The 50% Tariff Warning: What Canadian Businesses Need To Know

U.S. President Donald Trump has deployed an obscure, century-old trade weapon that threatens to upend the world’s most integrated supply chain. On July 20, 2026, the White House issued three explosive trade proclamations under Section 338 of the Tariff Act of 1930, 19 U.S.C. § 1338 targeting approximately $20 billion of Canadian exports with a substantial 50% tariff.

Crucially, these tariffs have not been implemented yet; they are scheduled to take effect on August 19, 2026, following a 30-day window. Section 338 grants the U.S. President broad authority to suspend, amend, modify, or extend the implementation timeline. For example, the President could issue a subsequent proclamation that pushes the August 19 effective date further into the future (e.g., a 30-day or 90-day extension). During the implementation period, the Trump Administration may use the prospect of Section 338 tariffs as a high-stakes bargaining chip.

The current 30-day window may become a critical period for more intense bilateral negotiations between Canada and the US. Since the potential Section 338 tariffs apply even to goods that meet CUSMA rules of origin, businesses cannot afford to wait and see if a diplomatic breakthrough occurs. Miller Thomson’s Global Trade and Customs Group is actively analyzing what this development means for cross-border businesses. In the meantime, here is a summary of points designed to help businesses with their strategies while trade talks continue.

Section 338 tariffs

Section 338 is a Depression-era tariff provision. It provides the President with the power to impose ad valorum duties of up to 50%. The provision does not appear to require an investigation or commission process. Section 338 tariffs may be based on a Presidential determination that a foreign nation is discriminating against U.S. commerce or treating U.S. goods less favorably than third countries. These tariffs follow other efforts to impose US tariffs based on emergency and other grounds.

The alleged grounds

President Trump has issued three separate proclamations. Each sets out allegations of systematic trade discrimination on the part of Canada. The proclamations relate to the following:

1. Motor vehicles: a proclamation references Canada’s 25% surtax which was applied in April 2025 to non-CUSMA U.S. vehicles, which is said to unfairly penalize US automakers.
2. Alcoholic beverages: a proclamation references decisions of provincial liquor boards to halt the distribution of U.S. alcohol products.
3. Dairy supply management: a proclamation references Canada’s dairy tariff-rate quotas (“TRQs”) and that fact that cheese imports originating under CETA are treated more favorably than American imports under CUSMA.

Targeted products

Section 338 tariffs appear to target roughly 5.2% of Canada’s total export volume to the U.S. Annexes to the proclamations list a wide swath of products. Some impacts are noted below:

• Targeted products: Items: Motor vehicles, plywood, wood products, cement, machinery, textiles, clothing, furniture, wine, non-alcoholic beer, and dairy products. It also covers unexpected consumer items like hockey sticks, ice skates, toilet paper, and Christmas ornaments.
• Exempt products: The proclamations expressly exempt energy, potash, critical minerals, fish, and goods already penalized under ongoing steel and aluminum actions.

General options for redress

Aside from potential retaliatory measures, general options for redress appear to include the following:

• Stepped up bilateral negotiations: the 30-day implementation delay is designed to extract concessions in areas such as market access for dairy and liquor. If Ottawa offers a viable compromise, the President can alter course.
• CUSMA dispute settlement: Canada can launch a challenge under Chapter 31 of CUSMA, arguing that bypassing the trade pact violates core treaty commitments.
• U.S. Domestic Courts: firms that are importing products that are subject to Section 338 tariffs may consider grounds for filing a lawsuit in the U.S. Court of International Trade.

Business adaptation strategies

Canadian businesses can use the Section 338 pre-implementation window to review tariff minimization options. Our Global Trade and Customs Group is already assisting firms in critical areas such as the following:

• Contract reviews: we can review contracts and purchase orders. For example, firms supplying products under ICOTERMS Delivered Duty Paid (“DDP”) must clear the goods and account for any duties and import taxes. We advise on shifting risk, renegotiating terms, or invoking contractual adjustment clauses.
• Tariff re-engineering: we can advise on options respecting the potential reclassification of products. Adjustments to product manufacturing, chemical composition, or component sourcing can shift an item into a more favorably treated classification.
• U.S. product exclusion petitions: we can draft and file robust product exclusion requests. By partnering with US buyers, we can build compelling cases for the Office of the U.S. Trade Representative (“USTR”) demonstrating that products cannot be sourced domestically in the U.S. and that a tariff would cause severe economic harm to U.S. interests.
• Drawback, deferral, and remission: manufacturers importing US-origin components into Canada may consider duty drawback and deferral programs. Various remission orders and provisions are also designed to provide tariff relief.
• Supply chain diversification: in some cases, adjustments to supply chains are required. We can help map supply chain vulnerabilities and help pivot exports toward tariff-free markets in the EU (leveraging CETA) or the Asia-Pacific region (leveraging CPTPP).