At a glance
- Effective Aug. 22, 2026, the U.S. has imposed additional 50% tariffs on specified Canadian products under Section 338 of the Tariff Act of 1930.
- The measures are tied to Canadian policies affecting alcoholic beverages, dairy products, and motor vehicles, but the covered tariff lines extend beyond those sectors.
- Canada-United States-Mexico Agreement (CUSMA) qualification does not provide an exemption from the additional Section 338 duties.
- Products subject to Section 232 duties and certain qualifying civil aircraft articles are excluded.
- Canada has announced that it intends to respond on a dollar-for-dollar basis, with retaliatory tariffs expected to take effect Sep. 8, 2026.
- Businesses should monitor official Government of Canada releases for the detailed tariff list and implementation rules.
A French version will be posted shortly.
Following the unsuccessful negotiations of Canada-U.S. trade negotiations, additional 50% U.S. tariffs on specified Canadian products under Section 338 of the Tariff Act of 1930 took effect at 12:01 a.m. Eastern Time on Aug. 22, 2026.
Section 338 authorizes the President, where the statutory conditions are met, to impose additional tariffs of up to 50% in response to certain discriminatory or unequal treatment of U.S. commerce.
The measures were originally announced on July 20, 2026, through three Presidential Proclamations addressing Canadian policies relating to alcoholic beverages, dairy products, and motor vehicles.
Implementation of the measures was subsequently delayed for three days while Canada and the U.S. worked towards reaching an agreement. The Aug. 18 Presidential action formally changed the effective date of all three proclamations to Aug. 22. With negotiations ultimately unsuccessful, the Section 338 tariffs are now in effect. Although the proclamations respond to policies in three specific sectors, the products subject to the new tariffs extend beyond alcohol, dairy, and motor vehicles.
How is product exposure determined?
The Section 338 measures are driven by tariff classification, not by industry label.
Each proclamation identifies covered products through specific classifications under the Harmonized Tariff Schedule of the United States (HTSUS). Businesses should not conclude they are unaffected simply because they are not in the alcoholic beverage, dairy or automotive sectors.
Canadian exporters should confirm the U.S. tariff classification used when their products enter the U.S. and determine whether that classification is included in the applicable Section 338 provisions.
Does CUSMA provide an exemption?
No. CUSMA qualification may reduce or eliminate the ordinary customs duty, but it does not provide an exemption from the additional Section 338 duties.
Accordingly, a Canadian product that qualifies for preferential tariff treatment under CUSMA may still be subject to the additional 50% duty if it falls within the applicable Section 338 tariff provisions. Businesses should not assume that an existing CUSMA certification removes exposure to the new tariffs. The White House has expressly stated that the Section 338 tariffs apply to covered goods regardless of USMCA origin status.
What goods are excluded?
The proclamations establish several important exclusions.
Most notably, the additional Section 338 duties do not apply to articles subject to duties under Section 232 of the Trade Expansion Act of 1962. Section 232 allows the U.S. to impose tariffs on certain imports on national security grounds and currently applies to products including steel, aluminum, and automotive goods. Certain qualifying civil aircraft articles are also excluded from the Section 338 duties.
The Section 232 exclusion may be particularly important for Canadian exporters of steel, aluminum, automotive, and other products currently covered by U.S. national security tariffs. Products subject to Section 232 duties are generally excluded from the Section 338 duties.
However, businesses should confirm that the particular article is actually subject to a Section 232 duty before relying on the exclusion. The presence of steel or aluminum in a product, by itself, does not establish that the product qualifies for the Section 232 exclusion.
Determining the correct treatment requires a product-specific review of the applicable tariff provisions and exclusions.
How do the Section 338 tariffs interact with other U.S. duties?
The Section 338 tariffs generally apply in addition to other U.S. duties that may apply to the same product. However, specific exceptions apply, including products subject to Section 232 duties.
