Section 338

Section 338 Updates

Running analysis on the U.S. Section 338 tariffs and Canada’s countermeasures: what changed, what it means, and what to do about it

What this is

Section 338 of the Tariff Act of 1930 authorizes the U.S. president to impose duties of up to 50 per cent on goods from a country found to discriminate against American commerce, a provision that sat unused for nearly a century until it was invoked against Canada in 2026. 

This page tracks what the measures actually require, how Canada’s countermeasures interact with them, and what manufacturers on both sides of the border need to do next. We’ll add to it as the situation develops.

AUGUST 31, 2026

Canada-U.S. Tariffs Enter a New Phase: What Manufacturers Need to Know

Canadian manufacturers are entering a new phase of trade uncertainty as U.S. Section 338 tariffs take effect and Canada prepares to implement its own countermeasures on September 8.

While much of the attention has centred on the 50 per cent U.S. tariff, Canada’s response is not a blanket 50 per cent tariff on U.S. goods. Canada’s counter-tariffs are targeted at specific products, with rates of 15, 25 and 50 per cent depending on the tariff classification.
That distinction is important for manufacturers on both sides of the border.

The question is no longer simply whether a company does business between Canada and the United States. Businesses need to understand which products are affected, which tariff rate applies and how that additional cost moves through their supply chain.

And they need to be prepared for that answer to change.

Canada’s response is targeted

Canada’s counter-tariff list appears carefully curated to both offset the impact of U.S. measures and apply political pressure in the United States.

Canadian officials have indicated that products were selected, where possible, with consideration for the states and industries that produce them. The strategy creates pressure not only through the cost of the tariff itself, but by affecting U.S. industries and regions that may have an incentive to speak out against an escalating trade dispute with Canada.

For Canadian manufacturers, however, the countermeasures introduce another layer of complexity.

A company importing U.S. materials, equipment or components may face an additional Canadian tariff of 15, 25 or 50 per cent depending on the product. That same manufacturer could then face an additional 50 per cent U.S. Section 338 tariff when its finished Canadian product crosses the border in the other direction.

Some manufacturers could therefore find themselves caught between tariff measures on both sides of the border.

The U.S. market may look very different at 50 per cent

For Canadian exporters affected by Section 338, the economics of selling into the United States can change almost immediately.

An additional 50 per cent tariff is significant enough that companies have to determine whether they can absorb the cost, pass it along to customers or continue serving the market at all.

Some Canadian businesses are already questioning whether they can maintain their competitive position in the United States under these conditions.

For manufacturers that have spent years developing U.S. customers, simply walking away is not an easy answer. But businesses may have to reassess whether certain products or sales remain commercially viable.

That could mean increasing prices, reviewing existing sales agreements and contracts, finding efficiencies elsewhere in the supply chain or pursuing customers in different markets.

Know your actual exposure

Before making any significant changes, manufacturers need to understand exactly how the measures apply to their business. This is particularly important with Canada’s countermeasures because the applicable rate varies. Seeing your industry or a familiar product description on a tariff list does not provide enough information to determine the financial impact. Manufacturers should be reviewing their individual product lines, tariff classifications, country of origin, current duty treatment, suppliers and sales exposure.

The question should not simply be:
“Is my industry affected?”
It should be:
“Which of my products are affected, at what rate, and what does that mean to my business?”

A manufacturer should not assume every U.S.-origin input it purchases will face a 50 per cent Canadian counter-tariff. Depending on the tariff classification, the countermeasure may be 15, 25 or 50 per cent, or the product may not be covered by the countermeasure at all.

The same product-level analysis is necessary for Canadian goods entering the United States.

Once the exposure is known, companies can begin working through mitigation strategies based on their actual financial risk rather than reacting to a headline tariff rate.

Mitigation needs to happen on two timelines

All reasonable mitigation options should be on the table, but manufacturers also need to be realistic about how quickly different strategies can be implemented. Changing suppliers or restructuring a supply chain is not typically a two or three-week exercise.

Manufacturers have qualification requirements, production specifications, contractual obligations, established logistics networks and lead times. An alternative supplier may ultimately reduce tariff exposure, but qualifying that supplier and moving production takes time.

That creates two different mitigation timelines.

In the immediate term, businesses may be able to review pricing, contracts, transportation, inventory, customers and alternative markets.

Manufacturers that cannot stop doing business in the United States can also examine whether costs can be reduced elsewhere in the supply chain to help offset the additional tariff expense.

