Contents

• Introduction
• Overview and Background
• Alcohol
• Dairy
• Motor Vehicles
• Other Issues
• Options for Congress

Introduction

On July 20, 2026, President Trump announced he would impose 50% tariffs on certain Canadian goods starting August 19, 2026, to "offset Canadian discrimination against the commerce of the United States with respect to" alcoholic beverages,¹ dairy,² and motor vehicles³ (the "Section 338 Canada Tariffs"). President Trump stated he would impose these tariffs under Section 338 of the Tariff Act of 1930 (19 U.S.C. §1338)—the first time a President has expressly cited this statute to impose tariffs.⁴

On August 18, 2026, President Trump suspended the tariffs until August 22, citing progress in negotiations.⁵ After the two sides were unable to reach an agreement, the Section 338 Canada Tariffs went into effect on August 22, 2026.⁶ The Canadian government imposed retaliatory tariffs on C$27.6 billion (US$20 billion) worth of U.S. goods starting September 8, 2026.⁷ On September 8, the Trump Administration announced import bans for certain Canadian goods under Section 338 (effective September 29) and changes to the lists of products covered by the Section 338 Canada Tariffs (effective September 15).⁸ President Trump directed the General Services Administration (GSA), working with the Office of the United States Trade Representative (USTR), to remove Canadian products' access to U.S. government procurement programs.⁹

Some Members of Congress have expressed concerns about increased costs due to tariffs, a broader lack of stability in the U.S.-Canada trade relationship, and President Trump's statements toward Canada.¹⁰ Others have urged the Administration to use tariff measures and the review of the U.S.-Mexico-Canada Agreement (USMCA) as leverage to address U.S. issues with Canada.¹¹

Congress has constitutional authority over foreign commerce and tariffs¹² and could consider whether and, if so, how to codify, curb, or modify trade restrictions on Canadian imports and monitor potential implications for U.S.-Canada trade relations. Congress could also consider whether to engage on U.S.-Canada tariff and trade issues through the USMCA review process.

Overview and Background

Section 338 directs the President to impose tariffs on articles produced by (or imported in the vessels of) foreign countries if they discriminate against U.S. commerce in certain ways.¹³ Section 338 directs the President to impose "such new or additional rate or rates of duty as he shall determine will offset" the burden or disadvantage to U.S. commerce, up to a maximum duty rate of 50%.¹⁴ If the President finds that after the imposition of U.S. tariffs, a foreign country "maintained or increased its said discriminations," the President is authorized to "direct[] that such products of said country ... be excluded from importation into the United States."¹⁵ Section 338 outlines a role for the U.S. International Trade Commission (USITC) related to ascertaining discrimination against U.S. commerce and notifying the President, "together with recommendations."¹⁶ On September 4, 2026, USITC requested public comments on how best to meet its Section 338 statutory obligations.¹⁷

The Section 338 Canada Tariffs apply to goods such as alcoholic beverages, dairy products, paper and wood products, sports equipment, honey, plants, household items, beauty products, bags, hides and skins, and dog leashes. On September 8, 2026, the Administration announced changes to the list of products covered by the Section 338 Canada Tariff actions,¹⁸ to include additional dairy and wood products, furniture, and motorboats. Some items, including products highlighted by some Members of Congress, are to be removed from the tariff list.¹⁹ President Trump also invoked Section 338 to exclude the importation of certain Canadian products (e.g., alcoholic beverages, certain dairy products, molasses, motorcycles), effective September 29, 2026.²⁰ In 2025, the United States imported about $967 million worth of the products on the import exclusion lists (about 0.3% of total U.S. imports from Canada by value).²¹

These actions follow the U.S. decision not to renew USMCA in its current form.²² In March 2025, the United States began imposing tariffs on most imports from Canada under the International Emergency Economic Powers Act (IEEPA; 50 U.S.C. §§1701 et seq.).²³ Since the Supreme Court ruled in Learning Resources, Inc. v. Trump in February 2026 that IEEPA does not give the President the authority to impose tariffs,²⁴ the United States has imposed tariffs on goods from most trading partners, including Canada, using other statutory authorities.²⁵ Most Canadian goods meet product-specific requirements under USMCA ("rules of origin") that allow goods to enter the United States duty-free.²⁶ Some Canadian sectors—such as steel, aluminum, autos, and lumber—remain subject to U.S. tariffs imposed under a national-security-related statute, Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862), including USMCA-compliant goods.²⁷