Canadian businesses should assess the full tariff treatment for each affected product, including:
- the ordinary U.S. duty rate and any available CUSMA preference;
- any additional Section 338 duties;
- whether a Section 232 duty applies and how that affects the Section 338 treatment;
- any Section 301 duties or other applicable U.S. tariff measures; and
- any antidumping or countervailing duties, where applicable.
The additional duties apply to covered goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. Eastern Time on Aug. 22, 2026.
Why this matters
The Section 338 tariffs can materially increase the landed cost of affected Canadian products entering the U.S. A product that previously entered the U.S. duty-free under CUSMA may now face an additional 50% Section 338 tariff if its U.S. tariff classification is covered by the measures.
The measures also reach beyond businesses that would typically identify themselves as operating in the alcoholic beverage, dairy, or automotive sectors. Canadian companies across a broader range of industries should screen their U.S. exports before concluding that they are unaffected.
For businesses with products subject to the Section 338 tariffs, the impact extends beyond customs compliance. An additional 50% duty can affect margins, pricing, customer relationships, and supply chain decisions. Businesses should also review existing contracts and applicable Incoterms to understand which party is responsible for the additional duty and consider whether commercial terms may need to be revisited.
Businesses should therefore review their existing supply chains and commercial arrangements to understand where Section 338 exposure arises, quantify the potential financial impact, and assess whether available exclusions or mitigation strategies may reduce that exposure.
The introduction of the Section 338 tariffs also adds to the broader economic uncertainty facing Canadian businesses. U.S. trade policy continues to evolve across multiple tariff measures, while the suspension of Canada-U.S. trade negotiations creates further uncertainty around the future direction of the bilateral trade relationship.
This uncertainty can make it more difficult for businesses to make longer-term decisions on investment, pricing, sourcing, and supply chains. Businesses should therefore consider not only their immediate Section 338 exposure, but also how continued changes in the Canada-U.S. trade environment could affect their broader business planning.
What's next for Canada?
Canada has suspended trade negotiations with the U.S. and announced that it will respond to the new U.S. tariffs on a dollar-for-dollar basis.
The Government of Canada has indicated that the new counter-tariffs will come into force on Sep. 8, 2026, and will be concentrated in sectors including steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics. The detailed list of U.S. products subject to Canadian countermeasures has not yet been released.
While the anticipated Canadian countermeasures are intended to respond to the new U.S. tariffs and protect Canadian industries, they may also increase costs for Canadian businesses that rely on affected U.S. imports, adding further cost and supply chain pressure.
Canadian businesses importing U.S.-origin goods should monitor the forthcoming measures closely and assess their potential exposure once the tariff list is published.
The Canadian government has also indicated that additional measures will be introduced to support workers and businesses affected by the U.S. tariffs.
The escalation means businesses should now assess tariff exposure in both directions. Canadian exporters need to understand the impact of the new U.S. Section 338 duties, while Canadian importers should prepare for additional costs on U.S. goods that become subject to Canada's counter-tariffs.
How can Canadian businesses respond?
Canadian exporters and importers should:
Businesses relying on an exclusion or other favourable tariff treatment should ensure that their position is appropriately documented and supportable.
How BDO can help
BDO's Customs & International Trade Services team can help businesses assess and respond to the expanding Canada-U.S. tariff environment by:
- screening Canadian exports against the Section 338 provisions;
- assessing potential exposure to Canada's forthcoming retaliatory tariffs;
- validating tariff classifications and applicable tariff treatment;
- assessing the interaction between Section 338, Section 232, Section 301, CUSMA, and other tariff measures;
- identifying available exclusions;
- quantifying tariff exposure and landed cost impacts; and
- evaluating customs, duty mitigation, and supply chain planning opportunities.
If your business trades across the Canada-U.S. border, BDO can help assess how the latest tariff measures may affect your operations and identify practical next steps.
The information in this publication is current as of August 23, 2026.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.