Canada sends its trade minister and chief negotiator to Washington for two days of talks aimed at defusing a 50 per cent Section 338 tariff due on August 19, even as President Donald Trump publicly questions whether he wants a renewed CUSMA at all.
By Peacock Tariff Consulting, Canada Trade Desk
OTTAWA, July 29, 2026 – Canada-U.S. Trade Minister Dominic LeBlanc spent Tuesday and Wednesday in Washington with Canada’s chief trade negotiator, Janice Charette, in the most consequential stretch of bilateral diplomacy since the United States revived a dormant 1930 statute to impose a 50 per cent tariff on roughly $20 billion of Canadian goods. The visit, confirmed by LeBlanc’s office on Monday and again on Tuesday, gives Ottawa less than three weeks to change Washington’s mind before the duties bite at 12:01 a.m. on August 19.
LeBlanc’s press secretary, Gabriel Brunet, told reporters the minister would be joined by Charette but declined to identify the officials they would meet or to confirm the precise days of the trip. Canadian and U.S. reporting placed LeBlanc in a meeting with U.S. Commerce Secretary Howard Lutnick, with the Canadian side describing the discussion as constructive and aimed at restarting negotiations that have been stalled since the start of July.
The trip is unfolding against a backdrop that grew markedly more hostile in the space of nine days. On July 20 the White House issued three separate presidential proclamations invoking Section 338 of the Tariff Act of 1930, the statute better known as Smoot-Hawley, in what trade lawyers and the Congressional Research Service describe as the provision’s first confirmed use in its 96-year history. Each proclamation targets one Canadian practice: provincial bans on American alcohol, a dairy quota-eligibility rule the administration says disadvantages U.S. suppliers, and Canada’s surtax and quota regime on American-built cars. The remedy in each case is identical, a 50 per cent ad valorem duty on a designated basket of goods, applied without regard to whether the goods qualify for preferential treatment under the Canada-United States-Mexico Agreement.
A negotiation that starts with the president undercutting it
Whatever LeBlanc heard behind closed doors, the public signal from the president on Tuesday was not encouraging. In a Fox News interview, Trump said he did not “really want to” update the continental trade agreement, adding, “I’d rather be independent.”
“Mexico and Canada need us. We don’t need them,” Trump said, according to remarks reported by The Canadian Press. “The deal is important for them. It’s not important for us.”
Those comments cut directly against the message Ottawa has been carrying since Prime Minister Mark Carney said, in the days after the proclamations landed, that he and Trump had agreed to intensify negotiations toward a modernized bilateral arrangement. They also complicate the framing that U.S. Trade Representative Jamieson Greer offered to the Senate Finance Committee on July 22, when he described a process still moving toward some form of accommodation.
“I’m hopeful that before the end of the year, we can have at least options for President Trump and the leaders of Canada and/or Mexico to consider potential interim arrangements, or things that Canada can do on the one hand, and Mexico can do on the other hand, to strengthen enforcement, to improve their commitments toward us, and to make sure that we’re managing all of the trade issues,” Greer told senators.
“I would love to have between now and the end the year at least some arrangements, one with Canada, one with Mexico,” Greer said, according to the hearing record. He added that harder files, notably rules of origin and labour and environmental commitments, “take a little more time, to have further discussion of that, including with Congress, in the following year.”
Greer’s testimony carried one detail that Canadian officials have not disputed and have not confirmed either. Describing a July 21 conversation with his Canadian counterpart, Greer told the panel that Ottawa had not signalled a further round of countermeasures. “They did not say that they’re going to retaliate to what we’re doing,” he said.
What the tariff actually covers
The gap between the political framing of the Section 338 action and its technical footprint is unusually wide, and it matters a great deal for the Canadian firms now trying to price August shipments.
