What the New Section 338 Tariffs on Canada Actually Cover

On July 20, 2026, President Trump signed three proclamations under Section 338 of the Tariff Act of 1930, each imposing an additional 50% ad valorem duty on a category of Canadian-origin goods. The three proclamations address dairy, alcoholic beverages, and motor vehicles respectively, each citing a specific Canadian trade practice. All three take effect at 12:01 a.m. ET on August 19, 2026, thirty days after signing.

Coverage of this announcement has tended to center on the three named categories. The product lists in each proclamation extend further than that, USMCA does not provide an exemption, and there is a procedural detail for Foreign Trade Zone users worth noting. This post covers the scope, the exclusions, how Section 338 differs from other tariff tools used this year, and what to check before the effective date.

About Section 338

Section 338 authorizes the president to impose additional duties, up to 50%, on goods from a country found to discriminate against US commerce. This is among the first substantial modern uses of the provision, which dates to 1930.

One difference from other 2026 tariff actions is duration. Section 122, the global surcharge that expired by statute on July 24, carried a fixed 150-day limit written into the law. Section 338 has no comparable limit. These tariffs remain in place until the administration acts to modify or end them.

The stated basis for each proclamation

The dairy proclamation responds to Canada's tariff-rate quota system for dairy products. According to the White House's accompanying fact sheet, Canada's quotas on US cheese are more restrictive than the quotas it applies to similar cheese imports from the EU, despite having trade agreements with both the US and the EU.

The alcohol proclamation responds to Canadian provincial restrictions on US alcohol sales that followed the 2025 IEEPA tariffs, when most provinces removed US liquor from retail shelves. The White House states Canadian imports of US alcoholic beverages fell about 81%, or $582 million, from March 2025 through February 2026 compared with the prior year.

The motor vehicles proclamation responds to a 25% Canadian tariff on US-made vehicles that do not qualify for USMCA preferential treatment, along with limits Canada has placed on vehicle exports from companies restructuring production.

Scope beyond the headline categories

Each proclamation includes its own Annex II identifying the HTSUS classifications covered, and none of the three lists is limited to its headline sector. The motor vehicles proclamation's annex, for example, spans a wide range of tariff schedule sections beyond vehicle codes. Reporting on the full annexes has identified products including hockey sticks and equipment, plywood, cement, furniture, fishing rods, seeds, clothing, and swimming pools, in addition to the expected dairy, alcohol, and automotive lines.

USTR estimates total exposure at nearly $20 billion, roughly 5.2% of the $382 billion in goods the US imported from Canada in 2025.

It is worth reviewing your full Canadian import catalog against all three annexes, since a product line outside the obvious category, for example furniture or seed stock, could still be listed.

USMCA does not apply to these tariffs

This is a departure from most other tariff actions in 2026, several of which exempted USMCA-qualifying goods. None of the three Section 338 proclamations includes a USMCA carve-out. Goods that qualify for USMCA preferential treatment are still subject to the additional 50% duty if they appear on a covered annex.

For any company that has been relying on USMCA qualification as a general shield against tariff exposure, this is worth flagging separately, since the exemption does not carry over here.

Exclusions

The carve-outs are narrow: energy, potash, certain fish, and critical minerals are excluded, along with goods already subject to Section 232 duties, namely automobiles and steel, which avoids applying two tariff layers to the same goods.

Foreign Trade Zone consideration

Companies using FTZs should confirm the status of Canadian-origin goods currently held there. Goods generally need to be admitted in privileged foreign status before August 19 to avoid becoming subject to the new duty when entered for consumption. This is worth checking now rather than assuming it will be handled automatically.

Broader context

These proclamations follow the July 1 USMCA joint review, at which the US declined to renew the agreement in its current form, moving it into annual reviews rather than an automatic extension. Canada's retaliatory measures have also shifted over the same period. The White House fact sheet notes that over the past year and a half, China and Canada have been the two trading partners that chose to retaliate against US tariffs rather than negotiate.

Given the number of moving pieces, tracking this through informal channels alone becomes harder to sustain over time.

What to check before August 19

Review your HTS codes against all three annexes, not only the one matching your primary product category. Confirm the status of any Canadian-origin goods in an FTZ and arrange privileged foreign status admission if needed. Note that USMCA qualification does not exempt goods from this particular action. And consider tracking this tariff separately from your other compliance monitoring, given its different duration and scope.

We are reviewing client Canadian import programs against all three annexes. If you would like help confirming your exposure, reach out to your ShipTech account manager before the August 19 effective date.