Understanding President Trump’s New Tariffs on Canadian Imports

Q1: What is Section 338?

A1: Section 338 of the Tariff Act of 1930 gives the president the power to impose tariffs up to 50 percent or ban imports from a country that discriminates against U.S. products (after 30 days have elapsed from an initial presidential announcement). Crucially, Section 338 also gives the president the authority to impose tariffs of up to 50 percent against imports from a third country benefiting from the original country’s discrimination, though President Trump has not invoked this authority here.

There are structural similarities between Section 338 and Section 301, which also allows the president to impose tariffs based on discriminatory practices. However, Section 338 has a less-clear investigative requirement, and a shorter timeline.

Notably, the president’s Section 338 tariffs apply on goods regardless of their USMCA compliance status, but not on goods already subject to Section 232 duties.

Q2: Why is President Trump invoking Section 338 now?

A2: While the White House has said that the tariffs are being imposed in response to Canada’s discriminatory treatment of U.S. products, the administration likely has additional motivations. President Trump previously threatened to impose tariffs on Canada following recent Canadian wildfires which left much of the U.S. shrouded in smoke. Furthermore, Brazil recently announced its intent to retaliate against the United States following President Trump’s recent decision to formally impose 25 percent tariffs on a number of Brazilian imports, scheduled to take effect on July 22. Using Section 338 to impose tariffs against Canada, the only country to formally retaliate against the United States (except for China, which enjoys a trade détente with the United States, stemming from its leverage over rare earths), sends a clear message that the United States will punish trading partners that retaliate against it. Additionally, the move demonstrates that the president still has trade tools he can use without being burdened by the time-consuming processes required by Section 301 and Section 232 and following the Supreme Court’s rejection of his International Emergency Economic Powers Act tariffs. Section 338 may also become increasingly relevant as the Trump administration prepares alternative actions to replace the Section 122 tariffs set to expire on Friday, July 24.

But the president may have chosen to impose the Section 338 tariffs now for a separate reason. U.S. negotiations with Mexico regarding the USMCA have advanced speedily, while the United States and Canada have yet to formally initiate negotiations. With U.S. Trade Representative (USTR) Jamieson Greer in Mexico City this week to meet with Mexican President Claudia Sheinbaum following a third negotiating session, it is possible the two nations could announce an agreement in principle on a revamped USMCA. With Canada reluctant to negotiate with the United States, the threat of the Section 338 duties may be an attempt to do three things: build leverage, push Canada to join USMCA review talks, and pressure Ottawa to concede to U.S. demands. Such a dynamic would not be new for a USMCA negotiation. In President Trump’s first term, the United States and Mexico held a series of productive negotiations, which the Canadians largely eschewed. President Trump would subsequently impose 25 percent tariffs on imports of Canadian steel products and 10 percent tariffs on aluminum products in May 2018, and also threaten to impose auto tariffs later that year. Canada later agreed to join the deal at the last minute.

Q3: Will these tariffs hold up under legal scrutiny?

A3: No court has yet interpreted Section 338. Broadly, the courts have been deferential to the executive branch on tariff matters. However, there are several potential legal questions that will need to be answered about the president’s usage of Section 338. Namely, the statute says that the U.S. International Trade Commission is responsible for monitoring for unfair trade treatment of U.S. goods and reporting its findings and recommendations to the president. The White House’s proclamation does not indicate whether that process occurred. Other legal analysts have said that Section 338 was implicitly repealed via later legislation.

The arguments presented in each of the three proclamations are subtly different, and each may create subsequent legal questions. In the automotive proclamation, the list of items tariffed does not in fact include automobiles or auto parts at all—with the exception of motorcycles—but rather targets a large number of non-auto-related goods. The dairy action, meanwhile, alleges that Canadian tariff-rate quotas have resulted in U.S. imports facing high tariffs, but researchers have pointed out that U.S. dairy exports to Canada remain far below the quota threshold after which the higher tariff rate comes into effect. Finally, the Section 338 duties would also likely violate the United States’ World Trade Organization (WTO) commitments. Canada has filed WTO cases against the United States for its 2025 tariff actions on steel, automobiles, and certain agricultural products, though these have not materially impacted U.S. policy.

Q4: How large would the impacted trade flows be?

A4: Each Section 338 proclamation imposes a 50 percent tariff on a different set of Canadian imports, covering a wide range of products including wine, hockey sticks, and cement. USTR reported that the tariffs will impact nearly $20 billion in Canadian imports. Per CSIS analysis of Trade Data Monitor data, in 2024, the total value of the targeted goods was $20.2 billion, equivalent to 4.9 percent of total U.S. imports from Canada that year. However, the United States had previously broadly refrained from imposing tariffs on USMCA-compliant goods. Tariffing goods that meet the agreement’s strict provisions risks raising uncertainty about the willingness of the United States to abide by the terms of the agreement, as well as the sustainability of the interconnected auto supply chains—among others—between Canada and the United States. That said, it is still possible that the president could try to extend the 30-day deadline, or back away from the tariffs entirely should negotiations advance.

Q5: What are the impacts on other ongoing negotiations?

A5: The administration has always considered Section 338 as a viable backup option for imposing tariffs. The fact that Section 338 is being invoked now, and only against Canada, likely suggests that the administration only intends to use Section 338—or thinks it only has legal standing to do so—when trading partners have already retaliated against the United States. Under that logic, using Section 338 could now function as a warning to other U.S. trading partners in advance of expected Section 301 tariffs imposed for alleged failure to combat the importation of goods made with forced labor and for excess production of manufactured goods.

Canadian Prime Minister Mark Carney responded by calling on both countries to resolve the trade disputes. Coercive measures of this kind have yet to produce concessions from Canada, but they reliably shrink the political room Carney has to engage the United States constructively. Mexico’s more conciliatory posture has kept its negotiating track moving. Sustained threats have had the opposite effect on Canada.

Finally, the president’s Section 338 tariffs will likely promote more uncertainty in the economic environment than previous tariff threats. Throughout the administration’s ongoing tariff negotiations, tariff-free treatment for USMCA-compliant goods has largely remained steadfast, except for imports of Canadian steel and aluminum. Given the deeply interconnected U.S., Mexican, and Canadian economies, the Section 338 tariffs will hit U.S. businesses and consumers in a way other tariffs and tariff threats have not. The tariffs will also dramatically add to near-home economic instability for U.S. companies and investors, already heightened due to the United States’ decision to not extend the USMCA.

Christopher Gundermann is a fellow with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS). Hugh Grant-Chapman is a fellow with the Economics Program and Scholl Chair in International Business at CSIS. Diego Marroquín Bitar is a fellow with the Americas Program at CSIS.