On July 20, 2026, Donald Trump signed three presidential proclamations imposing 50 percent tariffs on a broad range of Canadian goods — from alcohol and dairy products to electronics and automobiles. Legal basis: Section 338 of the Tariff Act of 1930, enacted during the Great Depression. This provision was last applied in 1949.
Why now — and why this law
The choice of instrument is not random. In February 2026, the Supreme Court ruled 6–3 that the application of IEEPA for imposing tariffs was unconstitutional — a law the administration had relied on since the beginning of the trade war. As noted in a WilmerHale analysis, immediately after the court's decision, the White House imposed a 10 percent global tariff under Section 122 of the Trade Act of 1974 — another provision that had never been applied before. However, the term for Section 122 expired this very week.
Section 338, unlike Sections 232 and 301, requires neither investigations, nor consultations, nor a waiting period before announcing tariffs — only a 30-day pause before they take effect. The tariffs will take effect on August 19, 2026, and will cover goods worth approximately $20 billion.
The administration's logic: responding to 'discrimination'
The formal basis under Section 338 is to demonstrate that Canada discriminates against American business in favor of other partners. The Trump administration points to three sectors: Canadian provinces have nearly completely stopped purchasing American alcohol (a decline in imports of 81% or $582 million compared to the previous year), introduced restrictions on American automobiles and dairy products — but not on similar goods from other countries.
"This trade dispute has raised prices for families — primarily in the United States"
Canadian Prime Minister Mark Carney, social media post on X, July 21, 2026
Canada's response: between negotiations and 'dollar for dollar'
After speaking with Trump, Carney declared readiness for intensive negotiations but warned that he would "consider all options" if the tariffs do take effect. Provincial leaders are taking a harder line: Ontario Premier Doug Ford publicly called for a response "tariff for tariff, dollar for dollar." Alberta Premier Danielle Smith, meanwhile, focused on the fact that the new tariffs harm both Canadian and American workers.
- The tariffs circumvent USMCA: a certificate of origin does not exempt goods from Section 338 — the previous preferential regime for Canadian goods is no longer in effect
- Exempted: energy resources, potash, critical minerals, and goods already covered by Section 232
- The average tariff on Canadian goods will increase by approximately 2.3 percentage points, according to Corpay's chief market strategist Carl Schamotta
Legal uncertainty — the main risk
Section 338 has never been tested in court under modern conditions. Trade lawyers raise two arguments against its application: first, Congress can delegate the power to set tariffs only within narrow limits; second, the provision was designed to respond to unilateral actions by other countries — but not to their reaction to U.S. tariffs. If courts support the second argument, the entire structure will collapse: Canada introduced nothing first — it was responding to American tariffs from 2025.
In parallel, there is a broader precedent: the Supreme Court has already applied the "major questions" doctrine — requiring clear congressional mandate for major presidential decisions — to neutralize IEEPA. The same logic could potentially be applied to Section 338, enacted in 1930 for a completely different geopolitical context.
If by August 19 Carney and Trump fail to reach a framework agreement — and Ontario does impose symmetric tariffs — the court will receive two parallel lawsuits simultaneously: challenging the constitutionality of Section 338 itself and questioning whether Canadian measures constitute "discrimination" within the meaning of the 1930 provision. The answer to this question will determine whether Trump retains even one working tariff mechanism in his arsenal until the end of his term.
