Canada and the United States enter the final hours of a three-day reprieve from the first Section 338 tariffs in the statute’s 96-year history, with roughly US$20 billion in cross-border trade riding on documents that still are not signed
OTTAWA, August 21, 2026 – Canadian and American negotiators are working against a midnight expiry tonight on the three-day pause that kept an unprecedented 50 per cent tariff off roughly US$20 billion in Canadian exports, leaving importers, customs brokers and Canadian manufacturers to plan for two sharply different versions of Monday morning.
The pause was announced late Tuesday, August 18, less than two hours before the duties were scheduled to take effect at 12:01 a.m. Eastern on Wednesday. President Donald Trump disclosed it on his Truth Social platform, writing that he had paused the tariffs “for a three day period, based on the fact that Canada and the U.S.A., subject to the finalization of documents, have a DEAL!” The Associated Press reported the post and the timing, noting that the announcement bought time for further negotiation and avoided, for the moment, a fresh rupture between two countries that exchanged roughly US$880 billion in goods and services last year.
Prime Minister Mark Carney’s own statement, issued from Ottawa at 10:53 p.m. on August 18, was conspicuously more restrained. It made no reference to a concluded deal. “Substantial progress has been made, although there is important work still to be done,” the statement read. “As this work is ongoing, the United States has agreed to postpone the implementation of its 50% tariff on a range of Canadian goods under Section 338 of the U.S. Tariff Act of 1930 until end of day, August 21.” The Prime Minister closed by saying Canada “remains focused on building a stronger, more independent, and more competitive economy at home.”
That gap between the two statements, one declaring a deal and one describing a process, has defined the week. Multiple provincial sources told CTV News following a first ministers briefing that the President’s characterization was not accurate and that negotiations were continuing. Trade Minister Dominic LeBlanc and Chief Negotiator Janice Charette arrived at the Office of the United States Trade Representative shortly after noon Eastern on Thursday, August 20, to meet Ambassador Jamieson Greer. They were accompanied by Canada’s Ambassador to the United States, Mark Wiseman, and by Marc-Andre Blanchard, the Prime Minister’s chief of staff. Asked by reporters what he expected, LeBlanc offered only that he was “always looking forward to be back at work.”
What Section 338 actually does
The measure at the centre of this week is not one of the trade instruments Canadian exporters have spent the past two years learning to live with. It is Section 338 of the Tariff Act of 1930, codified at 19 U.S.C. § 1338, a provision of the Smoot-Hawley legislation that has sat unused since it was written.
According to an analysis published by the law firm Holland & Knight on July 29, President Trump signed three separate proclamations on July 20, 2026, each imposing an additional 50 per cent ad valorem duty on specified Canadian products. The three proclamations correspond to three distinct findings of alleged Canadian discrimination against United States commerce: one covering motor vehicles, one covering alcoholic beverages and one covering dairy.
The statute is unusual in three respects that matter enormously to Canadian exporters.
First, it requires no investigation. Where Section 201 safeguards require an International Trade Commission proceeding, Section 232 requires a Commerce Department national security investigation, and Section 301 requires a USTR inquiry, Section 338 requires only a presidential finding and a proclamation. There is no comment period, no petition, no hearing and no evidentiary record that an affected party can contest at the administrative level.
Second, there is no time limit. The President may suspend, amend or revoke a proclamation at any time, and under subsection (b) may escalate to a complete import ban if the discrimination is maintained or increased.
Third, and most consequential for Canadian shippers, the duty applies regardless of whether the good qualifies for preferential treatment under the Canada-United States-Mexico Agreement. This is a significant departure from the tariffs imposed under the International Emergency Economic Powers Act, which carved out CUSMA-originating goods. Under Section 338, a certificate of origin confers no protection. The additional 50 per cent applies in full.