Longer term, alternative sourcing, supply-chain restructuring and market diversification may become increasingly important if the tariffs remain in place.

Contracts need another look

The speed at which tariff measures are changing also creates a contractual issue.

Businesses should understand who is responsible for additional tariff costs under existing agreements and whether their contracts adequately address future changes in tariff treatment.

That matters beyond the measures currently in place.

Manufacturers negotiating new contracts may need to think differently about how they address tariff changes, pricing adjustments and other unexpected trade costs.

The tariff that matters six months from now may not be one that exists today.

New markets may be closer than expected

The trade dispute has also created an unexpected opportunity for some Canadian businesses.

Companies that have publicly discussed the potential loss of U.S. customers have, in some cases, seen Canadians rally behind them and purchase their products domestically.

That does not mean the Canadian market can replace U.S. sales for every manufacturer. The scale of the U.S. market makes that unrealistic for many businesses.

But it does demonstrate why companies should not automatically assume their existing geographic sales mix is their only option.

New Canadian customers, alternative export markets and different sales channels should all be part of the conversation.

The uncertainty may be harder than the tariff

The actual cost of these tariffs is jarring to any business leader.

If companies had months to assess the impact, evaluate suppliers, negotiate contracts and adjust their supply chains, they could create a relatively concrete response.

Instead, significant trade measures are being introduced over very short periods. The uncertainty, and particularly the speed at which that uncertainty is being created, may ultimately be the bigger challenge.

If the United States responds to Canada’s countermeasures with additional tariffs, does Canada respond again? If negotiations move forward, which measures remain? If additional products or sectors are targeted, how quickly will businesses need to react?

There are still many unknowns.

Manufacturers are accustomed to developing plans several years into the future. That becomes considerably harder when the assumptions underlying those plans can change within weeks.

Build pivots, not just plans

For businesses on both sides of the border, the focus right now should be on knowing their exposure, developing viable pivots and remaining as fluid as possible. Instead of relying on one plan, businesses may need several playbooks in their back pockets.

What happens if the current tariffs remain in place for six months?
What if additional products are added?
Which suppliers could become alternatives?
Which customers or markets could absorb additional production?
At what tariff rate does a particular U.S. sale stop being profitable?

Businesses that understand those answers before the next announcement will be in a much stronger position to react.

One of the simplest tools manufacturers can develop is also one of the most useful: an accurate, current database of their products, tariff classifications, origin, applicable duties and sales or import values. That does not necessarily require sophisticated software. A well-maintained spreadsheet can allow a manufacturer to update a tariff rate and quickly model what a new measure means across its product portfolio.

When another tariff announcement arrives, management can then assess the impact quickly rather than starting from the beginning.

The Canada-U.S. trading relationship remains enormously important to manufacturers on both sides of the border. Businesses cannot control how negotiations unfold, whether additional tariffs are imposed or when the next announcement will come.

They can control how well they understand their exposure and how prepared they are to pivot. In the current trade environment, that may be far more valuable than trying to predict what comes next.

AUGUST 22, 2026

Section 338 Tariffs on Canadian Goods: A Practical Guide for Importers & Exporters

The United States has imposed an additional 50% ad valorem tariff on certain products of Canada under Section 338 of the Tariff Act of 1930.

The measures do not apply to every Canadian product entering the United States. Coverage depends on the product’s classification under the Harmonized Tariff Schedule of the United States (HTSUS), together with the exclusions and implementation provisions contained in three separate presidential proclamations.

For Canadian exporters and U.S. importers, determining exposure requires more than asking whether a product is made in Canada. Businesses should review the product’s HTSUS classification, country of origin, applicable Section 338 tariff provision, Section 232 status, customs value and other applicable tariff treatment.

This guide explains how Section 338 works, provides direct access to the official U.S. government documents and outlines what businesses should review to understand their exposure.

Section 338 at a Glance

Additional tariff: 50% ad valorem
Country affected: Canada
Effective date: August 22, 2026 at 12:01 a.m. Eastern Time
USMCA/CUSMA exemption: No. Covered goods may be subject to Section 338 even if they qualify as originating under the USMCA.
All Canadian goods affected: No. The measures apply to specified HTSUS classifications.
Section 232 goods: The Section 338 proclamations provide that the additional duties do not apply to articles subject to Section 232 duties.
Three separate Section 338 actions: Alcoholic Beverages, Dairy and Motor Vehicles.

What Is Section 338?

