Canadian negotiators returned to Washington this week with 21 days left before the first Section 338 tariffs in American history take effect, and with Prime Minister Mark Carney publicly closing the door on the one piece of leverage his loudest provincial allies want him to use
OTTAWA, July 31, 2026
Canada’s chief trade negotiators met U.S. Trade Representative Jamieson Greer in Washington on Wednesday in the first face to face session since President Donald Trump signed three proclamations imposing an additional 50 per cent duty on roughly US$20 billion of Canadian goods, according to a social media post from Canada-U.S. Trade Minister Dominic LeBlanc confirming the meeting. No readout was issued by either government, and CTV News and BNN Bloomberg both reported that the intensified negotiations both capitals promised on July 20 have been conducted almost entirely out of public view.
The meeting, attended by LeBlanc and Chief Trade Negotiator Janice Charette, came as the clock ran down on a 30 day statutory window that expires at 12:01 a.m. Eastern on August 19, when the Section 338 duties begin applying to goods entered for consumption or withdrawn from warehouse. The Globe and Mail reported that LeBlanc returned to Washington on Thursday, July 30, to continue the discussions.
A day earlier, standing beside Alberta Premier Danielle Smith in Red Deer, Carney all but ruled out the retaliatory option that several premiers have pressed on him since the proclamations landed. Asked whether he would restrict Canadian energy exports to the United States as a bargaining chip, the Prime Minister said he understood the argument conceptually but rejected it in practice.
“I don’t see the value of doing (it). I mean, I can understand conceptually, but I don’t see the value,” Carney said, as reported by CP24 and CTV News.
He then framed the refusal as a matter of commercial reputation rather than political caution. “Being a reliable supplier is important,” he said. “People trust us. And so, when you’re supplier of a key commodity, (a) key service, you’ve got to think really hard about not supplying. So that very much colours it.”
Carney declined to specify what Canada would do if August 19 arrives without an agreement. “First and foremost, we’re engaged in those negotiations to look to find a mutually beneficial solution, and we’re only going to accept a solution that works for Canadians,” he said. “But I’m not going to be drawn on what we’re going to do.”
A statute unused since 1930
The measure Canadian negotiators are trying to defuse is unlike anything Canadian exporters have faced in the eighteen months of this trade conflict. Section 338 of the Tariff Act of 1930, a provision that no American president had ever invoked, permits the President to impose duties of up to 50 per cent, the statutory ceiling, on the goods of any country found to discriminate against United States commerce. It requires no investigation by the International Trade Commission, no report from the Department of Commerce, no hearing, no consultation with Congress and no expiry date. Subsection (b) of the same statute authorises escalation to a complete import ban.
Trump signed three separate proclamations on July 20, each citing a distinct Canadian practice. They were published in the Federal Register on July 23 at Volume 91, Number 140, pages 46663 to 46688.
The alcohol proclamation cites the decision by all but two Canadian provinces and territories to stop purchasing, distributing or retailing American alcohol from March 2025 while leaving product from other countries untouched. The administration put the resulting damage at roughly US$582 million, an 81 per cent decline in American alcohol sales to Canada between March 2025 and February 2026, from about US$718 million to US$137 million.
The motor vehicle proclamation cites Canada’s 25 per cent surtax on United States origin vehicles, which applies only to American product, and alleges that the administration of Canada’s tariff rate quotas effectively compels American automakers to invest in Canada. The cited evidence is a 22 per cent drop in Canadian imports of American motor vehicles between April 2025 and March 2026, worth about US$5.6 billion, from roughly US$25.9 billion to US$20.3 billion.
The dairy proclamation alleges that Canada’s tariff rate quotas on American cheese are administered more restrictively than the quotas Canada extends to European cheese under the Comprehensive Economic and Trade Agreement.
Together the three annexes cover approximately 554 eight digit tariff lines, with 439 in the motor vehicle annex, 63 in the alcoholic beverages annex and 52 in the dairy annex, entering the tariff schedule under new Chapter 99 subheadings 9903.03.12, 9903.03.13 and 9903.03.14. The Office of the United States Trade Representative put the affected trade at nearly US$20 billion annually, equivalent to roughly 4.9 per cent of American goods imports from Canada in 2024 and about 5 per cent of the US$382 billion imported in 2025.
The most consequential feature of the package is not the rate. It is a single sentence in the White House fact sheet: “These Section 338 tariffs apply to all covered goods regardless of whether a good originates under the U.S.-Mexico-Canada Agreement (USMCA).”