The three proclamations are named for motor vehicles, alcoholic beverages and dairy. Almost none of the goods in the motor vehicle basket sit in the tariff schedule’s vehicles chapter. In an analysis published on July 21, Global Trade Alert found that motor-vehicle-linked goods account for 19 of every 20 dollars of covered trade, spread across 439 traded tariff lines, and that the closest item to an actual automobile is parts of car seats, classified for customs purposes as furniture.
Annex II of each proclamation is where the real exposure lives. Thomson Reuters, reviewing the annexes on July 22, catalogued wine, hockey sticks, cement, plywood, furniture, fishing rods, seeds, clothing, wigs and swimming pools among the covered goods. The U.S. Trade Representative’s office puts total exposure at close to $20 billion, which Thomson Reuters calculated at about 5.2 per cent of the $382 billion in goods the United States imported from Canada in 2025.
Global Trade Alert, working from 2025 customs values and stripping out goods already caught by Section 232, arrived at a slightly narrower figure of $17.7 billion in covered trade. On its numbers, the duty lifts Canada’s trade-weighted average U.S. tariff by 1.89 percentage points overnight, from 4.37 per cent to 6.27 per cent, making Section 338 the second-largest layer in Canada’s applied rate behind only the Section 232 metals and materials tariffs.
The carve-outs are substantial and unevenly distributed. Energy products, potash, fish and critical minerals are excluded. So is anything already subject to Section 232 duties, which sweeps out steel, aluminum, copper, lumber, timber, their derivative products and auto parts. Global Trade Alert calculated that the motor-vehicle basket’s effective Section 338 rate, weighted across its lines, comes to 36.0 per cent rather than the headline 50 per cent, because $2.5 billion of its trade is carved out as Section 232 goods and $3.2 billion of aircraft-related lines pay 5 per cent under the civil aircraft list. The alcohol and dairy baskets have no such relief and pay the full 50 per cent.
The ranking of covered lines by value produces a result that will strike importers as perverse. The single largest covered line, boards and panels for electric control at $1.7 billion, pays no Section 338 duty at all because it is a Section 232 auto part and falls inside the closed-list carve-out. The second largest, network and data-transmission equipment at $0.8 billion, pays an effective 5 per cent. The largest line paying the full 50 per cent is plastic bags, at $0.69 billion. Liqueurs and cordials, at $0.4 billion, is the only alcohol line in the top ten, and no dairy line comes close. Across the ten largest covered lines, more than half the value pays less than the headline rate.
The CUSMA question underneath the tariff
For Canadian exporters, the most consequential feature of the July 20 proclamations is not the rate. It is the fact that a certificate of origin no longer buys protection.
Under nearly every earlier tariff action taken against Canada since February 2025, valid CUSMA origin meant exemption. Canadian exporters responded rationally, driving certification utilisation from 38 per cent of eligible trade to 86 per cent over the course of 2025, according to Global Trade Alert. The Section 338 proclamations render that paperwork irrelevant for covered goods, and the duty stacks on top of any other duties, taxes and fees already owed rather than replacing them.
Global Trade Alert’s assessment of the precedent is blunter than its assessment of the tariff. A dormant statute, it noted, now overrides a trade agreement’s core preference on a presidential finding alone, with no investigation, no hearing and no national security determination required. Section 301 actions require a USTR investigation. Section 232 requires a Commerce finding. Section 338 requires only a proclamation. That procedural simplicity became conspicuously attractive after the Supreme Court struck down the administration’s broader tariffs built on the International Emergency Economic Powers Act in February 2026.
By August 19, on Global Trade Alert’s arithmetic, $59.9 billion of the $364.9 billion in 2025 U.S. imports from Canada will face tariffs that CUSMA cannot lower. The share of Canadian export value that the agreement can still shield falls from 85.6 per cent in October 2025 to 82.3 per cent. Section 232 instruments account for roughly 70 per cent of that unavoidable total, led by steel and aluminum at $30.8 billion, lumber at $5.7 billion, the heavy-vehicle-parts floor in force since November 2025 at $4.2 billion, and copper at $1.4 billion.
