The United States has imposed additional 50% duties on certain Canadian-origin imports pursuant to Section 338 of the Tariff Act of 1930, marking the first use of a rarely invoked authority in decades. The duties, which took effect on imported certain Canadian products entered or withdrawn from warehouse for consumption beginning at 12.01am Eastern Time on August 22, 2026 following a brief three-day suspension, target a broad range of Canadian products in response to alleged Canadian discrimination against U.S. commerce in the dairy, alcoholic beverage, and motor vehicle sectors.
Canada has since announced retaliatory measures on CAD 28 billion (approximately US$20 billion) of U.S. goods. In apparent response, on the morning of August 24, 2026, President Trump threatened, via social media, to levy a 50% tariff on Canadian automobiles, vehicle components, and steel, effective January 1, 2027.
Importers, exporters, and businesses with integrated U.S.-Canada supply chains should assess whether their products are covered by the new measures, evaluate duty exposure, and consider supply chain, sourcing, and contractual strategies to mitigate increased costs.
Background
On July 20, 2026, President Trump issued three proclamations invoking Section 338 of the Tariff Act of 1930 to address what the Administration characterized as discriminatory Canadian measures affecting U.S. commerce in the dairy, alcoholic beverage, and motor vehicle sectors. Section 338 authorizes the President to impose duties of up to 50% on products from countries that discriminate against U.S. commerce or impose unreasonable restrictions not equally applied to other countries.
The Administration alleged that:
- Canada’s administration of dairy tariff-rate quotas under the USMCA provides less favorable treatment to U.S. producers than to European suppliers under the Canada-EU Comprehensive Economic and Trade Agreement (CETA).
- Canadian provincial restrictions on the sale and distribution of U.S. alcoholic beverages discriminate against U.S. products.
- Canada’s tariffs on certain U.S. vehicles and related automotive measures disadvantage U.S. commerce.
Although Section 338 has remained on the books for decades, it had not previously been used as a basis for imposing tariffs. In this context, the absence of a formal USMCA / CUSMA renegotiation has opened the door to tariff authorities being used for leverage in bilateral discussions. This novel and untested statutory foundation for the new tariffs may attract legal challenges.
The duties were originally scheduled to take effect at 12.01 am Eastern Time on August 19, 2026. On August 18, President Trump issued a proclamation temporarily suspending the tariffs for three days while negotiations continued between the United States and Canada. The suspension delayed implementation until 12:01 a.m. Eastern Time on August 22, 2026, with the duties becoming effective once the suspension lapsed.
Scope of the New Duties
The Section 338 duties impose an additional 50% ad valorem tariff on covered Canadian-origin imports. The duties stack with any otherwise applicable customs duties, taxes, or fees.
While the proclamations were prompted by disputes involving the dairy, alcohol, and automotive sectors, the tariffs extend well beyond these three areas. The duties apply to a wide range of products, including furniture and household goods, wood products, packaging and paper products, textiles and apparel, telecommunications and wireless equipment, optical devices, cosmetics and fragrances, machinery and industrial equipment, jewelry, toys and sporting goods, and numerous dairy and food-related products identified in the annexes to the proclamations.
The tariffs also apply regardless of whether a product qualifies for preferential treatment under the USMCA. Consequently, products that would otherwise enter duty-free under the agreement may nevertheless be subject to the additional Section 338 duties if they fall within the covered tariff classifications.
Key Exclusions
Several important categories of goods remain exempt from the Section 338 measures. The proclamations generally exclude products already subject to Section 232 duties, such as certain steel, aluminum, automotive, and related products. They also exclude qualifying civil aircraft and many products covered by the WTO Agreement on Trade in Civil Aircraft. Additionally, the Administration has indicated that key Canadian exports such as energy products, potash, fish, critical minerals, and certain other strategically important commodities are not subject to the new duties.
Canada’s Response
Canada has announced plans to impose countermeasures targeting approximately US$20 billion of U.S. exports beginning September 8, 2026. Canadian officials have stated that the response is intended to mirror the economic impact of the U.S. measures. According to statements by Prime Minister Mark Carney, the retaliatory measures are expected to cover U.S. steel, dairy products, appliances, agricultural equipment, electronics, and pulp and paper products, among other goods. Additional details are expected to be released shortly by Canadian authorities.
Practical Considerations
Companies engaged in cross-border U.S.-Canada trade should consider taking immediate steps to mitigate potential exposure.
Confirm tariff coverage. Businesses should review tariff classifications and compare imported products against the annexes to the relevant proclamations to determine whether goods are subject to the Section 338 measures.
Reassess origin determinations. Because the duties apply to Canadian-origin products rather than solely to Canadian exports, origin analyses may become increasingly important for companies with complex North American supply chains.
Model cost impacts. Importers should quantify the potential duty burden associated with the additional 50% tariff and assess the impact on pricing, margins, customer contracts, and commercial arrangements.
Evaluate supply chain alternatives. Businesses may wish to consider sourcing diversification, inventory management strategies, and alternative production arrangements.
Monitor further developments. Section 338 expressly authorizes the President to suspend, amend, or revoke actions imposed under the statute. Given the fluid state of U.S.-Canada negotiations and the recent temporary suspension of the duties, additional changes remain possible, even likely. Companies should consider shipment timing where goods can be scheduled for a later date, particularly if the tariffs may be reduced in the near term.
Looking Ahead
The Section 338 duties represent a significant escalation in U.S.-Canada trade relations and introduce a new chapter of uncertainty for North American supply chains. Although the tariffs currently affect only a subset of bilateral trade, they are notable both for their magnitude and for the Administration’s reliance on a statutory authority that had never previously been used to impose tariffs.
Given the fluid state of bilateral trade discussions and the possibility of additional government action on either side of the border, the Baker McKenzie trade and customs team will continue to monitor future policy changes, negotiations, and litigation to evaluate their impact on import and sourcing strategies.
