Trump Administration To Impose New 50% Section 338 Tariffs On Canadian Autos, Alcohol And Dairy

At a glance

• On July 20, 2026, the President signed three proclamations under Section 338 of the Tariff Act of 1930 imposing an additional 50% tariff on select Canadian-origin goods.
• Covered sectors: motor vehicles, alcoholic beverages and dairy (cheese), plus a broad cross-sector retaliation basket — over 550 HTS codes subheadings in total, including cement, hockey sticks, furniture, jewelry, fine art, electronics and textiles.
• CUSMA/USMCA preferential origin does NOT provide an exemption from these tariffs.
• Confirmed effective time: 12:01 a.m. Eastern Time on August 19, 2026, per the text of all three proclamations.
• Notably, the motor vehicles proclamation's own duty basket does not cover cars or auto parts (already under Section 232) — it applies instead to an unrelated cross-sector list of Canadian goods, including cement and sporting goods.
• Goods already subject to Section 232 duties and civil aircraft/parts qualifying under the WTO Agreement on Trade in Civil Aircraft are excluded. The fact sheet references additional carve-outs for energy, potash, fish and critical minerals.

Background

On July 20, 2026, President Donald J. Trump signed three proclamations invoking Section 338 of the Tariff Act of 1930, 19 U.S.C. § 1338, imposing an additional 50% ad valorem tariff on separate categories of Canadian-origin goods. According to the accompanying White House fact sheet, the action is intended to "offset the burden and disadvantage on US commerce" arising from what the administration characterizes as Canada's discriminatory treatment of American automobiles, alcoholic beverages and dairy products.

Section 338 is a rarely used statutory authority — largely dormant since the 1940s — that permits the President to impose tariffs of up to 50% where he finds that a foreign country discriminates against US commerce relative to other countries. Its invocation here, alongside the existing Section 232 and Section 122 programs already affecting Canadian trade, represents a further escalation and adds a fourth distinct US tariff authority that Canadian exporters and their US importers must now track. While the structure of the proclamations suggests they may serve in part as a negotiation lever to pressure Canada on CUSMA renewal and the removal of retaliatory measures, the tariffs are legally operative instruments with a fixed effective date and must be treated accordingly.

What the proclamations do

Scope and rate

Each of the three proclamations imposes a 50% tariff on a distinct set of Canadian goods. Based on the White House fact sheet, the affected sectors include:

• Motor vehicles — in response to Canadian tariffs and quotas on US-made cars that the administration alleges are not applied to imports from other countries, and that allegedly incentivize US automakers to shift production to Canada.
• Alcoholic beverages — in response to provincial and territorial liquor board restrictions that have halted the purchase, distribution or retail sale of US alcohol in all but two Canadian provinces/territories.
• Dairy (cheese) — in response to tariff-rate quotas on US cheese that the administration characterizes as more restrictive than the quotas Canada affords the EU under a comparable trade agreement.

The motor vehicles annex's coverage is considerably broader than — and largely unrelated to — cars and auto parts. In total, over 550 HTS codes subheadings are subject to the new 50% duty across the three proclamations. High-profile goods caught by the tariffs include Canadian whisky, beer and wine; cheddar and other cheeses; Portland cement; hockey sticks and ice skates; furniture; jewelry and precious metals; diamonds; fine art and antiques; leather goods and luggage; cotton T-shirts and sweaters; vodka, gin, rum and tequila; honey; and a broad range of industrial machinery and electronics.

Motor vehicles proclamation

The proclamation identifies the offending measure as Canada's United States Surtax Order (Motor Vehicles 2025), SOR/2025-118, in effect since April 9, 2025. Under that order, Canada applies a 25% tariff on US motor vehicles that do not qualify for CUSMA/USMCA preferential treatment, and — for vehicles that do qualify — a 25% tariff on the value of any non-Canadian/non-Mexican content once a vehicle exceeds a tariff-rate quota (TRQ) set for each automaker. The proclamation states that Canada does not publicly disclose the company-specific in-quota quantities and has reduced individual automakers' TRQs where those companies shifted manufacturing from Canada to the United States.

The proclamation's supporting data: US motor vehicle exports to Canada fell approximately 22% — from approximately $25.9 billion to approximately $20.3 billion — comparing April 2025-March 2026 to the same period one year earlier, while Canadian imports of motor vehicles from other countries rose by approximately $2.85 billion over a comparable period, with Mexico (+23.6%) and Japan, Korea and Germany (+10.1% to +13.5%) accounting for most of the gain. These figures are the evidentiary basis for the President's finding that Canada's scheme burdens US commerce.