The agreement itself is in an unfamiliar posture. The Trump administration declined to grant CUSMA a blanket renewal at the start of July, which triggered an annual rolling review process that will repeat every year until the pact sunsets in 2036 unless all three governments agree otherwise. Washington and Mexico City have begun formal talks and are expected to resume official negotiations in September. Ottawa and Washington have not formally launched theirs. Members of the U.S. trade team have described Mexican negotiators as pragmatic while complaining that the Canadians are difficult, a characterization Canadian officials reject.
On LeBlanc’s June trip to Washington, when he met Greer, Canada was seeking a 16-year extension of the agreement. The two met again on the sidelines of the G7 in France later that month. Ottawa’s ask has since narrowed considerably. Reporting on this week’s meetings indicates the Canadian side is now pursuing relief on sectoral tariffs as a first step rather than a comprehensive renewal.
Ottawa holds its fire, the premiers do not
Carney has been deliberate about not matching the July 20 action with an immediate countermeasure. Speaking after meeting the premiers in Charlottetown last week, he said everything remained on the table if negotiations failed, while arguing that pre-emptive retaliation would be self-defeating.
“Everything’s on the table if there’s no agreement, depending on the outcome of the negotiations,” Carney told reporters. He added that Canada does not need to respond in advance and that doing so “would be counterproductive at this stage.”
That restraint is not universally shared. Ontario Premier Doug Ford, whose province has the largest single exposure to the auto and steel measures, took a markedly different line in a July 21 social media post.
“Team Canada needs to be united, standing up to President Trump and hitting back tariff for tariff until we get a fair trade deal,” Ford wrote.
Ford has also floated withholding energy and potash, telling reporters at the Council of the Federation meeting that Canada is “an energy powerhouse and we could dismantle the U.S. if we wanted to.” He has said Ontario will not restore American wine and spirits to Liquor Control Board of Ontario shelves unless Washington lifts its sectoral tariffs on autos and steel. British Columbia Premier David Eby was more emphatic still, saying there was “not a chance in hell” American alcohol would return to provincial shelves.
The premiers emerged from Charlottetown describing themselves as united, though not all of them expressed confidence that a deal was close. Ford, for his part, said he was looking for a national strategy from the prime minister and acknowledged one might still be weeks away.
The other files stacking up
The Section 338 action is not the only pressure point. Trump has separately threatened to add tariff costs to Canadian goods over wildfire smoke drifting into U.S. states from fires concentrated in northwestern Ontario, a threat first made in mid-July and renewed on July 25. He also publicly accused Canada of having disinvited the United States from the formal opening ceremony of the Gordie Howe International Bridge, which linked Windsor and Detroit when it opened on Monday, July 27, after months of quiet negotiation over the timing.
Meanwhile the tariff architecture around Canada shifted twice in the space of a week for reasons unconnected to the Section 338 proclamations. The temporary 10 per cent global tariffs imposed in February under Section 122 of the Trade Act of 1974, put in place after the Supreme Court invalidated the IEEPA-based duties, lapsed in the last week of July. Hours before that expiry, Greer announced new duties of 10 to 12.5 per cent on imports from roughly 60 economies under Section 301, citing failures to ban goods produced with forced labour. Goods that qualify for duty-free treatment under CUSMA are exempt from the new Section 301 action, along with oil, gas and fertilizer.
The net effect, on Global Trade Alert’s rate path, is a brief dip and then a sharp climb. Canada’s trade-weighted U.S. tariff sat at 4.68 per cent on July 21, fell to 4.37 per cent when the Section 122 surcharge lapsed, and rises to 6.27 per cent on August 19 if the Section 338 duties take effect as scheduled.
What importers and exporters should be doing now
Customs advisers have converged on a short list of urgent steps, and the calendar is unforgiving.
The first is classification, not headline-reading. Because the covered goods sit in Annex II lists that bear little relation to the three named disputes, a compliance review that stops at automotive, alcohol and dairy codes will almost certainly miss real exposure. Thomson Reuters described the likely failure mode plainly: a team confirms manageable exposure in the named annexes, moves on, and discovers weeks later that a furniture or seed-stock shipment has been flagged at entry.
