Since 22 August 2026 a 50 percent additional duty applies to a defined list of Canadian goods entering the United States. The legal basis is Section 338 of the Tariff Act of 1930, a provision that had never been used in 96 years. A USMCA certificate of origin does not exempt a covered good.
I have spent the past week reading entry summaries with clients whose Canadian lines suddenly carry a rate they never modelled, and the same misconception keeps surfacing: that this behaves like Section 232 or Section 301, with an exclusion portal, a comment docket and months of warning. It does not. This guide sets out what is covered, how the duty stacks, what is genuinely excluded and which mitigation routes remain open. It also covers the Canadian counter tariffs that take effect on 8 September 2026, because most of the companies I am working with ship in both directions.
Why a 1930 statute came off the shelf
Section 338 lets the President impose additional duties of up to 50 percent, or bar the goods of a country outright, in response to discrimination against United States commerce. It requires no investigation, no agency finding and no comment period. The only procedural brake written into the statute is timing: the duties cannot take effect earlier than 30 days after the proclamation.
That explains the calendar. Three proclamations were signed on 20 July 2026 and published in the Federal Register on 23 July, one covering alcoholic beverages, one dairy, one motor vehicles. Thirty days later put the start date at 19 August. The stated grievances were provincial liquor board restrictions on American products, the tariff rate quota system that governs Canadian dairy, plus Canadian measures on autos.
The revival is not an accident of drafting. After the Supreme Court decision in February 2026 struck down the use of the International Emergency Economic Powers Act as a tariff instrument, the administration moved to statutes where Congress delegated tariff authority in plain words. Section 338 is the least constrained of them. Our team now treats every trade statute with a dormant tariff power as live, because the cost of assuming otherwise is a 50 point rate change with 30 days of notice.
The dates that decide your duty rate
The start date moved once, and the movement mattered for anyone holding cargo at the border in the third week of August.
| Date | Event |
|---|---|
| 20 July 2026 | Three proclamations signed under Section 338 |
| 23 July 2026 | Publication in the Federal Register with product annexes |
| 18 August 2026 | Duties suspended for 19 to 21 August while talks continued |
| 21 August 2026 | Canada suspends negotiations and recalls its team |
| 22 August 2026, 00:01 ET | 50 percent duty applies to covered goods |
| 25 August 2026 | Canada publishes its counter tariff list |
| 8 September 2026 | Canadian counter tariffs take effect |
The operative test is not the date the ship sailed or the truck crossed. It is the date the goods were entered for consumption or withdrawn from warehouse for consumption. Cargo that arrived on 20 August but was entered on 24 August pays the 50 percent. That single distinction is worth checking against every entry your broker filed in the second half of August, because a warehouse withdrawal timed on autopilot is the most expensive kind of routine.
What the annexes actually cover
The headline categories are alcohol, dairy and motor vehicles, and the coverage is roughly 20 billion dollars of annual trade. Reading only the headlines is where importers get hurt. The motor vehicle annex alone reaches from Chapter 4 through Chapter 97 of the tariff schedule, picking up cement, plywood, furniture, cosmetics, textiles and apparel, jewellery, toys, stationery and sporting goods including hockey equipment.
Each proclamation carries its own annex, and the annex is the law for coverage purposes. The category name at the top of the document tells you which grievance the proclamation answers, not which goods it hits. I have seen a furniture importer with no automotive exposure whatsoever discover that 3 of its 6 Canadian lines sit inside the motor vehicle annex.
- Match at the 8 or 10 digit level. Chapter level reading produces false comfort in both directions.
- Check every Canadian line, not the top 20. The annexes are long and the logic behind inclusion is not commercial.
- Re-run the check after any amendment. A proclamation can be modified by a later one, and there is no docket to watch.
How the 50 percent stacks
The duty is additive, not a replacement rate. A line with a 6.5 percent most favoured nation rate becomes 56.5 percent. Antidumping and countervailing duties still apply on top of their own base. What the duty does not do is pile onto Section 232 metals and autos: goods already carrying a Section 232 duty are outside the Section 338 lists, which is a deliberate anti stacking choice rather than an oversight.
| Duty layer | Interaction with Section 338 |
|---|---|
| Most favoured nation rate | Applies, with 50 points added on the covered value |
| USMCA preferential rate | Origin claim survives, exemption does not |
| Section 232 metals and autos | Covered goods excluded from the Section 338 lists |
| Antidumping and countervailing duties | Both continue to apply in full |
| Chapter 98 provisions | Treated line by line, so verify before relying on one |
The USMCA point deserves its own sentence because it is the single most common error I hear on calls. Qualifying origin still governs the base rate and the paperwork, and it still matters for other programmes. It provides no shield here. A certificate of origin that reads correctly for USMCA purposes will sit in the file next to an entry summary showing a 50 percent additional duty.