Section 338 of the Tariff Act of 1930, codified at 19 U.S.C. § 1338, gives the President authority to respond when a foreign country discriminates against U.S. commerce or imposes unreasonable or unequal restrictions that disadvantage U.S. commerce.

Among its authorities, Section 338 permits additional duties of up to 50% ad valorem.

On July 20, 2026, three separate presidential proclamations invoked Section 338 in response to U.S. findings concerning Canada’s treatment of:

  • U.S. alcoholic beverages
  • U.S. dairy products
  • U.S. motor vehicles and automotive trade

Although those three disputes triggered the actions, the Canadian products selected for additional tariffs extend well beyond alcohol, dairy and automobiles.

When Did the Section 338 Tariffs Take Effect?

The original July 20 proclamations established an effective date of August 19, 2026.

On August 18, 2026, the President issued a subsequent proclamation temporarily suspending the additional duties for three days while negotiations with Canada continued.

The subsequent proclamation amended the effective date contained in Annex II of all three original actions.

The revised effective date is: 12:01 a.m. Eastern Time on August 22, 2026.
Official source: White House — August 18 Temporary Suspension and Effective-Date Amendment

Businesses reviewing the original July documents should keep this amendment in mind because the original Annex II documents state the earlier August 19 effective date.

How Much Is the Section 338 Tariff?

Covered Canadian products are subject to an additional 50% ad valorem duty.

For example:
Customs value: US$100,000
Section 338 rate: 50%
Potential additional Section 338 duty: US$50,000

Other ordinary customs duties, fees or applicable trade remedies may also need to be considered, subject to the exclusions and interaction rules established in the proclamations.

Does USMCA/CUSMA Exempt Canadian Goods?

No. USMCA/CUSMA qualification does not, by itself, exempt a covered Canadian product from Section 338.

The White House has stated that the Section 338 tariffs apply to covered goods regardless of whether the goods qualify as originating under the USMCA.

That means a product can be:
Canadian origin + USMCA qualifying + subject to Section 338.
USMCA eligibility and Section 338 applicability therefore need to be reviewed separately.
Official source: White House — Fact Sheet: Section 338 Tariffs on Canada

Which Canadian Products Are Affected?

Section 338 is not a blanket 50% tariff on every Canadian product.

The three actions establish separate Chapter 99 provisions:
Alcoholic Beverages action — HTSUS 9903.03.12
Dairy action — HTSUS 9903.03.13
Motor Vehicles action — HTSUS 9903.03.14

The underlying product coverage spans numerous industries and extends well beyond the industries named in the three proclamations.

Affected classifications include products across areas such as food and beverages, wood and paper, plastics, building materials, textiles and apparel, sporting goods, consumer products and industrial merchandise.

The HTSUS classification is critical.
Businesses should not determine Section 338 exposure based only on the name or general description of a product.
The actual HTSUS classification and the legal provisions contained in Annex II should be reviewed.

Official Section 338 Proclamations & Annexes

There are three separate Section 338 actions. Because the product lists extend beyond the industry named in each proclamation, businesses evaluating exposure should not assume that only one action is relevant to them.

1. Alcoholic Beverages — Proclamation 11046
This action was issued in response to U.S. findings regarding Canadian restrictions on the purchase, distribution and retail sale of U.S. alcoholic beverages.

Official White House documents:
Read Proclamation 11046 — Alcoholic Beverages
View Annex I — Product Descriptions
View Annex II — HTSUS Modifications & Tariff Provisions

Chapter 99 provision: 9903.03.12
The product coverage associated with this action extends beyond alcoholic beverages themselves.

2. Dairy — Proclamation 11047
This action was issued in response to U.S. findings regarding Canada’s tariff-rate quota allocation treatment for U.S. cheese under the USMCA compared with treatment provided to European Union cheese under CETA.

Official White House documents:
Read Proclamation 11047 — Dairy
View Annex I — Product Descriptions
View Annex II — HTSUS Modifications & Tariff Provisions

Chapter 99 provision: 9903.03.13

3. Motor Vehicles — Proclamation 11048
This action was issued in response to U.S. findings concerning Canada’s tariff treatment and tariff-rate quota system involving U.S. motor vehicles.

Official White House documents:
Read Proclamation 11048 — Motor Vehicles
View Annex I — Product Descriptions
View Annex II — HTSUS Modifications & Tariff Provisions

Chapter 99 provision: 9903.03.14
This action contains broad product coverage extending well beyond motor vehicles.

Annex I vs. Annex II: What’s the Difference?

Understanding the two documents is important when conducting a Section 338 review.