Every prior American measure aimed at Canada in this dispute preserved a carve out for goods qualifying under the continental agreement. The tariffs imposed under the International Emergency Economic Powers Act exempted CUSMA originating goods before the Supreme Court struck the statute’s tariff authority down in February. The 10 per cent global surcharge imposed under Section 122 as a replacement exempted them as well, and expired on July 24 when its 150 day statutory limit ran out. The Section 301 forced labour tariff that took effect on July 24, which applies a 10 per cent duty to Canada alongside the United Kingdom, India and Mexico, exempts goods entered duty free under CUSMA through subheading 9903.05.93.
Section 338 does not. For the first time, a Canadian exporter’s certificate of origin buys nothing.
The proclamations are also explicit that the new duty stacks. Clause (2) of each states that “the duties imposed in this proclamation are in addition to any other duties, taxes, fees, exactions, and charges applicable to such products.” The same clause carves out goods already subject to Section 232 measures, which is why steel, aluminum, copper, vehicles and parts, wood products, semiconductors and patented pharmaceuticals are untouched by the new layer. Energy, potash, fish and critical minerals are excluded outright.
The paperwork does not match the press release
Trade counsel who have worked through the annexes have arrived at an uncomfortable conclusion about the motor vehicle proclamation, the largest of the three. With the exception of motorcycles, it contains no lines from the vehicles chapter of the American tariff schedule at all.
What it does contain is honey, wood and plywood, textiles, hand tools, furniture, cement, glassware, sporting goods including hockey sticks, cosmetics, paper, and machinery and electrical equipment drawn from Chapters 84 and 85. The Center for Strategic and International Studies noted the discrepancy bluntly, observing that the list of tariffed items does not in fact include automobiles or auto parts.
For Canadian exporters the practical effect is that the sectors named in the headlines are largely insulated, while the firms actually caught are ones that have spent eighteen months on the sidelines of this dispute.
That is precisely what Dennis Darby, president and chief executive of Canadian Manufacturers and Exporters, described to BNN Bloomberg on July 22. “We’re in for a rocky road,” he said. “We’re hearing from companies who we haven’t really heard from much in the last year and a half because they had been mostly exempt.”
Darby also pointed to the underlying anxiety about the continental agreement itself, which the United States declined to renew earlier this month, triggering rolling annual reviews for up to a decade. “In fact, 73 per cent of our members across Canada say failure to get a renewal of CUSMA will lower their confidence and future expectations for the company,” he said. On the legality of the American measures, he was direct: “The Canadian government was very clear that those were in contravention of CUSMA, but the U.S. went ahead anyway.”
Data compiled by the Global Trade Alert tariff estimation engine, weighted on 2024 American imports of US$410 billion from Canada, illustrates where the burden falls. Canada’s average applied American tariff rate stood at 5.35 per cent on July 31 and rises to 7.16 per cent on August 20 by that organisation’s calculation, although a Global Trade Alert blog post has put the post-implementation figure at 6.27 per cent. Beneath the average, the chapter level movements are severe. Chapter 85, electrical machinery and equipment, more than doubles from 5.55 per cent to 12.39 per cent. Chapter 39, plastics, jumps from 0.26 per cent to 9.20 per cent. Chapter 44, wood, climbs from 4.76 per cent to 10.85 per cent. Chapter 84, machinery, moves from 6.92 per cent to 9.06 per cent. Aluminum, at 45.50 per cent, does not move at all, because the Section 232 carve out shields it.
An economy that had just started to recover
The timing is awkward. Statistics Canada reported on Friday morning that real gross domestic product by industry rose 0.3 per cent in May, triple the agency’s own advance estimate of 0.1 per cent published on June 30, following an upwardly revised 0.6 per cent gain in April. The June flash estimate came in at 0.2 per cent, implying second quarter growth of roughly 3.4 per cent on an annualised basis, comfortably above the 2.5 per cent the Bank of Canada projected in July.
That would be the first meaningful expansion after real GDP came in flat in the first quarter, at minus 0.1 per cent annualised, following a contraction of 1.0 per cent annualised in the fourth quarter of 2025. Business capital investment fell 0.7 per cent in the first quarter, a fifth consecutive quarterly decline. Statistics Canada attributed part of the first quarter export weakness directly to trade policy, noting that exports fell 0.1 per cent “led by fewer exports of passenger cars and light trucks, which have been impacted by US tariffs.”
The Bank of Canada held its policy rate at 2.25 per cent on July 15, a sixth consecutive hold. Its July Monetary Policy Report projects growth of 0.7 per cent in 2026, rising to 1.8 per cent in each of the following two years. Governor Tiff Macklem’s assessment was cautiously constructive: “After stalling over the past year, economic growth looks to have resumed in Canada.” He added that while American trade policy “continues to be a headwind, consumers have been resilient and businesses are adapting.”
