Aryan Kondekar — August 4, 2026
Historically, United States-Canada economic relations have been incredibly strong. The two countries have the largest trading relationship in the world, and come close to trading nearly $1 trillion in exports each year. For the United States, Canada is a major supplier of crude oil and petroleum products; in fact, the U.S. imports more oil from Canada alone than from any other country. Some other key resources Canada provides are natural gas, electricity (for northern states), and agricultural products. In return, the U.S. sells auto parts, machinery, computers, electronics, semiconductors, and various medical supplies to their northern neighbor.
However, on July 20th, U.S. President Donald Trump invoked Section 338 of the Tariff Act of 1930, putting a 50% tariff on certain Canadian imports. Trump’s decision marked a shift in U.S.-Canada relations, as no previous U.S. president had invoked Section 338. In the past, most presidents relied upon Section 232 of the Trade Expansion Act of 1962 (for national security concerns) and Section 301 of the Trade Act of 1974 (in response to unfair trade).
Background
To understand the current tariff situation, it’s important to examine how U.S.-Canada relations have changed under the Trump administration. Since President Trump returned to office, the United States and Canada have lobbed countless tariffs back and forth. On February 1st of 2025, Trump announced a 25% import tariff on most Canadian goods and a 10% tariff on Canadian energy products. The administration justified these actions with concerns over border security and fentanyl trafficking. Later, in March of 2025, Trump utilized Section 232 to set 25% tariffs on imported aluminum, steel, and automobiles. While many auto parts were exempted because of the United States-Mexico-Canada Agreement (USMCA), the aluminum and steel tariffs were doubled to 50% in June of 2025. Considering Canada is the number one supplier of these metals to the U.S., the administration’s tariffs had a critical impact on Canadian producers. In response, Canada imposed a 25% tariff on specific U.S. vehicles, steel, and aluminum. Canada also reduced spending on U.S. alcohol and removed U.S. beer and wine from government liquor stores.
This tariff war has led to the July 2026 tariff announcement, which affected a valued $20 billion in Canadian imports and greatly raised tensions with Canada. The actual tariffs themselves were instituted via 3 presidential proclamations, which dealt with dairy, alcohol, and automobiles, respectively. In total, more than 500 product categories were impacted, hitting the Canadian economy hard. Notable exceptions to these recent tariffs are potash, fish, and energy products. Aside from the content of the tariffs themselves and their effect on U.S.-Canada relations, the use of Section 338 of the Tariff Act of 1930 to issue them is also significant.
The Why Behind It
Section 338 entails discrimination against U.S. commerce and unreasonable charges/regulations. In the context of the presidential proclamations, dairy is applicable because, structurally, Canada’s supply management system directly opposes the U.S. By limiting imports, American dairy producers get less market capital in comparison to other countries. Additionally, it disadvantages local farmers, breaking reciprocal trade. Next, alcohol falls under notice because citations were reported that Canada restricted certain U.S. alcoholic products’ shelving space, which discriminated against U.S. producers. Lastly, automobiles were impacted because the administration stated that Canada’s retaliatory auto tariff system was biased against U.S. vehicles and encouraged buyers towards Canadian automobiles over American ones. Another reason was that U.S. vehicle exports to Canada had dropped 22% since last year. These three primary discriminations provided legal justification for Trump to invoke Section 338.
However, there was also a political and economic foundation for invoking this section. In the economic lens, it’s important to consider one of Trump’s strong economic philosophies: protectionism. As defined by Investopedia, protectionism is the belief that governments should protect domestic industries from trade barriers, quotas, and tariffs. In simple terms, it’s an economic belief of self-sufficiency. In regard to Canada, the administration believed its actions disadvantaged the U.S. economy by making tariffs drive U.S. products’ expenses higher, encouraging buyers to spend their money elsewhere. Economists point out that invoking Section 338 with the belief of protectionism is a double-edged sword. On one hand, it protects U.S. jobs and encourages buyers towards American manufacturers. On the other, it raises prices for consumers and weakens diplomatic relations, inviting reciprocal tariffs. Another important concept to understand is Trump’s “America First” policy. This entails prioritizing the U.S. economic agenda, giving backing to Section 338 because the administration believes it follows this policy.
Through the political lens, the USMCA bi-six-year meeting is approaching. This meeting’s importance is rising because it directly affects the application of the USMCA and reviews the agreement. The administration may have sought out the tariffs as a bargaining chip to gain an upper hand in the meeting. As with the recent U.S. tariffs on dairy, automobiles, and alcohol, Canada may be forced to make concessions. Additionally, by invoking Section 338, Trump may garner domestic political support. These products have a huge manufacturing market in the states of Michigan, Ohio, Wisconsin, and Pennsylvania. Workers in these states have expressed distress over Canada’s outsourcing of its products and international buyers going to different, non-U.S. markets.