Annex I — Product Descriptions
Annex I provides a useful reference showing product descriptions associated with the HTSUS provisions covered by the action. It is helpful for understanding the breadth of products involved. However, the annex cautions that product descriptions are provided for informational purposes and do not limit the legal scope of the tariff provisions.

Practical takeaway:
Use Annex I to understand and navigate the product coverage, but do not rely on a plain-language description alone to determine whether Section 338 applies.

Annex II — HTSUS Implementation
Annex II contains the actual modifications to the Harmonized Tariff Schedule and establishes the applicable Chapter 99 provisions and related U.S. notes. For a customs applicability review, Annex II is critical. Businesses should compare their underlying HTSUS classifications against the provisions identified in Annex II and review the applicable Chapter 99 treatment.

Are There Section 338 Exclusions?

Yes. The proclamations contain important exclusions and interaction rules.

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.

The proclamations also provide an exclusion for qualifying articles covered by the WTO Agreement on Trade in Civil Aircraft, except unmanned aircraft as specified in the proclamations.

The White House fact sheet additionally identifies energy, potash and certain other products, including fish and critical minerals, as outside the Section 338 tariff actions.
Official source: White House — Section 338 Canada Fact Sheet

An exclusion should still be validated against the actual classification and applicable tariff treatment.

How Does Section 338 Interact With Section 232?

This is one of the most important parts of a Section 338 review. The proclamations state that the additional Section 338 duties shall not apply to articles subject to duties under Section 232.

This can be relevant to merchandise involving:

  • Steel
  • Aluminum
  • Automobiles and automobile parts
  • Certain derivative products
  • Other merchandise subject to Section 232 actions

Therefore, appearing within Section 338 product coverage does not automatically mean an additional 50% duty is payable. The complete tariff treatment must be reviewed.

How to Determine Whether Your Product Is Affected

Businesses can use the following process as an initial Section 338 screening.

Step 1 — Confirm the HTSUS Classification

Identify the full HTSUS classification currently being declared to U.S. Customs and Border Protection.
Do not assume a classification is correct simply because it has historically been used by a broker, supplier or importer.
You can search the current tariff schedule through the U.S. International Trade Commission HTS Search.

Step 2 — Confirm Country of Origin

Determine whether the merchandise is legally considered a product of Canada for U.S. customs purposes.
Country of export and country of origin are not necessarily the same.
For products involving inputs or manufacturing operations in multiple countries, a more detailed origin analysis may be necessary.

Step 3 — Review All Three Section 338 Actions

Do not select an annex solely based on your industry. A company that does not sell alcohol, dairy or automobiles may still have products covered by one of the actions.

Review the official product coverage associated with:
Alcoholic Beverages — Annex I
Dairy — Annex I
Motor Vehicles — Annex I
Then validate potential matches against the corresponding Annex II.

Step 4 — Review the Controlling HTSUS Provisions

For potential matches, review the applicable Annex II:
Alcoholic Beverages — Annex II
Dairy — Annex II
Motor Vehicles — Annex II

Remember that the August 18 proclamation subsequently changed the effective date stated in these original documents from August 19 to August 22, 2026.

Step 5 — Check Section 232 Applicability

Determine whether the article is subject to Section 232 duties. If it is, the Section 338 exclusion contained in the proclamations may apply.

Step 6 — Review Other Exclusions

Determine whether the merchandise falls within another exclusion established by the applicable proclamation and HTSUS provisions.

Step 7 — Quantify the Financial Exposure
Once applicability has been established, calculate the potential additional duty against actual import values.

For example:
Annual customs value: US$2,000,000
Section 338 additional duty: 50%
Potential annual Section 338 exposure: US$1,000,000

At a 50% additional duty rate, classification and applicability errors can have a significant financial impact.

What Should Importers and Canadian Exporters Review Now?

A Section 338 impact assessment should consider:

  • Current HTSUS classifications
  • Country-of-origin determinations
  • USMCA qualification
  • Coverage under all three Section 338 actions
  • Applicable Annex II provisions
  • Section 232 applicability
  • Other exclusions
  • Customs valuation
  • Historical and projected U.S. import volumes
  • Current customs entry data
  • Incoterms and contractual responsibility for duties
  • Supply-chain alternatives

The goal is to answer three questions:
Are our products affected?
What is our financial exposure?
What compliant mitigation opportunities are available?

Potential Section 338 Tariff Mitigation Strategies

There is no single mitigation strategy that works for every importer. The appropriate approach depends on the product, classification, manufacturing process, origin, valuation structure and supply chain.

