Fifty Percent Section 338 Tariffs on Many Canadian Goods Effective August 22
On Saturday, August 22, 50% tariffs imposed under Section 338 of the Tariff Act of 1930, 19 U.S.C. § 1338, on approximately $20 billion of Canadian goods imported annually took effect after negotiations between the United States and Canada to stave them off collapsed on Friday evening. President Trump ordered these tariffs in July in response to alleged Canadian discrimination against U.S. goods, while the United States also last month refused to renew the United States-Mexico-Canada Agreement (USMCA), which has facilitated free trade among the three nations since its predecessor came into force over 30 years ago. Canadian Prime Minister Mark Carney has scheduled retaliatory tariffs on an equivalent value of U.S. goods to commence after Labor Day.
New Section 338 Tariffs on Canada
Section 338 permits the president to proclaim, effective no sooner than 30 days later, a tariff of up to 50% on imports of a foreign country to offset "any burden or disadvantage" found to be placed "upon the commerce of the United States" through "unequal impositions or discriminations" compared to the commerce of other countries. As we have discussed, Congress extends many tariff authorities to the president to tackle various circumstances: Section 122 of the Trade Act of 1974 for balance-of-payments deficits, Section 201 for domestic injury from import surges, Section 301 for unfair trade practices, and Section 232 of the Trade Expansion Act of 1962 for national security threats. President Trump has invoked all of these statutes during his tenure—as well as, unsuccessfully, the International Emergency Economic Powers Act (IEEPA)—and in turning to Section 338 the president has now officially ordered the whole menu.
Canada, the United States' second-largest trading partner by export volume, has been a focus of the president's trade war since the beginning of his second term; it was one of the first countries whose goods were subject to IEEPA tariffs, in response to its government's purported failure to stem the flow of illegal drugs, and has been hit hard by Section 232 tariffs on steel, aluminum, auto parts, and lumber. Unlike many other partners that chose to negotiate with the Trump Administration, Canada has retaliated in various forms, explained U.S. Trade Representative (USTR) Jamieson Greer, and like Section 122, Section 338 is understood to require no precedent administrative investigation, making it a flexible tool in the president's belt.
On July 20, the president issued three proclamations, each imposing maximum Section 338 tariffs on approximately $20 billion of Canadian goods effective August 19 to offset the alleged burdens and disadvantages resulting from Canadian discrimination with respect to the alcoholic beverage, dairy, and motor vehicle industries. The White House fact sheet states that these tariffs will "hold Canada accountable for its continued discrimination against and unreasonable and unequal treatment of U.S. commerce" and deliver on the president's promise to "secure better outcomes for American workers, farmers, and businesses by using tariffs to restore reciprocity to trade and strengthen our national security."
First, in Proclamation 11046, the president finds that "Canada unreasonably burdens and disadvantages U.S. alcoholic beverages but not alcoholic beverages of other countries" in that most Canadian provinces have since early 2025 restricted "the purchase, distribution, or retailing of U.S. alcoholic beverages," causing U.S. exports to Canada to decline dramatically while exports from other countries rose. Next, Proclamation 11047 explains that "Canada denies the commerce of the United States benefits that Canada affords to materially similar dairy commerce from certain other foreign countries" through more restrictive eligibility criteria for the USMCA tariff-rate quota (TRQ) on cheeses of all types than for the same European Union TRQ, which "impedes market access into Canada" for U.S. businesses compared with EU businesses. Lastly, Proclamation 11048 states that in April 2025 "Canada imposed a tariff system on only U.S. motor vehicles and treats the commerce of foreign countries more favorably than commerce of the United States with respect to motor vehicles" by applying a 25% tariff to non-USMCA-qualifying U.S. motor vehicles or the value of U.S. content for USMCA-qualifying motor vehicles, as well as a TRQ for USMCA-qualifying motor vehicles, again causing U.S. exports to Canada to fall sharply while imports from other countries rose.
The products subject to these proclamations fall under 554 eight-digit provisions of the Harmonized Tariff Schedule of the United States (HTS) and target marquee Canadian export sectors such as alcohol, ice hockey equipment, maple syrup, plywood, and dairy. Exempted from the tariffs are goods subject to Section 232 tariffs and civil aircraft and their parts, but this time USMCA-qualifying goods will not be exempted, and there is no in-transit provision. As in the past, subject products admitted into a U.S. foreign-trade zone (FTZ) but not eligible for "domestic status" must be admitted as "privileged foreign status."
On August 18, Proclamation 11056 extended the implementation date by three days, but without further order from the president after negotiations broke down with no plans to reconvene, the 50% tariffs were triggered at 12:01 a.m. ET Saturday morning, August 22. U.S. Customs and Border Protection's guidance confirms that these duties are eligible for drawback, may be avoided using appropriate HTS Chapter 98 provisions, and are to be stacked upon Section 301 and other applicable duties. No litigation challenging these tariffs has been filed so far. However, considering that President Trump became the first chief executive to use Section 338 to impose tariffs (like with IEEPA and Section 122) despite its presence on the books for nearly 100 years, it would again be a matter of first impression.
But that's not the end of the story. On Tuesday, Canada announced its own "countermeasures," including tariffs imposed under Section 53(2) of Canada's Customs Tariff act effective September 8, with an in-transit exemption, on an equivalent value of U.S. goods that match both certain Section 338 and Section 232 tariffs "dollar for dollar, rate for rate." The list of 874 products to be taxed at or to have rates increased to 15%, 25%, or 50% focuses on the steel and aluminum, household appliances, dairy, seafood, agricultural equipment, pulp and paper, and electronics sectors, and includes politically sensitive goods like Kentucky bourbon. In response, the United States is reportedly mulling further action, which could subject more products to the tariffs or result in full product exclusions, explicitly permitted by Section 338(b) and (c).
U.S. Refusal to Renew the USMCA
Important context for the deepening trade spat between the United States and Canada is the first mandatory review of the USMCA, the trilateral free trade agreement also including Mexico, the largest importer of U.S. goods, that succeeded the 1994 North American Free Trade Agreement (NAFTA) on July 1, 2020, during the first Trump Administration. The USMCA provides preferential, duty-free treatment for originating goods of the three countries based on a negotiated set of rules of origin (ROOs) and has been used as the basis to exempt compliant imports from many of the recent additional U.S. tariffs—but not the Section 338 tariffs discussed above.
Pursuant to Article 34.7, the USMCA terminates after 16 years unless all parties agree to renew the deal during a joint review. A joint review must occur every six years unless a party declines to renew, in which case the review must occur annually until renewal is agreed upon. A party may also withdraw early with six months' notice under Article 34.6. The first USMCA joint review took place on July 1, 2026, after many rounds of intergovernmental negotiations, primarily with Mexico, and public input solicited by the USTR.
That day, Ambassador Greer declined to renew the agreement, triggering annual reviews and exacerbating both tensions among the parties and uncertainty for businesses with North American supply chains. While there has been no serious discussion reported of withdrawing from the agreement, the Administration has stated that it intends to continue to renegotiate it, especially regarding ROOs, regional content requirements for automobiles, the U.S. trade deficit—and many other issues that led to the Section 338 tariffs. Look for a Federal Register notice from the USTR soliciting public input for the 2027 joint review to be published within the next few weeks.
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DWT's international trade, investment & national security team can assist importers in navigating the new Section 338 tariffs and in participating in the next USMCA joint review. Please contact the authors if you have any questions or need assistance. For more insights, sign up for our alerts.