Still, tariffs in general remain a controversial topic, with economists arguing they force a country’s hand, and political strategists arguing they strain international relations in the long term. However, one thing remains steady: tariffs increase diplomatic support as it shows the administration supports national industries. Moreover, invoking this section shows presidential authority. Trump becoming the first U.S. president to use this section of the Tariff Act of 1930 shows that he will use any available resources to pursue his economic and political agenda. In fact, the entire reason why Trump had to resort to Section 338 to enforce tariffs was because of a Supreme Court ruling in February, which struck down tariffs that his administration had implemented under the International Emergency Economic Powers Act of 1977. Trump’s current use of Section 338 displays that he is willing to pivot and find alternative ways to carry out his agenda in spite of legal challenges.
Legal Analysis of Tariff Act of 1930
The Tariff Act of 1930 is often referred to as the Smoot-Hawley Tariff Act. For context, the U.S. experienced an economic boom during the early 1920s. After WWI, economic opportunities were rampant. However, one growing group of U.S. citizens was struggling: the farmers. Post-war, European agriculture recovered, leading to the U.S. losing its economic lead; global crop prices dropped, and U.S. farmers overproduced crops that the markets couldn’t handle. At the time, many politicians argued tariffs on other countries’ agricultural resources could benefit U.S. citizens. However, the catalyst for the Act was the Stock Market Crash of 1929. During this time, America entered the Great Depression, a time of infamous economic ruin. More and more, lawmakers supported tariffs, as they believed they would protect the U.S. job market, reduce imports, and increase domestic manufactured products. Finally, in 1930, they decided on the Tariff Act, a bill sponsored by Reed Smoot and Willis C. Hawley. The Act enforced tariffs on over 20,000 imported agricultural and industrial goods. On June 17th, 1930, the bill was signed into law by President Herbert Hoover.
What’s special about Section 338 is the specific requirements necessary to invoke it. Section 232 of the Trade Expansion Act of 1962 allows the administration to issue tariffs if there is a threat to national security. Notably, invoking Section 232 does not immediately allow tariffs to be implemented. Rather, it opens up an investigation led by the U.S. Department of Commerce, which must decide whether or not there is a legitimate national security justification for the tariffs. A recent and prominent example of this act being invoked was when Trump utilized it to enforce his steel tariffs in 2018. After Trump ordered the Department of Commerce to conduct an investigation, they determined that there was a legitimate national security threat. This resulted in a 25% import tariff on the countries of South Korea, Brazil, Mexico, and Canada.
Section 301 of the Trade Act of 1974, on the other hand, targets unfair foreign trade. Another key difference is that Section 301 has to have an investigation led by the Office of the United States Trade Representative. Trump also utilized this section in 2018, when he enforced tariffs amounting to billions of dollars on Chinese technology goods.
What differentiates Section 338 is the focus on discrimination against U.S. commerce as the prerequisite for invoking it. In this specific case, Trump didn’t utilize Section 232 because Canada has been a long-term ally of the U.S. and is a member of NATO, with zero indication of it being a national security threat. The administration didn’t use Section 301 because the complaints were related to dairy supply management, automobiles, and alcohol, which don’t fit the Section’s framework of policy that negatively impacts the U.S. economy. With evidence of discrimination against U.S. goods, Section 338 became the most sensible enforcement mechanism for the Trump administration to use.
The Strain on U.S.-Canada Relations and Greater Impact
As stated before, the United States and Canada have long been keystone countries for one another. Not only are the countries codependent, but their border — which happens to be the longest international border in the world — is critical for North America as a whole. Supply chains are heavily integrated along the border, with deliveries often involving many trips between the two countries before the desired destination is reached. Some notable examples include steel from Ontario, engines from Michigan, and electronic parts from Mexico. The tariffs could drastically increase production costs, leading to a massive hit to the entirety of the North American economy.
The countries’ economic codependence has only increased the diplomatic strain introduced by the tariffs. From the Canadian perspective, the action was especially surprising because of the two countries’ NATO alliance status, their joint defence in the North American Aerospace Defence Command, and their exchange of intelligence. Trump’s decision to invoke Section 338 will likely damage long-term trust between the countries. This distrust could hinder future trade agreements, with significant political, strategic, and economic impacts. The tariffs are also likely to take a toll on the USMCA. Because the USMCA encourages free trade and long-term economic prosperity, tariffs are especially damaging to cooperation within the organization.
Conclusion
All in all, the recent July 20th tariff had a strong impact on the U.S., Canada, their respective economies, and the entirety of the world. The unusual application of Section 338 marks a change in current relations and raises questions for the future. The invocation highlights the economic beliefs of the Trump administration and the potential fragility of the USMCA. It also shifts the utilization of different laws to invoke tariffs. Historically, Section 232 and Section 301 have been the most invoked. Trump’s decision to use Section 338 could change the way future presidents approach tariffs.
As the Trump administration continues to enforce tariffs and abide by a protectionist economic strategy, it’s important to recognize the impact that these policies have, not just on either nation’s domestic economy, but also on international trust and the continental supply chain.
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