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.
- Changes announced Oct. 23, 2026, revise the Canadian products covered by the motor-vehicle-related Section 338 tariffs, effective Oct. 30, 2026.
- Businesses should review affected goods by the Harmonized Tariff Schedule of the United States (HTSUS) classification to determine how the revised coverage changes their tariff exposure.
- For affected goods, Section 338 tariffs will apply in addition to Section 232 duties where applicable, increasing the total duty burden.
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Oct. 23 update: The U.S. has further revised the Canadian products subject to the additional 50% Section 338 tariff. Certain products will be removed from the tariff list, while others will be added, effective Oct. 30, 2026. The proclamation also confirms that the revised Section 338 duties apply in addition to Section 232 duties where applicable. Businesses should re-screen Canadian exports using the updated HTSUS classifications.
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 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 original Section 338 proclamations established exclusions for certain products, including qualifying civil aircraft articles. The treatment of goods subject to Section 232 duties, however, has changed under the latest motor-vehicle-related proclamation. The original measure generally excluded goods subject to Section 232 duties from the additional Section 338 tariff. Effective Oct. 30, the revised proclamation states that the Section 338 duties imposed under the motor-vehicle-related measure will apply in addition to Section 232 duties where applicable.
Certain civil aircraft and aircraft parts that meet the applicable HTSUS criteria remain excepted from the newly added product list.
Businesses should confirm which Section 338 proclamation applies to their goods before relying on an exclusion. The treatment may differ depending on the product, HTSUS classification, and applicable proclamation.
How do the Section 338 tariffs interact with other U.S. duties?
Canadian businesses should assess the full U.S. tariff treatment for each affected product. This may include:
- The ordinary U.S. duty rate and any available CUSMA preference
- Additional Section 338 duties
- Section 232 duties
- Section 301 or other U.S. tariff measures
- Antidumping or countervailing duties, where applicable
Under the Oct. 23 proclamation, products covered by the revised motor-vehicle-related measure may be subject to both Section 338 and Section 232 duties. This is a significant change from the original treatment and may materially increase the total duty payable on affected goods. Businesses should not assume that Section 232 treatment automatically removes Section 338 exposure. The revised treatment applies to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. EDT on Oct. 30, 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 has responded to the new U.S. tariffs on a dollar-for-dollar basis.
On Sept. 8, 2026, Canada’s counter-tariffs came into force, covering approximately $20 billion of U.S. exports across sectors including steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics. The U.S. responded the same day with five further Section 338 proclamations. The proclamations introduce two key changes on two different dates:
- Sept. 15, 2026: Changes to the 50% tariff list on certain products take effect. Some products, including rock salt and cement, are being removed from the scope of the Section 338 tariffs and replaced with others, including all-terrain vehicles and additional dairy products. Products added or removed are identified by HTSUS classification in the annexes to the proclamations.
- Sept. 29, 2026: Import bans on certain Canadian alcoholic beverages, dairy products, and other goods that were subject to the 50% Section 338 tariffs take effect. For affected products, this is a prohibition on entry into the U.S., not an additional duty.
- Oct. 30, 2026: Further changes to the motor-vehicle-related Section 338 product list take effect. Certain products, including specified plastic packaging, plywood, paper products, refrigeration equipment, and packaging machinery, will be removed. Other products, including certain cocoa products, chemicals, wood products, carpets, appliances, tools, and medical or laboratory products, will be added. The legal scope is determined by the HTSUS classifications in the proclamation’s annexes.
The Oct. 23 proclamation also changes how the motor-vehicle-related Section 338 measure interacts with Section 232 duties. Businesses should review both tariff regimes when determining the total duty exposure for goods entered on or after Oct. 30.
While the 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.
The escalation means businesses should now assess tariff exposure in both directions. Canadian exporters need to understand whether their goods remain subject to the revised U.S. Section 338 measures, while Canadian importers should review whether U.S.-origin goods may now be affected by Canada’s counter-tariffs.
Businesses should monitor official government releases for detailed product lists, implementation rules, and any further changes to tariff treatment.
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 latest Section 338 product lists;
- assessing potential exposure to Canada's retaliatory tariffs;
- validating tariff classifications and applicable tariff treatment;
- assessing the interaction between Section 338, Section 232, Section 301, CUSMA, and other tariff measures, including the potential for overlapping duties;
- 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 October 30, 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.