New Tariffs Unlocked: Section 338 on Canada

What’s Happening: On Monday, President Trump issued three separate proclamations imposing 50-percent tariffs on a variety of imports from Canada due to claims that Canada is discriminating against U.S. autos, alcohol, and other products. The administration’s three tariff proclamations include motor vehicles, alcoholic beverages, and dairy products, although other imports ranging from wigs to notebooks were included as well. The tariff authority the administration is using is found in Section 338 of the Tariff Act of 1930, which allows the president to impose tariffs of up to 50 percent or to fully block trade if a country discriminates against U.S. goods. The authority lacks a formalized or tested process for implementation as it has never before been used for tariffs, similar to how the administration used the untested International Emergency Economic Powers Act (IEEPA) for “Liberation Day” tariffs. In response, Prime Minister Carney of Canada stated that U.S.-Canada talks will intensify in the coming weeks, as trade negotiations continue in the aftermath of President Trump’s decision to not renew the United States-Mexico-Canada Agreement (USMCA). Meanwhile, Carney is leaving the decision on whether to lift U.S. booze bans up to the provincial governments that imposed them. These informal boycotts and official bans on the sale of U.S. alcohol were initially a response to other U.S. tariffs – and multiple Canadian provincial leaders plan to maintain bans despite U.S. pressure.

Why It Matters: The new wave of tariffs on Canada has significant economic and legal ramifications that could change the Trump Administration’s tariff game going forward. First, the Section 338 tariffs target approximately $20.2 billion in U.S. imports, or about 5 percent of all imports from Canada. Notably, these tariffs will not allow for exemptions for USMCA-compliant imports as has been the case for other tariffs imposed on both Canada and Mexico. Since July 2025, 80–90 percent of Canadian imports have received a tariff exemption following USMCA compliance, meaning this use of Section 338 signals a major policy shift in North American trade relations. That said, the White House fact sheet points out that there will be exemptions for any product currently subject to a Section 232 tariff (see the alcohol proclamation for specifics). According to the Shipment, the Section 232 carveout lowers the total impacted imports from around $20 billion to approximately $15.5 billion, bringing the Shipment’s cost estimate for the Section 338 tariffs to $3.3 billion annually.

There are other noteworthy aspects of this action. The first is the tariff tools Section 338 provides to the executive branch; the second is the legal precedence it could set if Congress or the courts allow it to prevail. According to the Tariff Act of 1930, Section 338 allows the president to impose tariffs up to 50 percent on countries that discriminate against U.S. commerce (tariffs, port fees, regulations) or treat U.S. goods unfairly (fees, restrictions, unequal treatment). If the target country maintains or escalates its discriminatory practices against U.S. goods, the president is granted the authority to wholly restrict trade via an import ban. This authority might effectively allow the Trump Administration to follow through on recent threats to cut off trade with Spain, a threat that until now has been seen as mere bluster. Furthermore, Section 338 allows for President Trump to implement “secondary tariffs” – as he has called them – on other countries that might benefit from one country’s discrimination against U.S. goods. Using Canada as an example, if Mexico were found to benefit from Canadian discrimination against American wine, the Trump Administration could impose an up to 50-percent tariff on Mexico. If the current Section 338 tariffs are imposed, it is highly likely that this tariff authority will be challenged in court due to the lack of precedence as well as the legal argument that Section 301 of the Trade Act of 1974 supersedes the authorities granted by Section 338.

Looking Ahead: The Section 338 tariffs are scheduled to go into effect 30 days after President Trump’s proclamation, meaning August 19 is the deadline for U.S.-Canada negotiations to prevail. It is possible that the threat of impending 338 tariffs sparks Canadian negotiators to offer concessions, whether those be tangible policy reforms or commitments to act in the future. The Trump trade team is unlikely to back away from these tariffs unless their Canadian counterparts offer to work on removing U.S. alcohol bans, distance themselves from trade with China, or commit to reforming some other policy the administration deems to be discriminatory in nature. If Section 338 tariffs begin to be collected by customs and border protection, it is highly likely that they will be challenged in court soon after by impacted U.S. states and businesses in the same way IEEPA tariffs were. The fact Section 338 has not been utilized by any president in the past combined with the argument that more recent Section 301 tariff authorities supersede 338 indicates it may be a hard-fought legal battle for the Trump Administration once again.

The Day the Tariff Regime Stood Still

What’s Happening: At midnight, the 10-percent Section 122 tariffs currently in place on a wide variety of imports will expire, marking the end of the Trump Administration’s second tariff regime. Section 122 tariffs were implemented on February 24 in the aftermath of the Supreme Court’s decision to strike down IEEPA tariffs because they exceeded presidential authority. Legally, the Section 122 statute only allows for tariffs up to 15 percent for a maximum of 150 days in the event of a serious balance-of-payments deficit – a legal criterion that is being challenged in court and may result in Section 122 tariffs being struck down. Now, President Trump and his trade team will have to decide where the administration’s trade policy goes from here and what authorities they will rely upon to build a third – and perhaps final – tariff regime. The Trump Administration has launched multiple Section 301 investigations, each of which will likely result in tariffs to replace the Section 122 tariff regime. Brazil was already slapped with 25-percent tariffs on July 22 while the Section 301 relating to forced labor has proposed tariffs ranging from 10–12.5 percent across 86 countries.

