Trump administration imposes 50% tariffs on certain Canadian products in first use of Section 338

On July 20, 2026, President Trump issued three proclamations imposing 50% tariffs on certain imports from Canada under Section 338 of the Tariff Act of 1930, marking the first time any US president has invoked this authority. The tariffs will enter into effect for goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern time on August 19, 2026. Taken together, the three proclamations cover approximately US$20 billion worth of US imports from Canada in both 2024 and 2025, or approximately 5% of the value of all goods imported from Canada.¹

Each proclamation is based on separate findings that Canada discriminates against US commerce in favor of other trading partners: (i) by granting EU dairy exporters more favorable access to Canadian cheese import quotas than is afforded to US exporters; (ii) by imposing retaliatory tariffs exclusively on US motor vehicles while leaving imports from all other countries unaffected; and (iii) by permitting Canadian provinces and territories to boycott US alcoholic beverages without applying equivalent restrictions to any other country. Section 338 empowers the President to impose additional duties of up to 50% to offset such discrimination; the provision has no implementing regulations and there is no record of any previous president using it to impose a tariff, making its use legally novel.

Scope of the three proclamations

While structurally identical and implemented through the same set of amendments to the Harmonized Tariff Schedule of the United States (HTSUS), the three proclamations cover different sets of products:

Dairy proclamation: The proclamation "Imposing Additional Duties to Offset Canadian Discrimination Against the Commerce of the United States with Respect to Dairy" imposes a 50% additional tariff on 52 HTSUS subheadings covering various dairy products and certain other agricultural products. In 2024, the United States imported $97.2 million worth of goods under these classifications from Canada.

Motor vehicles proclamation: The proclamation "Imposing Additional Duties to Offset Canadian Discrimination Against the Commerce of the United States with Respect to Motor Vehicles" imposes a 50% additional tariff on 439 HTSUS subheadings covering a wide variety of agricultural and manufactured products. In 2024, the United States imported $19.3 billion worth of goods under these classifications from Canada.

Alcoholic beverages proclamation: The proclamation "Imposing Additional Duties to Offset Canadian Discrimination Against the Commerce of the United States with Respect to Alcoholic Beverages" imposes a 50% additional tariff on 63 HTSUS subheadings covering a variety of alcohol products, certain wood and paper products, and hockey equipment. In 2024, the United States imported $1 billion worth of goods under these classifications from Canada.

Section 338 of the Tariff Act of 1930

Section 338 of the Tariff Act of 1930 (19 U.S.C. §1338) empowers the President to establish new tariffs on imports produced by (or imported on vessels of) a country that discriminates against or unequally imposes duties or regulations on US goods relative to goods of other countries, in order to offset the resulting burden or disadvantage to US trade. Although it is conceptually similar to the World Trade Organization's Most-Favored-Nation (MFN) principle, Section 338 predates the General Agreement on Tariffs and Trade (GATT), uses broader language, and does not include an exception for preferential trade agreements.

Any tariff imposed under Section 338 should "offset such burden or disadvantage" placed upon US commerce (as the President determines) and cannot exceed 50% ad valorem (or its equivalent). The President may also impose the tariff on industries of third countries that benefited from the identified discrimination. Tariffs imposed under a Section 338 proclamation take effect 30 days after the date of the proclamation.

No US president has ever previously imposed a tariff under Section 338. Part of the Smoot-Hawley Tariff Act of 1930, the provision has been largely unused for nearly a century. Reports from the US Tariff Commission (now the International Trade Commission (ITC)) in the 1930s and early 1940s reference activities related to monitoring discriminatory foreign trade practices under Section 338 authorities, but the US Government appears to have used the threat of Section 338 tariffs only to obtain leverage in market access negotiations, and the provision fell out of use by the 1950s. There are no implementing regulations in the Code of Federal Regulations (CFR) describing how actions based on Section 338 should be carried out and, due to its lack of use, there are no judicial precedents to help guide interpretation of the law.

