A 96-year-old U.S. tariff law is driving a new dispute with Canada
The Trump administration has used a tariff authority dating to 1930 that had never previously been used by a president or tested in court, opening a new legal and commercial dispute with Canada.
On July 20, 2026, President Donald Trump invoked Section 338 of the Tariff Act of 1930 to impose additional duties of up to 50 percent on specified Canadian imports. The administration says the measures offset what it describes as discriminatory treatment of U.S. commerce in Canada, including dairy tariff-rate-quota allocation practices.
The action does not cover all Canada-U.S. trade. The Office of the U.S. Trade Representative said the measures concern nearly $20 billion in Canadian imports and involve motor vehicles, alcoholic beverages and dairy products.
Why Section 338 matters
Section 338 allows the president, after making specified public-interest findings, to impose additional duties of up to 50 percent when a foreign country places an unequal burden on U.S. commerce or discriminates against it. The statute says the duties cannot take effect earlier than 30 days after the relevant presidential finding.
The White House dairy proclamation set an additional 50 percent duty to begin at 12:01 a.m. Eastern time on August 19, 2026. Other covered actions have different implementation dates. Canada described the broader U.S. tariff action as effective August 22.
Those dates matter to importers because liability can depend on the product’s tariff classification, the date and method of entry, and any exemption or special treatment. The proclamation also directs U.S. Customs and Border Protection to issue implementation guidance and make technical changes to the U.S. tariff schedule.
The legal dispute is unresolved
Associated Press reported on August 29 that Section 338 had never previously been used by a president, let alone tested in court. That leaves the administration’s legal theory without settled judicial precedent.
Supporters of the action say the statute directly authorizes the president to impose offsetting duties when foreign practices disadvantage U.S. commerce. Lawyers and legal scholars cited by AP argue that later trade laws may have superseded or narrowed the older authority. Those later laws gave presidents other tariff tools but generally tied them to defined circumstances, investigations or procedural requirements.
Legal critics also question whether the tariffs are properly matched to the alleged harm. AP reported that the administration did not calculate the dollar value of the claimed damage before applying the duties. The report also noted that some targeted Canadian imports, including hockey sticks and cement, appear unrelated to the dairy, auto and alcohol disputes.
The administration’s findings about Canadian discrimination are positions advanced in its proclamations and trade statements, not facts independently adjudicated by a court. Canada has disputed the U.S. approach, and the legal durability of the tariffs could be tested through litigation, negotiations or further changes to the tariff lists.
Canada prepares counter-tariffs
On August 25, Canada’s Department of Finance announced matching counter-tariffs on U.S. goods. The Canadian government said the measures will cover $27.6 billion in U.S. imports. That is a different figure from USTR’s nearly $20 billion estimate for the Canadian imports covered by the U.S. Section 338 actions.
Canada said its new duties will take effect at 12:01 a.m. on September 8, with rates of 15, 25 and 50 percent matching the corresponding U.S. rates. The listed sectors include steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics.
Canada’s product-level backgrounder says the counter-tariffs apply to goods originating in the United States under Canadian origin rules. It also says the measures do not apply to U.S. goods already in transit to Canada when the tariffs take effect. The product list was updated August 26.
What businesses should review
For companies moving goods across the border, the immediate issue is not simply the headline tariff rate. Businesses should review the exact tariff line, country-of-origin documentation, effective date, exemption language, inventory location and delivery schedule for each affected shipment.
Manufacturers, farmers, retailers and distributors should also examine contracts that address tariff sharing, price adjustments or responsibility for duties. Canadian counter-tariffs could raise costs for U.S. exporters in manufacturing, agriculture and consumer-goods categories, although the effect will depend on the product list, customs treatment and commercial arrangements.
Because the dispute may change through court action, negotiations or amended tariff schedules, companies should rely on current customs notices and qualified trade counsel for product-specific decisions rather than headlines alone.
This article is an explainer, not legal advice.
Sources
- Associated Press: legal questions surrounding Section 338
- White House: dairy tariff proclamation
- Canada Department of Finance: countermeasures announcement
- Canada Department of Finance: product-level tariff list
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