There is a significant caveat buried in that forecast. The tariff assumptions underpinning the Bank’s July projections are dated to measures in force as of July 10, ten days before the Section 338 proclamations. The table in the report puts the average American tariff rate on Canada at 5.0 per cent and the Canadian rate on American goods at 1.5 per cent, including remissions, against 0.1 per cent for the American rate before 2025. No official Canadian forecast currently incorporates the August 19 measures.
Labour market data show where the damage has already landed. The June Labour Force Survey put the unemployment rate at 6.5 per cent, down 0.4 percentage points from a year earlier, with total employment up 99,000 year over year. Manufacturing was the exception. Statistics Canada reported manufacturing employment at 1,813,800 in June, down 16,800 on the month and 19,700 from a year earlier, and offered the most direct official statement available linking the sector’s decline to trade policy: “Employment in manufacturing has recorded a net decline of 61,000 (-3.2%) from the recent peak in January 2025, coinciding with a period of tariff-related uncertainty for the sector.”
Merchandise trade figures for May, released July 7, showed record exports of $77.1 billion and a $11.6 billion surplus with the United States, the largest since January 2025. Roughly 69.7 per cent of Canadian merchandise exports went to the United States in May, based on the $53.7 billion figure in the agency’s Table 1. RBC Economics has calculated that the American share of Canadian merchandise exports fell from 75.9 per cent in 2024 to 71.6 per cent in 2025, while Canada’s share of the American import market slipped from 12.6 per cent to 11.2 per cent, the second largest decline among major American trading partners after China.
Labour breaks ranks in Washington
The most unexpected development of the week came from the American side of the border. On Thursday, United Steelworkers International president Roxanne Brown and International Association of Machinists and Aerospace Workers International president Brian Bryant sent a joint letter to Greer urging him to reconsider the tariff regime applied to Canadian imports, describing a bilateral relationship marked more by division than cooperation. BNN Bloomberg and CTV News reported the letter on July 30.
The two unions represent roughly 1.45 million workers across North America, and both have supported substantial portions of the administration’s protectionist programme. Their objection is specifically about Canada.
“Unlike our trade relationship with Mexico, U.S.-Canada trade is more balanced with wage, labor, environmental and other key issues that are aligned and compatible,” the letter states. It argues that “our priority must be to align our trade policies to address the challenges posed by unfair and predatory trade practices of countries like China, not to drive a further wedge between our nations.”
The unions were careful to distinguish this file from the wider agenda. “Our unions have supported several of the administration’s trade actions,” the letter reads. “However, we must also speak out against policies that undermine our ability to strengthen our economic and national security. Canada has been a trusted and valued partner for decades.”
The letter cites the trajectory of American goods imports from Canada: US$412 billion in 2024, US$382 billion in 2025 and US$163 billion in the first five months of 2026.
Marty Warren, the United Steelworkers Canadian national director, had framed the July 20 proclamations in sharper terms nine days earlier. “Reaching back to legislation from the 1930s and other measures deemed illegal by the U.S. Supreme Court to sidestep the agreement is both disappointing and shameful,” he said. “It undermines confidence in the United States as a reliable trading partner and does not bode well for any future agreement.” He added a warning about Ottawa’s negotiating posture: “The federal government should continue to negotiate, but we cannot be bullied into accepting a deal that sacrifices Canadian jobs, industries or our ability to make decisions in our own national interest. No deal is better than a bad deal.”
The federation is united on process, split on leverage
Premiers met in Charlottetown from July 21 to 23 for the Council of the Federation summer meeting, chaired by Prince Edward Island Premier Rob Lantz, and held a four hour session with Carney on July 23. The communiqué issued on July 22 is notable for what it omits. It contains no condemnation of Section 338 and no retaliation language.
“Premiers support efforts to negotiate a comprehensive deal that includes the full range of tariff-affected sectors, including softwood lumber, steel, aluminum, manufacturing, and auto industries,” the document reads. “Premiers urge the federal government to maintain a clear, timely consultation process with provinces and territories during negotiations.”
Behind that unanimity, the split over leverage is real. Ontario Premier Doug Ford has been the most forceful advocate of a hard response. “I have to protect the manufacturing, the auto sector, the steel sector. That’s my main focus. Ontario has the most to lose right now, and I will do everything to protect the people of Ontario,” he said on July 23. Two days earlier in Charlottetown he had gone further: “We are an energy powerhouse and we can dismantle the U.S. if we wanted to, if we all work together.” He listed electricity, potash and oil, adding that “they need to feel the pain rather than us constantly feeling the pain.”
Smith and Saskatchewan Premier Scott Moe both refused to put Alberta oil or Saskatchewan potash on the table. Smith’s framing was procedural rather than confrontational. “I think this is a window, this month that we have, to sharpen the pencil, to sharpen the focus,” she said on July 22. Moe urged LeBlanc’s team to camp out in Washington until the continental agreement is renewed, and offered a candid assessment of the odds: “I’m bullish, but I’m not entirely confident we’ll get there.”