Basis for invoking Section 338 in the three proclamations

Following the procedures in Section 338, the three proclamations each identify a trade concern for which the Trump administration alleges that Canada discriminates against the United States relative to Canada's treatment of trade from other countries, and then set a retaliation amount intended to offset the harm caused by Canada's alleged discrimination:

• Dairy proclamation: This proclamation alleges that the dairy tariff-rate quotas (TRQs) negotiated by the European Union with Canada under the Canada-EU Comprehensive Economic and Trade Agreement (CETA) provide more favorable market access than the dairy TRQs negotiated by the Trump administration under the United States – Mexico – Canada Agreement (USMCA), and that this differential treatment constitutes discrimination within the meaning of Section 338. It highlights that Canada's USMCA TRQ for cheese of all types does not allow retailers to obtain and use quota quantities, while the corresponding quota under the CETA does grant retailers such access.
• Motor vehicles proclamation: This proclamation alleges that Canada's United States Surtax Order (Motor Vehicles 2025), widely understood to have been imposed in response to the Trump administration's Section 232 tariffs on Canadian-made vehicles and auto parts, discriminates against US automotive exports. It allegedly does so by imposing a 25% tariff applicable exclusively to US-origin motor vehicles while leaving imports from all other countries unaffected. The proclamation notes that US motor vehicle exports to Canada fell approximately 22% following implementation (from approximately $25.9 billion to approximately $20.3 billion, comparing April 2025-March 2026 to the same period in 2024-2025), while imports from Mexico, Japan, South Korea, and Germany increased to fill the gap.
• Alcoholic beverages proclamation: This proclamation alleges that provincial-level boycotts of US alcohol launched in March 2025, widely understood to have been imposed in response to the Trump administration's tariffs and broader trade and sovereignty threats, discriminate against US alcohol exports. The discrimination allegedly arises because the Canadian provinces did not similarly apply the boycotts to alcohol from all other trading partners. The proclamation notes that US alcohol exports to Canada fell approximately 81% following implementation of the boycotts, while alcohol exports from other countries to Canada increased by approximately $170 million over the same period, with those gains largely filling the void left by US products.

Exemptions and tariff stacking

Products already covered by Section 232 tariffs are exempt from the Section 338 tariffs, as are certain civil aircraft and parts of civil aircraft (excluding unmanned aircraft).² There are 28 HTSUS subheadings on the motor vehicles tariff list that would qualify for the civil aircraft exception if they are intended for use in civil aircraft. No products on any of the three tariff lists appear to be covered by Section 232 actions. Despite their limited practical use, including these exemptions may be intended to signal that any future Section 338 tariffs issued by the Trump administration would also exclude products covered by Section 232 tariffs and civil aircraft, similar to the current Section 122 tariff and recent Section 301 tariffs. Similarly, the Trump administration has stated that the tariffs will not apply to "energy, potash . . . and certain other goods, such as fish or critical minerals."

The tariffs are in addition to any other duties, taxes, fees, exactions, and charges applicable to such products. They would therefore stack with any applicable tariffs imposed under Sections 301 and 122, as well as any other generally applicable tariffs and fees (absent explicit instructions to the contrary). Qualifying for preferential treatment under USMCA does not exempt goods from the 50% tariff.

Conclusion

The three Section 338 proclamations represent a significant and legally unprecedented escalation of the Trump administration's trade actions against Canada, with broad implications for importers and exporters across the affected sectors. For trade in North America, the tariff raises questions about the durability of USMCA as the United States, Canada, and Mexico enter a new phase of negotiations about the future of the agreement. A broader question for US trade policy is whether the Trump administration is using this action as a trial for the untested law because, if it survives legal challenge, Section 338 could provide a faster way to reestablish the Trump administration's reciprocal tariff policy than Section 301 has offered.

For further information regarding this report or international trade matters, please contact any of the partners or senior attorneys listed below from White & Case’s Global International Trade Practice.

_{1 All data compiled using the US International Trade Commission's DataWeb from US Census Bureau data, imports for consumption, accessed July 20, 2026.
2 The technical details for the Section 232 products and civil aircraft products exceptions are included only in the HTSUS modifications in Annex II of the alcoholic beverages proclamation. Rather than including duplicate language in the motor vehicles and dairy proclamations, the motor vehicles and dairy proclamations’ Annex II HTSUS provisions are instead amendments to the HTSUS modifications in Annex II of the alcoholic beverages proclamation. As a result, all three tariffs will be within a single set of subdivisions in US Note 51, Subchapter III, Chapter 99 of the HTSUS.}

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