Why It Matters: The end of the Section 122 tariff regime will once again throw the Trump Administration’s trade policy into a brief period of disarray. This will be similar to the end of IEEPA as the administration will have to quickly replace these tariffs to maintain some consistency, although the trade team has had time to plan for the July 24 deadline. The Shipment estimates that the 10-percent Section 122 tariffs will have raised costs for U.S. businesses and consumers by $25 billion over the 150 days it was in effect. Other estimates include the Tax Foundation’s revenue estimate of close to $24 billion and the Yale Budget Lab’s estimate of roughly $30 billion. These tariffs have been challenged in court which may result in all Section 122 collections being ruled illegal, thereby resulting in a refund that once again mirrors IEEPA.

The Trump Administration has a few options in the coming days, some more plausible and legally sound than others. The first option is to allow the current Section 122 tariffs to expire and reimpose them soon after, potentially at a different tariff rate. The trade team could then argue this is a separate tariff regime that does not contradict the legal statute. If a second Section 122 were imposed, it would almost certainly result in additional lawsuits, however, the administration may be able to wait for the court cases to play out while the government collects tariff revenue. The second option is to utilize Section 338 which, was dusted off this week for the administration’s tariff threats against Canada. This is an entirely untested tariff authority that is shrouded in legal concerns and would take 30 days to implement. Given these drawbacks, Section 338 may be an unlikely option if the goal is to maintain tariff consistency. The third and most likely option is the use of Section 301 and the swift implementation of the proposed forced-labor tariffs. Previous AAF research estimates that these tariffs alone would cost U.S. consumers and businesses approximately $58.3 billion annually given 2025 import data.

Looking Ahead: If the transition between the IEEPA and Section 122 regimes is any indication, the Shipment expects new tariffs to be announced within the next few days. As there was a roughly four-day period between the end of IEEPA and Section 122 implementation, the United States might have a new tariff regime as soon as July 28. And as the entire Section 301 process from initiation to implementation can take as little as 135 days, the forced-labor Section 301 could potentially be announced as early as July 25, immediately after Section 122 expires.

In Other News

Russia Sanctions Bill: On July 16th, the Sanctioning of Russia Act 2026 was formally introduced as the latest effort to reduce the revenue funding Russia’s war in Ukraine. Building on the bipartisan Sanctioning Russia Act of 2025, the bill expands sanctions on Russia while also targeting countries that purchase Russian oil and gas. Section 112 retains a 500-percent tariff on all Russian imports, though its impact is limited due to the fact U.S. imports stand near $4.4 billion annually which is less than 1 percent of Russia’s total exports. Similar measures adopted after the 2022 invasion reduced U.S. imports by 87 percent, but had little effect on Russia’s overall exports.

Section 113 contains one of the bill’s most significant provisions, authorizing tariffs of up to 100 percent on the five largest purchasers of Russian crude oil and natural gas. The bill, however, does not identify the data source used to determine those rankings. This creates a significant implementation challenge because estimates of Russia’s largest energy buyers often differ, reflecting the opaque nature of Russian trade through shadow fleets, intermediary traders, and rerouted shipments. Depending on the data source used, these “secondary tariffs” on countries importing Russian energy could impact from $400 billion to over $500 billion worth of U.S. imports. Although USTR would review the list of covered countries every 180 days, the bill provides no objective criteria for selecting, removing, or reclassifying countries. It also grants broad executive discretion by allowing waivers based on national security, establishing no implementation deadline and exempting countries importing less than 15 percent of Russia’s natural gas exports if they take “significant steps” to reduce that dependence – without defining what said steps entail. By delegating broad authority to the executive branch without clearly defined standards, the bill would give away more of Congress’ Article I, Section 8 powers than is currently the case. The absence of objective selection criteria also creates uncertainty over whether countries would be targeted based solely on their purchases of Russian energy or broader political considerations. For key U.S. partners such as India and Turkey, that uncertainty could further complicate trade relationships and undermine broader economic and strategic objectives.

Aluminum Tariffs Change Again: On July 20, President Trump issued a proclamation adjusting the Section 232 tariffs on aluminum that comes less than two months after the administration revised the tariff and exemption categories for aluminum imports. The recent adjustments establish a new incentive program intended to strengthen domestic supply chains and encourage long-term investment in U.S. aluminum production. Under this incentive program, companies that commit to build, refurbish, or expand a U.S. facility that produces aluminum will receive a tariff rate that is half their current rate. This will drop the full 50-percent Section 232 tariff rate to 25 percent, assuming the eligible company begins construction of its facility no later than January 20, 2029. In the meantime, national security tariffs have done little to reduce U.S. reliance on imported primary aluminum and aluminum scrap, with a significant amount coming from Canada and Mexico as of 2025.

A Trade Deal With Jordan: On July 21, President Trump announced a trade deal with Jordan aimed at removing barriers for U.S. exporters. Under the agreement, Jordan will eliminate non-tariff trade barriers and expand market access for U.S. goods, including agricultural products and motor vehicles. The agreement builds on the longstanding U.S.-Jordan Free Trade Agreement (FTA), which was signed into law in 2001 and gradually eliminated tariffs on nearly all bilateral industrial and agricultural goods trade by 2010. Rather than replacing the existing FTA, the new agreement reaffirms duty-free market access for nearly all U.S. exports while introducing new commitments on bilateral customs procedures, labor protections, intellectual property rights, and fair-trade practices. Jordanian goods will continue to qualify for duty-free treatment in the United States if they satisfy the FTA’s 35-percent domestic content rule of origin. In addition to the trade commitments, Jordan announced a $1 billion investment by Hikma Pharmaceuticals, Royal Jordanian Airlines’ $1.4 billion purchase of six Boeing 787-9 aircraft and $500 million in long-term leasing agreements, as well as commitments by Jordanian businesses to purchase more than $300 million annually in U.S. raw materials.