Dairy proclamation

The proclamation identifies that Canada maintains a tariff-rate quota on "cheeses of all types" under both CUSMA/USMCA and the Canada-EU Comprehensive Economic and Trade Agreement (CETA), each providing duty-free access up to an annual in-quota quantity. The proclamation finds that Canada's CUSMA cheese TRQ eligibility criteria do not allow retailers to obtain or use TRQ quantities, while Canada's CETA cheese TRQ eligibility criteria do grant retailers that access. As retailers are a significant channel for US cheese exports, the US alleges that this asymmetry is the crux of the President's finding that Canada discriminates against US commerce as compared to the EU's materially similar cheese exports under CETA.

As with the motor vehicles proclamation, the President made the three required Section 338 findings: that Canada discriminates in fact against US commerce (via the TRQ retailer-eligibility gap), that the discrimination disadvantages US commerce relative to the EU's CETA-based access, and that Canada's imposition is unreasonable and unequally enforced. This comparative-treatment theory (US dairy exporters versus EU dairy exporters into the same Canadian market), is distinct from the motor vehicles proclamation's absolute-burden theory (US auto exports declining in the aggregate).

The dairy proclamation's operative provisions are identical to the motor vehicles proclamation: 50% additional ad valorem duty, effective 12:01 a.m. Eastern Time on August 19, 2026; the same two carve-outs (Section 232-covered goods and WTO Agreement on Trade in Civil Aircraft articles); the same foreign-trade-zone "privileged foreign status" requirement.

The dairy annex itself (HTS heading 9903.03.13) is a much shorter and more coherent list than the motor vehicles annex, consisting predominantly of dairy and dairy-adjacent lines: milk and cream in various concentrated, powdered and liquid forms; whey products and whey protein concentrates; casein and caseinates; lactose and lactose syrups; and several related chapter 4, 17 and 35 classifications. It also includes a small number of less obvious inclusions — nonalcoholic beer (HTS 2202.91.00) and essential oil of peppermint (HTS 3301.24.00) — that importers in the food and beverage space should specifically check against their own classification lists even if they do not otherwise handle dairy products.

Alcoholic beverages proclamation

The alcoholic beverages proclamation targets the outright ban by Canadian provinces and territories on the purchase, distribution or retailing of US alcoholic beverages. The President found that beginning in March 2025, all Canadian provinces and territories halted their handling of US alcoholic beverages. The proclamation specifically identifies the Liquor Control Board of Ontario (LCBO) as having ceased purchasing all US products, cancelled existing orders, removed US products from wholesale catalogues and retail eCommerce sites, and removed all US products from LCBO retail stores and outlets. Québec similarly directed the Société des Alcools du Québec to remove all US products from its shelves and to stop supplying US alcoholic beverages to grocery stores, liquor stores, bars and restaurants. Only Alberta and Saskatchewan subsequently lifted their bans, in June 2025.

The proclamation’s supporting data is stark. Comparing March 2025 through February 2026 to the same period in 2024–2025, Canadian imports of US alcoholic beverages decreased by approximately 81 percent (from approximately $718 million to approximately $137 million). Meanwhile, Canada did not institute similar bans on any other country’s alcoholic beverages, and exports from other countries to Canada increased to fill the demand previously served by US producers. Imports from Chile, Japan, Argentina, Ireland, New Zealand and Australia increased by between approximately 13 and 26 percent. Despite a nearly 12 percent overall decline in total alcoholic beverage imports into Canada, imports from countries other than the United States increased by over $170 million over the same period, with EU-origin imports accounting for over $100 million of that increase.

The President accordingly made the three required Section 338 findings: that Canada discriminates in fact against US commerce by banning US alcoholic beverages while not similarly restricting products from other countries; that this discrimination disadvantages US commerce relative to other countries; and that Canada’s imposition is unreasonable and not equally enforced on like articles from every foreign country. The alcoholic beverages finding rests on a blanket ban — a complete exclusion of US products from provincial distribution channels with no analogous restriction on any other country’s products.

The alcoholic beverages proclamation’s operative provisions mirror the other two: a 50% additional ad valorem duty, effective 12:01 a.m. Eastern Time on August 19, 2026; the same Section 232 and WTO Civil Aircraft carve-outs; the same foreign-trade-zone “privileged foreign status” requirement; and the same CBP implementation authority. The product annex covers a comprehensive list of alcoholic beverage HTS lines, including beer (HTS 2203.00.00), sparkling and still wines in all container sizes (HTS 2204), vermouth (HTS 2205.10.30), cider, sake and other fermented beverages (HTS 2206), undenatured ethyl alcohol for beverage purposes (HTS 2207.10.30) and the full range of distilled spirits — brandy, whisky, rum, gin, vodka, liqueurs, tequila and other spirits (HTS 2208). The annex also includes several non-beverage lines that appear connected to the alcoholic beverage supply chain, including essential oils of grapefruit (HTS 3301.19.10), densified wood (HTS 4413.00.00) and wooden tableware and kitchenware (HTS 4419–4421).

