A New Tariff on Canada: What Importers Need to Know About Section 338

The White House just reached for a trade authority that has sat unused for nearly a century. On July 20, 2026, the administration signed three proclamations placing a 50% tariff on a wide range of Canadian goods under Section 338 of the Tariff Act of 1930. The tariffs take effect on August 19, 2026, which gives importers a 30-day window to figure out their exposure and plan around it.

If you move goods across the northern border, here's what changed and what you can do about it.

What Section 338 actually is

Section 338 lets the President of the United States impose duties of up to 50% on countries that "discriminate" against U.S. products. Unlike Section 301 or Section 232, it doesn't require a formal investigation first. The president needs only to find that another country has treated U.S. commerce unfairly, and Customs and Border Protection (CBP) can then collect the duties or seize the covered goods.

The provision has never been used before, which makes this the first real test of how it works in practice. It has drawn attention as a possible replacement for tariffs previously issued under the International Emergency Economic Powers Act (IEEPA), because the legal rationale reads similarly, the president can adjust it quickly, and it carries no expiration date. That also means it isn't bulletproof. To hold up, the government has to show a real barrier facing U.S. goods entering Canada, or evidence that Canada treats American products worse than everyone else's. Trade attorneys will have plenty to work with, so expect challenges.

The three proclamations

The administration split the action into three batches, each covering a different set of products. The headline, though: none of these tariffs are waived for goods that qualify under the United States-Mexico-Canada Agreement (USMCA). USMCA originating goods are not exempted from these tariffs, though there may be other reductions from other tariff measures.

"Motor Vehicles" (Harmonized Tariff Schedule, or HTS, code 9903.03.14). Despite the name, this proclamation doesn't tax cars. Its Annex I covers honey, plants, wood, lumber and plywood, textiles, some apparel, tools, consumer goods, furniture, and sporting goods. Everything on the list gets 50% unless it's already subject to Section 232 duties. The existing USMCA carve-outs for autos and auto parts under Section 232 appear to stay in place, though the exact treatment of "subject to" goods may not be fully clear until CBP publishes guidance.

Dairy (HTS 9903.03.13). This one reads as fairly direct retaliation: milk, butter, cream, whey, and other milk derivatives, plus molasses. Hops made the list too, which reaches into beer production.

Alcoholic beverages (HTS 9903.03.12). Beer, wine, spirits, and bitters of Canadian origin all draw the 50% rate, and hockey skates are named specifically. Notably, this list preserves the usual exemptions, including Chapter 98 provisions, personal effects, and civil aircraft, which the "Motor Vehicles" list does not.

What's not covered

The tariffs leave several categories untouched. Energy, potash, fish, and critical minerals are excluded, as are goods already subject to Section 232 tariffs. If your Canadian sourcing sits mostly in those buckets, the direct impact may be limited. For importers of wine, spirits, dairy, lumber, furniture, and consumer goods, the exposure is real and it lands in about a month.

What to do with your 30 days

A month is tight, but it's enough time to move deliberately rather than react. A few priorities are worth tackling now.

Start with classification. The difference between a 50% duty and no additional duty often comes down to the exact HTS code and whether a good is "subject to" an existing Section 232 measure. Getting that right, with documentation to back it up, is the foundation for everything else.

Map your exposure next. Pull your Canadian-origin volume by product and match it against the three annexes so you know which lanes and SKUs are affected and by how much. From there you can weigh options: adjusting sourcing, timing shipments ahead of August 19, or exploring duty mitigation programs where they apply.

Trade policy will keep moving, and Section 338 may not be the last new tool to come off the shelf. The importers who come through it in good shape will be the ones who understand their exposure early and build a plan they can adjust as the picture changes.

Not sure how these tariffs hit your bottom line? Flexport's trade advisory team can walk through your specific exposure and what to do about it. Want the bigger picture first? Join our Tariff Trends 2026 webinar. Our panel breaks down the latest tariff updates and what they mean for your shipments.