Holland & Knight’s review of the annexes found that the three proclamations collectively cover close to US$20 billion in Canadian imports spread across hundreds of eight-digit Harmonized Tariff Schedule classifications. The motor vehicle proclamation carries by far the broadest annex, running 18 pages and covering 439 traded lines, and the firm noted a detail that has confounded compliance staff: not a single one of those lines falls in the HTSUS vehicles chapter. Instead the annex reaches agricultural products, textiles, wood products, cement, furniture, consumer goods and selected machinery and electrical equipment from Chapters 84 and 85. Representative entries include refrigerating equipment under HTS 8418.69.01, filtering and purifying machinery parts under 8421.99.01, filling and sealing machinery under 8422.30.91, and mixing, grinding and screening machinery under 8479.82.00.
The alcoholic beverage annex covers beer, wine, cider, other fermented beverages and distilled spirits. The dairy annex runs to roughly 52 classifications spanning specified milk and cream products, whey, lactose and casein.
Certain categories are excluded. Articles already subject to Section 232 restrictions are carved out, which removes steel, aluminum, copper and their derivatives, passenger and commercial vehicles and parts, specified wood products, semiconductors and patented pharmaceuticals from the Section 338 lists. Qualifying civil aircraft and parts under General Note 6 are excluded, although unmanned aircraft are not. Energy, potash, fish and certain critical minerals do not appear on the annexes. Relief under many Chapter 98 provisions is preserved, meaning the duty applies only to the value of foreign repairs, alterations or processing, or to the value of an article assembled abroad less the value of United States content.
Goods admitted to a United States foreign trade zone on or after August 19 must enter under privileged foreign status and become subject to the duty on consumption entry, closing an avenue some importers had considered.
The firm also flagged that Section 338 duties appear to stack on top of other regimes such as Section 301, rather than displacing them.
The three grievances
The Section 338 proclamations rest on three specific findings, each of which is procedurally simple to resolve and politically difficult for Ottawa to concede.
The first is Canada’s 25 per cent surtax on United States-origin motor vehicles, which applies exclusively to American imports and not to vehicles from any other source. That measure was itself Canadian retaliation, imposed in response to American auto tariffs.
The second is the decision by every Canadian province and territory, beginning in March 2025, to halt the purchase, distribution or retail sale of United States alcoholic beverages while continuing to stock product from other countries. Because provincial liquor boards are state trading enterprises, that decision is attributable to Canada in a way a private boycott would not be.
The third is Canada’s administration of dairy tariff-rate quotas under CUSMA. The American complaint is not about the size of the quotas but about their allocation. Washington argues that Canada imposes more restrictive eligibility criteria on United States suppliers than it applies to European Union suppliers under the Canada-European Union Comprehensive Economic and Trade Agreement.
Al Mussell, a Canadian agricultural economist and policy analyst, told BNN Bloomberg on Thursday that the American objective is direct access to Canadian retailers so that United States processors can move premium product into the market. He said conceding on that point is “not in the Canadian interest.”
United States Secretary of Agriculture Brooke Rollins told reporters outside the White House on Thursday that agriculture had been elevated to the top of the American list. “My great friend Scott Bessent, Howard Lutnick, and Jamieson Greer, they have made, alongside President Trump and with his direction, agriculture as the No. 1 issue as they are moving into these rooms and have these discussions,” she said. “The president has not been shy about his frustration with Canada and especially with dairy and what Canada’s rules have done to our incredible dairy producers in America.”
What appears to be on the table
Neither government has published terms. What is known comes from officials speaking on condition of anonymity and from reporting by Bloomberg, CTV News and The Globe and Mail.
Bloomberg reported on August 19 that the tentative package would lower tariffs on certain Canadian steel and aluminum exports to 25 per cent from the current 50 per cent Section 232 rate, with the reduction not applying uniformly and with different rates possible on some derivative products. Talks over exclusions and scope continued through Wednesday afternoon.
On autos, The Globe and Mail has reported that Ottawa was weighing a proposal that would see Canada accept reduced United States auto tariffs in the range of 10 to 15 per cent while dropping its retaliatory levies on American-built vehicles, with Washington maintaining the existing exemption for the value of American content in cars exported from Canada.
Multiple sources told CTV News that sectoral tariff reductions are in the agreement but that none of those sources knew the scope. Those same sources said the detail of the sectoral numbers will “make or break the deal” politically for the Prime Minister.