British Columbia Premier David Eby was categorical on the alcohol question that underpins one of the three proclamations. “There is not a chance in hell that U.S. alcohol is going back on the shelf in British Columbia,” he said on July 21.
Eleven of Canada’s thirteen provinces and territories still have American alcohol out of government run stores. Alberta and Saskatchewan, both with private retail, have resumed stocking. Ontario had more than 3,600 American products off shelves as of June, and the Liquor Control Board of Ontario has spent $8 million storing the inventory. Quebec’s SAQ resumed select American products online and at SAQ Dépôt from February 12 at a 15 per cent discount, while maintaining the boycott in stores.
Carney has treated provincial delisting as a negotiating asset rather than an irritant to be cleared away. “The provinces individually took those decisions in response to a series of tariffs that were put in place, and also threats to our sovereignty,” he said on July 21, adding that any change “should only be taken, in my judgment, as part of an overall agreement.”
Spirits Canada, whose members are among the most exposed to the alcohol proclamation, is on the other side of that argument. President and chief executive Cal Bricker has asked governments to restore reciprocal market access for American alcohol through provincial distribution systems. “We are concerned that this action could trigger a cycle of retaliatory measures that harms an industry that has prospered under decades of fair and reciprocal trade,” he said on July 22. “We urge all parties to return to the negotiating table as quickly as possible.” Roughly 93 per cent of Canada’s spirits exports went to the United States in 2025, and the organisation estimates that 48 per cent of Canadian spirits production is tied to American demand.
What importers and exporters should be doing now
As of July 31 there is no Canadian counter tariff list, rate or implementation date responding to Section 338. Nor has Ottawa announced a new support package. The Large Enterprise Tariff Loan advances to Millar Western Forest Products on July 27 and Arbec Bois d’oeuvre on July 28, worth $100 million and $60 million respectively, were framed as forestry support tied to American duties and weak Asian pulp markets, not as a Section 338 response.
On the American side, there is a substantial compliance gap. No Customs and Border Protection CSMS message and no Federal Register implementing notice had issued for the Section 338 tariffs as of July 31. The annexes to the three proclamations remain the authoritative subheading lists, and they are reproduced in the Federal Register as scanned images without a text layer, which makes automated screening of tariff lines impossible and manual review essential. Importers should be working from the White House annex PDFs rather than waiting for guidance.
Four practical steps follow.
First, classify against the annexes line by line, at the eight digit level, and do not rely on the sector labels attached to each proclamation. A furniture manufacturer, a cosmetics formulator or an electrical equipment supplier may find itself in the motor vehicle annex.
Second, test whether goods already fall under a Section 232 measure. Because the Section 232 carve out in clause (2) is absolute, a product caught by the metals, copper, vehicles, lumber or semiconductor programmes is shielded from the new 50 per cent layer. This creates the unusual situation where an existing tariff exposure is now protective.
Third, revisit entry timing. The duties apply to goods entered for consumption or withdrawn from warehouse on or after 12:01 a.m. Eastern on August 19. Goods admitted to a foreign trade zone on or after that date must enter under privileged foreign status. There is a narrow window for accelerating entries.
Fourth, review contractual allocation of duty risk. With CUSMA origin no longer providing relief, incoterms, duty drawback eligibility and price adjustment clauses need to be re-examined on a product by product basis. Canada remains on the American trade agreement partner list for manufacturing drawback under 19 U.S.C. 1313(a) and (b) for Section 232 Annex I-B and Annex III articles, but only where the metal was smelted or cast in a partner country and the article is not subject to an antidumping or countervailing duty order.
Litigation is widely anticipated. None had been filed against Section 338 as of July 31, although suits including a putative class action were filed at the Court of International Trade against the Section 301 forced labour tariffs on the day they took effect. One open legal question is whether the July Section 301 action superseded the Section 338 authority.
Candace Laing, president and chief executive of the Canadian Chamber of Commerce, captured the mood of the business community after the proclamations were signed. “We knew this would get bumpier before landing,” she said. “While this is a regrettable escalation by the U.S. Administration, we now have 30 days before this comes into effect. Both sides need to use this window to make meaningful progress in advancing formal talks.”
Nine of those thirty days are gone. Patrick Gill, vice president of the Chamber’s Business Data Lab, described what the uncertainty is doing to Canadian capital formation in a July 28 assessment. “Businesses aren’t responding to uncertainty by packing up and leaving Canada. They’re responding by standing still,” he said. “And when businesses stop investing, productivity, competitiveness and long-term growth eventually stop moving too.”