.S. farmers for discrimination; the rules apply to many other Canadian trading partners as well.
Moreover, the United States agreed to the Canadian system — in which Canada imposes stiff tariffs on dairy imports that exceed a quota — in a North America trade pact Trump himself negotiated with Canada and Mexico in his first term. Harrell and Hillman write that it is “incongruous, to say the least, for the United States to denounce as discriminatory the very terms it agreed to.”
But John Veroneau, former general counsel for the U.S. Trade Representative, said the Section 338 tariffs are straightforward: They are justified when another country discriminates against U.S. imports by taxing them more than it taxes imports from other countries.
And in a “perverse irony,” Veroneau said, Canada did just that when it responded to tariffs Trump imposed on Canadian products last year with its own retaliatory tariffs on U.S. imports. “Courts will rightly feel obliged in the face of any challenge [to decide]: Are the statutory requirements met or are they not met, however ludicrous the broader context might be,” said Veroneau, adjunct professor at the University of Maine School of Law.
Trump’s other tools to impose his protectionist agenda already have floundered in court. The Supreme Court in February threw out his boldest gambit: invoking a 1977 national security law to hit almost every country on Earth last year with double-digit tariffs.
When Trump tried to replace the revenue lost to the Supreme Court defeat with a new set of tariffs, a specialized trade court in New York rejected those too — though the government was allowed to continue collecting the import taxes while the case works its way through the court system.
No one has filed a lawsuit challenging the Section 338 tariffs. The Liberty Justice Center has been looking for businesses willing to sue the government over the levies.
“I haven’t had a lot of response from plaintiffs,” Albrecht said. “Anytime you want to sue the government, it’s a hard proposition.” The Section 338 tariffs on Canada are also far smaller — just 5% of Canadian imports — than Trump’s 2025 worldwide tariffs, meaning that fewer companies have to pay them and can claim to have been injured by them.
There’s also a chance, Albrecht said, that the two countries will resume the talks they broke off Aug. 21 and reach a compromise to end a standoff neither country wants. “I’m hopeful that somebody blinks, that they come to some agreement and it all goes away,” she said.
SACRAMENTO — Legislative leaders are drafting a complicated scheme to help close the state’s massive deficit by raiding funds voters have set aside for transportation and local government services, Gov. Arnold Schwarzenegger said Thursday, adding that it probably would force a state sales tax hike.
“It is not a good idea,” the governor said in an interview with The Times. But Schwarzenegger, anxious to get a budget passed before the state experiences a cash crisis, did not rule out signing off on such a plan.
During the half-hour interview in his office, the governor offered a broad outline of the proposal being discussed in closed-door budget negotiations. Schwarzenegger, who seemed exasperated by his inability to fix California’s fiscal dysfunction five years into his governorship, cited the borrowing plans to bolster his point that the state’s budget system was in need of reform.
The proposal is being considered as part of a possible compromise between Democrats seeking to close the deficit with $5.6 billion in income tax hikes on the rich and Republicans vowing to block any new taxes.
The legislative plan would balance the state budget with the help of $1.1 billion voters set aside for transportation projects and at least $1.4 billion earmarked for local governments under Proposition 1A, which was approved in 2004, Schwarzenegger said. State law requires that the money be paid back — at a steep interest rate — in three years.
In order to ensure that the money is repaid, “I literally would have to guarantee that with a sales tax or something,” Schwarzenegger said. “Where [else] do we get the revenues that someone can be saying so freely we can pay back this $2.5 billion we are borrowing?”
Officials involved in the confidential budget negotiations, who agreed to speak on condition of anonymity, said lawmakers also were looking to borrow $200 million voters set aside for early childhood education programs through 1998’s Proposition 10.
Local officials and advocates for the programs expressed alarm at the proposal to raid their funds. They accused legislative leaders of ignoring the will of voters, who approved the measures to prevent the state from touching the money in question.
“The money they would take is going to fund a huge amount of projects,” said Jim Earp, executive director of the California Alliance for Jobs, a construction trades group. “It would be a complete violation of the spirit of Proposition 1A.”
Earp said transportation advocates were mobilizing a campaign against the plan. He said direct mail would urge lawmakers to vote against it if it is included in the final budget deal.
In Los Angeles County, the proposal would force further cuts in healthcare and human services, and probably affect other programs, said county Chief Executive Officer William T Fujioka. He said the county would lose as much as $145 million this year.
“The human and social impact would be significant,” he said.
Schwarzenegger expressed frustration that California may once again return to borrowing. He argued that if the state were to impose some spending restraints — or at least require lawmakers to build substantial rainy-day funds — the perpetual budget crises would stop.
“It is a self-inflicted situation we are in,” Schwarzenegger said. “We know what the problem is, and we know this is the only way it can be fixed, but we are unwilling to do it.”
For the third time this year, the governor is trying to make changes in the state Constitution that would require that money be put aside in good economic times. His first attempt, in 2004, was watered down by the Legislature, ultimately resulting in a weak reserve that was quickly wiped out when the state’s revenue began to slow. That was followed by a ballot proposal that Democrats and labor groups warned would strangle government; it was defeated by voters in 2005.
“There was $100 million spent against it” and other unsuccessful ballot measures Schwarzenegger championed that year, he said, “because God forbid we should fix something.”
Democrats say it is the governor who is exacerbating the state’s financial problems, by refusing to recognize that California needs more revenue to provide the services polls show voters want. Schwarzenegger’s first action in office was to cut vehicle license fees, a move that is now costing the state as much as $6 billion. Democrats say the state needs that money, and that imposing spending restraints without replacing it would ultimately reduce government services substantially.
The standoff has allowed California’s fiscal problems to grow under the governor’s watch, even as other states have implemented reforms. In a recent ranking by the nonprofit Pew Center on the States, California’s budget system received a D-plus, the lowest grade given any state.
Schwarzenegger’s role in the budget process has been limited this year. Lawmakers complain he is often out of state boosting his national profile.
But the governor says he has met his deadlines for presenting budget plans, and that his attempts to get lawmakers to work on the problem throughout the year were rebuffed.
Schwarzenegger twice during the interview mentioned how Senate Leader Don Perata publicly implied that the governor should butt out of budget deliberations, saying that if he wanted to be involved, he should run for the Legislature.
“I kept saying all spring, ‘Guys, don’t wait until the last minute,’ ” Schwarzenegger said. “Then Perata makes his statement that ‘He shouldn’t be telling us what to do.’ We don’t have the luxury to improvise this year. We are running out of cash.”
The delay in dealing with the budget problem, the governor said, ultimately spilled over into other business at the Capitol, making it impossible to achieve anything of substance.
Schwarzenegger said he ranks the bills the Legislature sends to his desk into weight categories, a nod to his days as a bodybuilder. This year, he said, there is “very rarely a heavyweight bill.”
“We can’t move the state forward because everyone gets frozen,” he said.
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