Softwood lumber, by most accounts, is not in the package. William Pellerin, an international trade lawyer, told CTV News Channel on Thursday that leaving lumber out disadvantages producers in Quebec, British Columbia and Alberta. “It would have been nice relief, but I think we probably didn’t have enough cards to play to also get some relief on that sector,” he said.
Derek Nighbor, president and chief executive of the Forest Products Association of Canada, framed the omission in employment terms, noting that the forest products industry employs close to 200,000 Canadians, “more than auto, steel and aluminum combined.” He said the sector remains hopeful and described lumber as “clearly an outlier.” Under the current duty structure, he said, Canadian producers are ceding market share to American, Austrian, Swedish and German mills, because European shipments carry only a 15 per cent premium.
The President added an unexpected element on Tuesday night by writing that the Keystone XL pipeline “may be awoken from the grave.” Dennis McConaghy, a former Canadian energy executive, told CTV Your Morning on Thursday that a revival would be mutually beneficial because Canadian heavy crude suits United States refining configurations, while acknowledging that the alternative of shipping incremental production to the West Coast has always carried construction risk.
Reaction across the country
The Canadian Chamber of Commerce welcomed the pause without pretending it was a resolution. President and chief executive Candace Laing said the three-day delay offered businesses some relief but fell short of the certainty a signed interim agreement would provide. “This limbo state is not anyone’s preferred outcome,” she said.
Premiers have divided along predictable lines. Nova Scotia’s Tim Houston described himself as optimistic and said the dispute had been a wake-up call on diversification, pointing to his own trip to an energy conference in Banff to promote Nova Scotia gas and oil opportunities. British Columbia’s David Eby said no agreement would deliver everything Canada wanted but credited the federal side with substantial progress across strategic sectors. Saskatchewan’s Scott Moe said he hoped for reductions covering steel, aluminum, autos and lumber. Quebec’s Christine Frechette said it was too early to judge and that she needed more information.
Manitoba’s Wab Kinew was the sharpest dissenter. Speaking to reporters in Winnipeg and later to Winnipeg radio station 680 CJOB, he said the tentative deal “will not be right for him” while adding, “it’s not about me. It’s about Team Canada.” He indicated the Gerdau mill in Selkirk, Manitoba appears headed for a lower tariff but one still “way higher than it was two years ago.” He also reserved the right to reverse course, saying that “we know that this guy is very erratic, the American president, and he may go back on his word, as he’s done countless times.”
Newfoundland and Labrador’s Tony Wakeham, who has been among the more forthcoming premiers, said the Prime Minister told first ministers the agreement would not eliminate United States tariffs but could leave Canada with the lowest tariff impact of any affected country.
In the Commons, Conservative House Leader Andrew Scheer said he was cautiously optimistic but worried about the price. “My hope is that we get an elimination of tariffs. It sounds like Canada has given up,” he said, adding that a settlement leaving 25 per cent on steel and aluminum would leave workers “scratching their heads.”
Ralph Goodale, Canada’s High Commissioner to the United Kingdom and a member of the Prime Minister’s advisory council on Canada-United States economic relations, told CTV News Channel that the joint appearance by LeBlanc and Greer on Wednesday signalled that “we’re very much in the end game.” He also cautioned that Canadians will be wary, noting that “the reliability of the arrangement is always going to be a question in Canadians’ minds.”
The economics of the standoff
Both governments had reasons to avoid the cliff.
Nearly 72 per cent of Canada’s goods exports went to the United States last year, a concentration that makes even a narrowly targeted American measure a macroeconomic event in Canada. The US$20 billion covered by the three proclamations represents roughly 5 per cent of the total value of United States imports from Canada, a share small enough to be survivable in aggregate and large enough to be devastating for the specific firms inside it.
On the American side, the arithmetic runs through consumer prices and a calendar. Section 338 duties are paid by United States importers of record, who generally attempt to pass them through. Imposing a 50 per cent duty on furniture, cement, machinery and consumer goods ahead of November midterm elections, in an environment where voters are already frustrated by the cost of living, carries obvious political risk.
