Overview
On July 20, 2026, President Trump issued three tariff actions to impose 50% ad valorem tariffs on a wide range of imports from Canada to "hold Canada accountable for its retaliation and discrimination" in the motor vehicle, alcoholic beverage, and dairy sectors. These tariffs are currently set to take effect on August 19, 2026.
These tariffs were announced pursuant to Section 338 of the Tariff Act of 1930 (Section 338), a long-standing statute that directs the President to impose tariffs on imports from foreign countries that "discriminates in fact against the commerce of the United States…in such manner as to place the commerce of the United States at a disadvantage compared with the commerce of any foreign country." Since its enactment in 1930, this provision has never been cited as an authority to impose tariffs.
Given the focus and the delayed timing for these tariff announcements, this action has been widely perceived as an attempt to generate leverage in ongoing US-Canada trade talks. Most prominently, US discussions with Mexico on the US-Mexico-Canada Agreement (USMCA) review have far outpaced corresponding bilateral dialogue with Canada this year, and US officials have consistently raised more concerns regarding Canada's trade approach.
The US has long argued that Canada's dairy supply management system unfairly limits US exports, and USMCA automotive sector rules of origin requirements are a US focus in the USMCA review discussions. Further, Canada retaliated against the motor vehicle and alcoholic beverage sectors last year by imposing a tariff on US-made autos and restricting sales of alcoholic beverages from the United States in many provinces in response to US tariff actions against Canada.
In the days following the Section 338 tariff announcement, Canadian Prime Minister Mark Carney has said Canada will increase its engagement with the United States. It is possible the two governments will reach a deal to prevent these tariffs from taking effect in exchange for resolving US concerns with Canada's policies in the covered sectors.
Scope and Details
Section 338 calls for the United States International Trade Commission (USITC) to monitor relevant discrimination against the commerce of the United States and to inform the President of such discrimination, but does not explicitly require USITC or any other agency to conduct a formal investigation before tariffs are issued. No USITC investigation was completed in the Canada tariff actions. This approach differs from Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962, which have been used to issue a wide range of tariffs in recent years following lengthy investigations by USTR or the Department of Commerce.
Section 338 also requires that any duties imposed be determined to "offset such burden or disadvantage" and cannot "exceed 50 per centum ad valorem or its equivalent." This may be the reason why these proclamations were more targeted in scope than many of the other tariff actions imposed by the Trump administration, including those imposed under IEEPA, Section 122, and Section 301.
The dairy and alcoholic beverage actions, for example, largely focus the new tariffs on imports of those same products. The motor vehicle action is more varied and not focused on motor vehicle imports directly – with proposed tariffs covering lumber and furniture products, certain electrical components and equipment, and various agricultural products – but it still exempts the vast majority of imports from Canada.
Unlike the prior IEEPA and Section 122 tariff actions, these Section 338 tariffs will be applied even on USMCA-compliant products. These tariffs will stack on top of Section 301 and AD/CVD duties, but not Section 232 duties. Covered imports from Canada are already subject to the 10% Section 301 forced labor tariff that took effect July 24, 2026.
Potential Legal Challenge
Given the untested use of Section 338 to impose tariffs previously, legal challenges against the new tariffs are expected if they are in fact implemented in the coming weeks. These challenges could focus on issues such as the legality of Section 338 to impose tariffs generally; the fact that the tariff action was announced without an investigation, unlike other tariff actions; or whether the remedy appropriately offsets the corresponding discrimination to US commerce.
Looking Ahead
Steptoe's International Trade team is closely monitoring ongoing Section 338, broader tariff developments, and USMCA review negotiations. If you need support evaluating what these developments mean for your business, our team is ready to help.