Classification Review

Confirm that the HTSUS classification being used is legally correct.

An incorrect classification could cause a business to pay Section 338 duties unnecessarily—or fail to pay duties that are legally required.

Any classification change must be supported by the characteristics, composition and function of the merchandise.

Section 232 Interaction Review

Determine whether the product is subject to Section 232 treatment and therefore excluded from the additional Section 338 tariff under the proclamations.

For businesses dealing with metals, automotive products or derivatives, this should be an important part of the review.

Country-of-Origin Review

For products involving materials or processing in multiple countries, confirm the correct U.S. country-of-origin determination.

Origin cannot simply be changed to avoid tariffs. Any determination must be supported by the actual manufacturing operations and applicable U.S. customs rules.

Customs Valuation Review

Because Section 338 is an ad valorem tariff, customs value directly affects the amount of additional duty.

Businesses should confirm that the value declared to CBP is correct and determine whether any lawful valuation strategies are available within their transaction structure.

Duty Drawback and Refund Review

Businesses that import merchandise into the United States and subsequently export qualifying merchandise should determine whether duty drawback or another refund mechanism may be available.

Eligibility is fact-specific. Businesses should not assume Section 338 duties are recoverable without reviewing the applicable customs rules.

Supply-Chain Review

Where Section 338 creates significant long-term exposure, businesses may need to evaluate sourcing, manufacturing or distribution alternatives.

Any restructuring should be reviewed against U.S. requirements governing country of origin, substantial transformation, classification, customs valuation and transshipment.

Tariff mitigation must be both commercially practical and legally supportable.

Foreign Trade Zone Treatment

The proclamations also establish specific treatment for covered merchandise admitted into a U.S. Foreign Trade Zone.

Subject merchandise admitted into an FTZ on or after the applicable effective date generally must be admitted in privileged foreign status, except where otherwise provided.

Companies using FTZs should therefore include Section 338 in their customs review rather than assuming FTZ admission eliminates the additional tariff.

Don’t Review Section 338 in Isolation

Section 338 is only one component of landed cost.

Depending on the merchandise, businesses may need to consider:
Base HTSUS duty + Section 338 + other applicable trade remedies + fees and charges

Just as importantly, the programs can interact. The fact that a product appears within Section 338 coverage does not, by itself, establish the final duty treatment.

Why HTS Classification Matters More Than Ever

Section 338 demonstrates why tariff classification is much more than an administrative field on a customs entry.

Classification can determine:

  • Whether the additional 50% tariff applies
  • Which Section 338 action applies
  • Which Chapter 99 provision is required
  • Whether an exclusion is available
  • Whether Section 232 changes the result
  • Whether preferential treatment remains relevant
  • Whether duties may have been overpaid

Businesses that have not recently validated their classifications should consider doing so before calculating their Section 338 exposure.

Official Section 338 Resources

For convenience, the key official U.S. government resources are collected below.

Alcoholic Beverages — 9903.03.12
Proclamation 11046
Annex I — Product Descriptions
Annex II — HTSUS Modifications

Dairy — 9903.03.13
Proclamation 11047
Annex I — Product Descriptions
Annex II — HTSUS Modifications

Motor Vehicles — 9903.03.14
Proclamation 11048
Annex I — Product Descriptions
Annex II — HTSUS Modifications

Subsequent Section 338 Action
August 18, 2026 — Temporary Suspension and Effective-Date Amendment

Additional Official Resources
White House — Fact Sheet: President Trump Imposes Additional Tariffs on Canada
U.S. International Trade Commission — HTS Search

Because Section 338 allows the President to suspend, revoke, supplement or amend an action, businesses should confirm they are reviewing the current HTSUS and most recent presidential or CBP actions before making entry decisions.

Need Help Determining Whether Section 338 Applies to Your Products?

Peacock Tariff Consulting provides Section 338 Impact Reviews for Canadian exporters and U.S. importers.

A Section 338 Impact Review can include:

  • Screening product data against the Section 338 tariff provisions
  • Validation of potentially affected HTSUS classifications
  • Quantification of potential additional duty exposure
  • Section 232 interaction review
  • Country-of-origin analysis
  • Customs valuation considerations
  • Identification of potential mitigation opportunities
  • Recommended next steps

Concerned Section 338 may affect your imports?

Contact us to discuss a Section 338 Impact Review.

Not Sure What Your Exposure is?

We help manufacturers screen their portfolio, rebuild landed cost models and prepare for what comes next.

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