Ryan Majerus, a partner at King & Spalding and a former United States trade official, captured the mutual incentive before the delay was announced. “I don’t think either side really wants these tariffs to come into effect,” he said. “There’s a pretty strong push on both sides to find an off-ramp here.”
Michael Harvey, executive director of the Canadian Agri-Food Trade Alliance, described the pause as averting an “escalatory spiral.” He said his members are not directly hit by the current lists but have faced “an increasing level of political risk that’s made it difficult to make business decisions to invest.” The United States still absorbs 70 per cent of Canadian agri-food exports. His summary of the sector’s mood was carefully calibrated: “Our situation is of confidence, but not too much confidence.”
The legal question that has not gone away
Even a signed agreement tonight would leave a substantial legal overhang.
The Supreme Court of the United States ruled in February that the President had overstepped his authority in imposing the IEEPA-based tariffs, striking them down and opening the door to refunds for importers. Canada had been subject to a 35 per cent IEEPA tariff on non-CUSMA-compliant goods, and 10 per cent on energy and critical minerals, until that ruling. A 10 per cent Section 122 global tariff expired on July 24, 2026.
Section 338 was the administration’s answer to the loss of IEEPA authority. Because it has never been used, the open questions are foundational rather than technical. Holland & Knight identified two in particular: whether Section 301, enacted decades later as a comprehensive response to foreign trade barriers, superseded Section 338 by implication, and whether the International Trade Commission must conduct an investigation before duties can be proclaimed. The firm expects litigation in the United States Court of International Trade.
For Canadian exporters, that produces an awkward strategic position. A negotiated settlement removes the immediate commercial threat but also removes the plaintiffs. If the duties never take effect, no importer pays them, no protest is filed, and the statute’s validity goes untested. The instrument then remains available, fully loaded, for the next dispute.
What importers and exporters should do now
For Canadian firms shipping into the United States, and for the American importers who buy from them, the practical checklist has not changed with the pause. It has only become more urgent.
Classification comes first. Because the motor vehicle annex reaches so far outside the automotive sector, and because Chapters 84 and 85 entries are drawn narrowly at the eight-digit level, firms cannot assume exposure based on sector intuition. Every Canadian-origin line, including components and raw materials, needs to be checked against the annexes, and the Section 232 carve-out needs to be confirmed rather than presumed.
Contracts come second. Supplier agreements need review for duty-risk allocation, price adjustment mechanisms, force majeure language and tariff-escalation triggers. Where the incidence of a 50 per cent duty is ambiguous between buyer and seller, that ambiguity becomes a dispute the moment the duty attaches.
Foreign trade zone status is a live issue for anyone using a zone. Covered goods admitted on or after August 19 must be in privileged foreign status, and the duty attaches on consumption entry rather than on admission.
Finally, firms should assume that today’s outcome, whatever it is, is not permanent. The statute permits suspension, amendment and revocation at will, and permits escalation to a full import ban. A deal signed tonight is a deal that can be reopened.
The CUSMA review process supplies the wider frame. Carney spoke with Mexican President Claudia Sheinbaum on Thursday, and the readout from the Prime Minister’s Office said the two leaders “underscored the importance of renewing the Canada-United States-Mexico Agreement (CUSMA) as soon as possible to provide greater certainty for North American businesses and workers.”
That is the strategic problem in a sentence. The Section 338 proclamations were issued during a review in which the United States-Canada track had lagged behind the United States-Mexico track, and the 30-day window they created was widely read in Washington and Ottawa as a device for extracting concessions before the formal review reaches its substantive phase. Whatever Canada concedes tonight on autos, alcohol and dairy will sit on the table as a starting point when the CUSMA negotiation proper begins.
Officials in both capitals were still working late Friday. The tariffs, if the pause lapses without a signed instrument, attach to goods entered for consumption or withdrawn from warehouse for consumption on or after the effective date. For a customs broker at a Windsor or Emerson crossing, that is not an abstraction. It is a timestamp.