What is excluded, and what that leaves
Energy products, potash, critical minerals and fish sit outside the lists, alongside anything already dutiable under Section 232. That last carve out is wider than the shorthand suggests. It takes in steel and aluminium at 50 percent, most copper articles at the same rate, softwood timber and lumber at 10 percent since 14 October 2025, plus cars, light trucks and the vehicle parts named in the automotive annex. Those carve outs cover a large share of the value of Canadian exports to the United States, which is why the 20 billion dollar figure looks small next to bilateral goods trade of roughly 700 billion dollars a year. The measure is aimed, not general.
What it does not include is a process for asking to be let out. Section 301 has an exclusion portal. Section 232 has an inclusions and exclusions mechanism run by the Commerce Department. Section 338 has neither, and no proclamation created one. The statute allows the President to widen the action if the discrimination continues, which is the opposite direction of travel. Planning around a future exclusion window means planning around something that does not exist.
Mitigation that still works
Four routes remain open, and all 4 are ordinary customs practice rather than anything exotic.
- Drawback is available. The additional duty can be recovered on qualifying exports and destructions under the usual rules, which matters for anyone re-exporting Canadian input after processing. Our duty drawback guide covers the filing mechanics.
- Foreign trade zones need privileged foreign status. Goods admitted to an FTZ must generally be admitted in privileged foreign status. Admit them in non privileged status and they take the rate in force when they leave the zone.
- Valuation discipline. The duty is ad valorem, so first sale valuation, correct treatment of assists and separately invoiced non dutiable charges each cut the base that the 50 percent applies to.
- Sourcing and classification review. A line that is genuinely not in an annex should be documented as such now, with the annex extract attached to the file, before anyone has to reconstruct the reasoning at audit.
One route is not open: waiting for the courts. Litigation against Section 338 will take quarters at minimum, and unlike the IEEPA refund cases there is no obvious constitutional flaw in a statute that delegates the power in explicit terms. If your budget assumes a refund, treat that refund as a possibility rather than a receivable, in the same way we treated the IEEPA refund claims earlier in 2026.
Where the dispute goes next
The negotiating track collapsed on 21 August, when Canada suspended talks and recalled its team. Two of the 3 underlying grievances are reversible by policy choice rather than by treaty change, and the dairy question is a narrow quota eligibility issue that the USMCA joint review can absorb. That combination makes a negotiated withdrawal plausible on a timescale of months rather than years, which is exactly the timescale on which purchase orders are placed.
Canadian counter measures are no longer a variable. Ottawa published its list on 25 August and the duties apply from 8 September 2026, covering more than 700 United States tariff lines worth 27.6 billion Canadian dollars, close to 19.9 billion United States dollars. That is deliberately matched against the roughly 20 billion dollars of Canadian trade the American action covers. Rates run from 15 percent up to 50 percent, set line by line to mirror the American rate on the same goods, with steel and aluminium doubled to the top rate. The named sectors include steel, dairy, appliances, agricultural equipment plus paper and electronics.
If you sell into Canada as well as buying from it, that second list needs the same 8 or 10 digit check the first one did, and it needs it before 8 September rather than after. I have watched 2 companies this month budget carefully for the inbound duty and discover their outbound shipments were the larger exposure. Freight planning follows the same logic we applied to the Section 122 and Section 301 playbook: price the duty into the landed cost model, then decide the routing.
Common questions
Does USMCA origin exempt my goods? No. Covered goods pay the additional 50 percent regardless of USMCA qualification. The certificate still governs the base rate.
What is the effective date test? Entry for consumption, or withdrawal from warehouse for consumption, on or after 00:01 ET on 22 August 2026.
Is there an exclusion process? Not at present. Section 338 requires no investigation, and the 3 proclamations did not create an exclusion mechanism.
Can I claim drawback on the additional duty? Yes. Drawback is available on the Section 338 duty under normal drawback rules.
How much trade is affected? Roughly 20 billion dollars a year, with energy, potash, critical minerals, fish and Section 232 goods excluded.
Does the duty stack with Section 232? No. Goods already subject to Section 232 duties were kept off the Section 338 lists.
Has Canada retaliated? Yes. Counter tariffs apply from 8 September 2026 to more than 700 United States tariff lines worth 27.6 billion Canadian dollars, at rates between 15 and 50 percent that mirror the American rate on the same goods.
Sources: proclamations issued 20 July 2026 under Section 338 of the Tariff Act of 1930 and their product annexes as published in the Federal Register on 23 July 2026, US Customs and Border Protection guidance on entry timing, foreign trade zone admission status and drawback eligibility, the Canadian Department of Finance counter tariff list published on 25 August 2026, plus client advisories published by Morrison Foerster, Holland & Knight and Blakes between 21 July and 25 August 2026. Rates and coverage reflect the position on 31 August 2026.