Stacking with other duties

The Section 338 tariff will be an additional duty — i.e., it stacks on top of any otherwise applicable tariff (including MFN column 1 rates and any Section 301 and Section 122 tariffs in effect on the same goods). However, the proclamations expressly exclude goods already subject to Section 232 tariffs, meaning the 50% Section 338 duty does not layer on top of Section 232 rates. Those goods remain governed solely by their existing Section 232 duties.

CUSMA/USMCA origin is not a defence

The fact sheet states that these Section 338 tariffs "apply to all covered goods regardless of whether a good originates under the US-Mexico-Canada Agreement." The proclamations do not contain a blanket CUSMA carve-out, and the HTSUS modifications impose the additional duty on covered Canadian-origin goods without reference to CUSMA qualification. CUSMA-qualifying goods that would otherwise enter the United States duty-free are not shielded. Canadian exporters and their US customers that have relied on CUSMA preferential origin should not assume that status provides any protection here.

Carve-outs

All three proclamations exclude the same two categories from their respective additional 50% duties:

1. articles already subject to duties under Section 232 of the Trade Expansion Act of 1962, and
2. articles — other than unmanned aircraft — subject to the WTO Agreement on Trade in Civil Aircraft.

The fact sheet's broader references to energy, potash, fish and critical minerals being excluded do not appear as express carve-outs in any of the three proclamations. They are a policy-level description of what is simply not included in any Annex II product list.

Effective date and HTSUS mechanics

All three proclamations confirm an effective time of 12:01 a.m. Eastern Time on August 19, 2026 for goods entered for consumption, or withdrawn from warehouse for consumption, on or after that date and time.

All three proclamations also direct that any covered product admitted into a US foreign-trade zone on or after the effective date must be admitted under "privileged foreign status" (19 CFR 146.41) rather than domestic status, which locks in dutiable treatment at the time of entry for consumption and forecloses using FTZ admission to avoid the new duty rate. CBP, in consultation with Treasury, Commerce and USTR, is authorized to issue implementing rules and to make further technical HTSUS corrections by Federal Register notice, so importers should expect follow-on technical amendments even after the effective date.

Legal and policy context

The administration frames this action as a continuation of its "America First Trade Policy," alongside existing Section 232 tariffs on steel, aluminum, copper, automobiles, trucks, timber and pharmaceuticals, and the Section 122 balance-of-payments surcharge implemented earlier in 2026 following the Supreme Court's invalidation of the IEEPA-based tariffs. The fact sheet notes that the United States "did not agree to renew" CUSMA/USMCA in its current form, and identifies Canada and China as the only two US trading partners that Washington says have chosen retaliation over negotiation.

Because Section 338 has seen virtually no judicial or administrative interpretation in the modern era, the scope of presidential discretion, the sufficiency of the discrimination findings and the availability of legal challenge remain open questions. Canada may pursue challenges under CUSMA/USMCA dispute-settlement mechanisms or at the WTO, though neither would suspend the tariffs' effect on importers in the interim.

Section 338 has been on the radar of trade practitioners since early 2025 as a fallback authority with fewer procedural requirements than Section 301. Whether it requires a preceding ITC investigation is unsettled, and the administration appears to have exploited that ambiguity. Section 338 offered a path to reimpose duties without the procedural vulnerabilities that sank the IEEPA program.

That said, courts scrutinizing executive tariff authority in the post-IEEPA environment are unlikely to treat Section 338 as a safe harbour simply because it is a different statute. These proclamations are the first modern test case, and the discrimination findings, the absence of a formal ITC investigation, and the breadth of product coverage are all potential points of vulnerability in any judicial or trade-agreement challenge.

Next steps

We recommend that affected clients take the following steps before August 19, 2026: (1) conduct an HTS-level classification audit against all three proclamation annexes to confirm which products are in scope; (2) review supply agreements, Incoterms and price-adjustment or force majeure clauses to assess which party bears newly imposed duty costs; (3) evaluate sourcing alternatives and any available tariff mitigation strategies (including first-sale valuation, country-of-origin restructuring and duty drawback); and (4) monitor for Canadian countermeasures, which have accompanied every prior round of US-Canada tariff action.

Our International Trade team is monitoring the Federal Register for formal publication and will issue a follow-up alert with HTS-specific detail once available.

For more information on this topic, please reach out to Paul Lalonde and Sean Stephenson.