The Section 338 Canada Tariffs do not include an exemption for USMCA-compliant goods. The tariffs that went into effect on August 22, 2026, exempted products covered by Section 232 tariff actions. The updated product list announced on September 8, 2026—to go into effect on September 15—includes certain items covered by Section 232 tariffs (e.g., steel, aluminum, autos); according to the White House, Section 232 tariffs are to apply in addition to the Section 338 Canada Tariffs, resulting in additional tariffs of up to 100% on certain items.²⁸

The Trump Administration asserted that the tariffs cover a small portion of U.S.-Canada trade and that the size of the U.S. economy will insulate it from economic harm from Canadian actions.²⁹ Canada imposed tariffs on C$27.5 billion (US$20 billion) worth of U.S. imports to match the U.S. tariffs "dollar for dollar, rate for rate" starting on September 8, 2026.³⁰ This value represented about 5% of U.S. imports from Canada and 6%-8% of Canadian imports from the United States in 2025.³¹ The list of products covered by the September 8 Canadian tariffs includes goods covered by Section 338 Canada Tariffs, products such as appliances, and increased tariff rates on goods already covered by previous Canadian retaliatory tariffs (e.g., steel, aluminum).³²

Alcohol

Canadian provinces and territories generally have responsibility over the purchase, distribution, and some retail sales of alcoholic products.³³ In March 2026, in response to U.S. IEEPA tariffs, nearly all Canadian provincial and territorial governments stopped purchasing, distributing, and/or selling U.S. alcoholic beverages; some provinces and territories have since resumed purchases and/or sales.³⁴ Some Members called these measures unfair and proposed legislation requiring the Trump Administration to investigate these practices (H.R. 9601).

In Proclamation 11046, the President invoked Section 338 to impose 50% tariffs on certain Canadian products, including alcoholic beverages, asserting that Canada "unreasonably burdens and disadvantages U.S. alcoholic beverages" because Canadian provinces and territories have not implemented similar bans or restrictions on alcoholic beverages from other countries. Some U.S. alcoholic beverage associations have highlighted the negative effects of Canadian alcohol bans and encouraged both sides to negotiate a solution to restore U.S. market access and a duty-free trade framework.³⁵

Dairy

Canada supports its dairy sector by setting production quotas, negotiating prices, and restricting imports (sometimes referred to as "supply management").³⁶ Under USMCA, Canada committed to provide greater access for U.S. exporters through 14 U.S.-specific dairy tariff-rate quotas (TRQs), which allow specified quantities of U.S. dairy products to be imported into Canada duty free.³⁷ Some Members of Congress have argued that Canada is not meeting its USMCA commitments related to dairy and have called for addressing Canadian dairy practices during the USMCA review process.³⁸

In Proclamation 11047, the President asserted Canada is discriminating against U.S. commerce by not allowing dairy TRQ allocations for retailers under USMCA while allowing cheese TRQ allocations for retailers under Canada's agreement with the European Union (EU). USTR has highlighted issues with Canada's supply management system and Canadian dairy practices in its annual report on trade barriers.³⁹ During the first Trump and Biden Administrations, USTR challenged Canada's dairy TRQs twice under USMCA's dispute settlement mechanism. USTR sought its first consultation regarding Canada's dairy TRQs in December 2020.⁴⁰ In 2021, a USMCA dispute settlement panel found Canada's practice of reserving TRQ pools exclusively for the use of certain domestic producers to be inconsistent with its USMCA commitments.⁴¹ USTR requested a second USMCA panel, contending that Canadian revisions to the dairy TRQ system in response to the 2021 panel ruling remained inconsistent with its USMCA obligations.⁴² In 2023, a USMCA panel ruled in favor of Canada.⁴³ U.S. officials and some Members expressed disappointment in the decision.⁴⁴

In June 2025, the Canadian Parliament enacted Bill C-202, which prevents the government from increasing TRQs or reducing over-quota tariffs for dairy, poultry, or eggs in future negotiations.⁴⁵ Supporters of Bill C-202 and the supply management system have criticized market access concessions included in Canadian trade agreements.⁴⁶ Some Canadian observers critiqued the supply management system as protectionist and argue it raises prices for Canadian consumers.⁴⁷