The second is foreign trade zone status. Goods sitting in a U.S. foreign trade zone generally need to be admitted in privileged foreign status before August 19 or they will inherit the new duty when entered for consumption, regardless of when they physically arrived. For firms with active FTZ operations, this is a paperwork deadline with a hard edge.
The third is contract review. Because the Section 338 duty stacks rather than substitutes, and because CUSMA certification does not lower it, incoterms and duty-allocation clauses drafted on the assumption that origin certification confers exemption may allocate cost in ways neither party intended. Canadian exporters selling on delivered-duty-paid terms are particularly exposed.
The fourth is monitoring. U.S. Customs and Border Protection is still expected to publish further guidance, Federal Register corrections and modifications to the Harmonized Tariff Schedule as implementation proceeds, which means the covered list has not finished settling. Grant Thornton, in a July 28 client note, urged businesses to run scenario planning across several outcomes rather than betting on one, including sustained higher costs for imports from both Canada and Mexico.
Grant Thornton’s own read on the politics was cautious. The firm noted that the August 19 implementation date leaves room for de-escalation, while adding that it is unclear whether the administration views the action as a step toward revising CUSMA or as a warning shot ahead of leaving it. Trump and senior officials have repeatedly said the United States could exit the agreement using a provision allowing any party to withdraw on six months’ notice, and pursue bilateral deals instead, with duties potentially tracking most-favoured-nation rates. The White House estimates that Canada’s retaliatory tariffs on automobiles cost American manufacturers $5.6 billion over one year.
The stakes in numbers
The economic case each side is making rests on figures that both governments have put on the record. According to the White House fact sheet accompanying the proclamations, Canadian motor vehicle exports to the United States fell about 22 per cent over the year ending March 2026, from $25.9 billion to $20.3 billion. Canadian imports of American alcoholic beverages dropped roughly 81 per cent over a comparable period, from $718 million to $137 million, after most provinces pulled U.S. liquor from government-run stores.
Ottawa’s counter-argument, set out in Carney’s statement on July 20, is that the sequence began in Washington. The prime minister characterized the new duties as the latest in a series of unilateral U.S. actions that started with tariffs imposed in direct violation of CUSMA, and said Canada has merely matched those measures as it is entitled to do.
Both accounts are accurate as far as they go, which is precisely the difficulty facing LeBlanc and Charette. The alcohol boycotts and the auto surtax that the proclamations cite as discrimination are themselves responses to earlier American measures. Unwinding that chain requires a sequencing agreement that neither capital has yet been willing to propose in public.
For Canadian business, the practical question is narrower and more immediate. Twenty-one days remain before the duty takes effect. The negotiating channel is open, the president is publicly disparaging the agreement that channel is meant to preserve, and the covered-goods list is still being corrected. Firms that treat August 19 as a live deadline rather than a bargaining chip will be the ones with fewer surprises at the border.
Reading the signals
Trade watchers looking for a tell have a handful of markers to follow between now and August 19. The first is whether Ottawa and Washington announce a formal launch of CUSMA review talks. Mexico has already begun; Canada has not, and the absence of a start date has become its own data point. The second is whether U.S. Customs and Border Protection issues a Federal Register correction narrowing any Annex II lists, which would suggest the administration is looking for room to climb down without reversing the proclamations. The third is whether any Canadian province moves on alcohol. Alberta and Saskatchewan have already restored American products to their shelves. A third province following suit would remove one of the three cited grievances from the table and hand Ottawa a concrete deliverable that costs the federal government nothing.
The fourth marker is quieter and more telling. Canada’s Department of Finance maintains a published list of American products subject to counter-tariffs. Any addition to that list before August 19 would mark the end of Carney’s hold-fire posture and confirm that the negotiating track has failed. Any subtraction would signal the opposite. As of Wednesday, neither had occurred.