Motor Vehicles

In 2025, the United States imposed Section 232 tariffs on vehicles and auto parts from all trading partners based on an investigation initiated and completed during President Trump's first term; this included 25% tariffs on Canadian vehicles that do not meet USMCA content rules and on the non-U.S. content of vehicles that meet USMCA rules.⁴⁸ Auto parts that meet USMCA rules are exempt from Section 232 tariffs. The Canadian government responded with 25% tariffs on U.S. vehicles that do not meet USMCA rules and on the non-Canadian and non-Mexican content of U.S. vehicles that meet USMCA rules.⁴⁹ The Canadian government has implemented a "remission framework" that fully exempts a certain number of USMCA-compliant vehicles from tariffs for companies producing vehicles in Canada, contingent on their maintaining production in Canada.⁵⁰ The framework is to remain until April 8, 2027. In Proclamation 11048, the President asserted Canada's retaliatory tariffs and remission framework on U.S. vehicles were discriminatory toward U.S. commerce. The Section 338 Canada tariffs do not apply to goods covered by Section 232 actions, including vehicles and auto parts.

The U.S. and Canadian auto industries have a long history of integration and co-production, first spurred by the Canada-United States Automotive Products Agreement (Auto Pact), signed in 1965 and approved by P.L. 89-283. Canada is the top U.S. export market for automotive products (vehicles and parts). According to the latest available data, in 2025, 38% of U.S. automotive exports ($61 billion) went to Canada.⁵¹ In 2025, Canada was the second-largest exporter, behind Mexico, of automotive products to the United States—accounting for about 12% ($53 billion) of total U.S. automotive imports. Around 90% of Canadian automotive goods exports went to the United States in 2025 ($47 billion).⁵²

The Trump Administration has asserted that a key goal of its trade policy is to boost domestic manufacturing, including in the auto sector.⁵³ Following August 2026 bilateral talks, Prime Minister Mark Carney stated that the Canadian government could not accept U.S. terms that would make Canadian industries "subsidiaries" of U.S. industries or "those industries would be gradually wound down in Canada and wiped out."⁵⁴

Other Issues

U.S. and Canadian officials have offered differing accounts of why the two countries did not finalize a deal ahead of the August 22 implementation of U.S. Section 338 tariffs.⁵⁵ As part of the talks, the two sides also reportedly discussed U.S. Section 232 tariffs⁵⁶ and Canadian regulations on digital services providers (including provisions related to French language content).⁵⁷ Another reported topic was Canada's approach to trade with third parties outside of USMCA. USMCA Article 32.10 includes language related to parties' trade agreement negotiations with "non-market countries."⁵⁸ Some U.S. officials have highlighted potential issues related to "transshipment" of goods through countries, including Canada, by third countries seeking to evade U.S. tariffs and trade remedies.⁵⁹ Other officials have called for "economic security alignment," including on tariffs, export controls, and investment screening, among USMCA parties.⁶⁰ Prime Minister Carney has said Canada would not accept "any restriction on [its] ability to execute" its trade agreements with other countries.⁶¹ Carney has said Canada and the United States share concerns about non-market economies, and policy alignment could be in their joint interest but would need to be in the context of a comprehensive trade deal that allows for integrated markets and lower tariffs for Canadian goods compared to goods from other countries, as was the case under USMCA prior to the 2025 imposition of U.S. tariffs.⁶²

Options for Congress

Congress may consider whether and, if so, how to exercise greater oversight and influence over U.S. tariff policies toward Canada. Some Members have supported the Administration's use of tariff authorities to address U.S.-Canada trade issues and have proposed legislation directing the Administration to investigate Canadian trade practices (e.g., H.R. 8025, H.R. 9601).⁶³ Other Members have proposed legislation to repeal tariff authorities such as Section 338 (e.g., H.R. 2464, H.R. 10175) or require congressional approval for the use of such tariff authorities, particularly on U.S. allies (e.g., S. 348). Press reports also indicate that a number of Members have encouraged more consultation between USTR and Congress on tariffs.⁶⁴

Members of Congress also could consider whether and how to engage with the USMCA joint review. Among other actions, Members could assess whether to seek changes to the agreement, whether to modify congressional consultation and approval requirements related to USMCA revisions or withdrawal, and whether to specify how current and potential future U.S. tariffs should apply to Canadian goods traded under USMCA.⁶⁵ Some Members have asserted that previous U.S. tariffs on Canada violated USMCA (H.Con.Res. 25).

Footnotes