Section 338 tariffs are additional duties of up to 50% ad valorem, or in more severe cases a full exclusion of goods, that the President can impose on products from a foreign country found to discriminate against the commerce of the United States. The authority comes from Section 338 of the Tariff Act of 1930 (19 U.S.C. 1338), a nearly century-old provision that sat almost entirely dormant until July 2026, when it became the legal basis for a new round of tariffs on Canada.
For importers, customs brokers, and supply chain managers, Section 338 tariffs matter because the statute requires only a short notice period before new duties take effect, carries no built-in expiration date, and has never been fully tested in court. Understanding how it works, and how it differs from Section 301, Section 232, and Section 122 tariffs, is essential for anticipating which shipments could be affected next.
What Are Section 338 Tariffs?
Section 338 tariffs are a presidential trade remedy authorized under Title III of the Tariff Act of 1930. The statute lets the President act on two distinct findings: that a foreign country imposes unreasonable charges, exactions, regulations, or limitations on the commerce of the United States that it does not impose on the commerce of other countries, or more broadly, that a foreign country simply discriminates in fact against the commerce of the United States compared with how it treats other trading partners.
Once either finding is made, the President can impose new or additional duties of up to 50% ad valorem on products of that country. If the discrimination continues after new duties are imposed, the President can go further and exclude some or all products of that country from the United States entirely, effectively revoking its privileged foreign status. Unlike Section 301, which requires a formal United States Trade Representative investigation, or Section 232, which requires a Commerce Department national security review, Section 338 specifies no particular investigatory procedure, only that the President act after due investigation, which is part of what makes it one of the fastest tariff tools available.
Legal Authority Under the Tariff Act of 1930
Section 338, codified at 19 U.S.C. 1338, was enacted as part of the same 1930 tariff act commonly known as Smoot-Hawley. It grants the President two tiers of authority over a discriminating foreign country: a first-tier power to impose additional duties of up to 50% ad valorem, and a second-tier power, if discrimination persists, to exclude some or all of that country’s products from the United States altogether.
Why Section 338 Sat Dormant for Nearly a Century
Presidents used discrimination-based tariff tools occasionally in the years immediately following the statute’s enactment, but the authority fell out of active use as U.S. trade policy shifted toward the General Agreement on Tariffs and Trade and later the World Trade Organization framework. More recent trade disputes, such as the long-running fight over subsidies to European Union civil aircraft manufacturers, were pursued instead through Section 301 and WTO dispute settlement rather than Section 338. As a result, no federal court has ever interpreted Section 338’s substantive standards, leaving the statute a largely untested legal tool by the time it resurfaced in 2026.
The 2026 Revival: Section 338 Tariffs on Canada
Section 338 returned to active use in the summer of 2026, after a series of Supreme Court and trade court rulings narrowed the administration’s other tariff options.
From IEEPA and Section 122 to Section 338
After the Supreme Court’s February 2026 decision in Learning Resources, Inc. v. Trump invalidated tariffs imposed under the International Emergency Economic Powers Act, and after the Section 122 balance-of-payments surcharge was itself ruled unlawful by the Court of International Trade in May 2026, the administration turned to authorities less exposed to those specific legal defects. On July 20, 2026, the President invoked Section 338 for the first time in its history, signing proclamations that imposed 50% additional duties on Canadian motor vehicles, alcoholic beverages, and dairy products.
Why Canada Was Targeted
The proclamations found that Canada discriminated against U.S. commerce in several respects. On motor vehicles, Canada had applied a 25% tariff on U.S.-made vehicles that do not qualify for USMCA preferential treatment, plus a 25% tariff on non-originating content in vehicles that do qualify, along with automaker-specific quotas that Canada reduced for companies that shifted production out of the country. The administration said these measures contributed to a roughly 22% drop in U.S. motor vehicle exports to Canada, from about $25.9 billion to $20.3 billion, even as Canada’s imports from Mexico, Japan, Korea, and Germany increased over the same period. On dairy, the proclamation pointed to Canada’s tariff-rate quota system, which it said gave European Union retailers better access to certain cheese quotas than comparable U.S. suppliers received. On alcoholic beverages, several Canadian provinces had halted purchases of U.S. alcohol starting in March 2025, a step the administration linked to an 81% drop in U.S. alcohol exports to Canada, from roughly $718 million to $137 million over the following year.
The August 2026 Pause and Implementation
The new 50% duties were originally scheduled to take effect on August 19, 2026, but hours before the deadline, the administration paused implementation for three additional days while the two countries worked toward a broader trade deal covering market access, economic security, and digital trade. The pause lifted on August 22, 2026, and the 50% duties took effect on Canadian motor vehicles, alcoholic beverages, and dairy products entered for consumption on or after that date. Given how quickly this situation has moved, importers should confirm current status directly with U.S. Customs and Border Protection or their customs broker rather than relying on any single snapshot in time.
Section 338 vs. Section 301, Section 232, and Section 122 Tariffs
Importers already juggling Section 301, Section 232, and Section 122 duties now have a fourth tariff authority to track, one with its own trigger, limit, and legal profile.
| Tariff Program | Legal Basis and Trigger | Limit and Duration |
| Section 338 | Tariff Act of 1930; discrimination against U.S. commerce | Up to 50% ad valorem, or exclusion; no statutory expiration |
| Section 301 | Trade Act of 1974; unfair trade practices | No statutory cap or time limit |
| Section 232 | Trade Expansion Act of 1962; national security | No statutory cap or time limit |
| Section 122 | Trade Act of 1974; balance-of-payments deficit | Capped at 15%; limited to 150 days |
Section 338 stands out on two counts: it can reach a higher duty rate than Section 122, and unlike Section 122, it carries no automatic sunset date. It is also distinct from Section 337, a separate provision enforced by the International Trade Commission against unfair import practices such as patent infringement, which importers sometimes confuse with Section 338 because of the similar numbering.
Which Products Are Covered So Far
The July 2026 proclamations targeted three categories of Canadian goods: motor vehicles, alcoholic beverages, and dairy products. The motor vehicles proclamation covers 439 Harmonized Tariff Schedule subheadings, the alcoholic beverages proclamation covers 63 subheadings, and the dairy proclamation covers 52 subheadings. Based on 2024 trade data, the three categories together represent close to $20 billion in annual U.S. imports from Canada, including about $19.3 billion in motor vehicles, $1 billion in alcoholic beverages, and $97.2 million in dairy products.
That scope could still change. Unlike the Section 122 surcharge, which carved out broad exemptions for categories such as critical minerals and energy products, the Section 338 proclamations did not include a comparable exemption list, and the statute gives the President room to expand coverage to additional products, or to other countries, if new discrimination findings are made. Notably, USMCA origin does not exempt a shipment from Section 338 duties; the tariffs apply regardless of a good’s preferential trade status under the agreement.
Legal Risks and Open Questions
Because no court has ever interpreted Section 338’s substantive standards, trade lawyers have flagged substantial litigation risk. The statute does not define what it means for a country to discriminate in fact against U.S. commerce, and unlike Section 232 and Section 301, it has no developed body of agency or judicial precedent establishing what findings are adequate or how a reviewing court should evaluate a presidential determination.
That legal uncertainty cuts both ways for importers. A court challenge to the Canada tariffs is plausible, similar to the challenges that succeeded against the IEEPA and Section 122 tariffs, but there is no settled precedent guaranteeing that outcome. Trade lawyers have also warned that relying on Section 338 could fast-track retaliatory tariffs from Canada or invite similar unilateral executive action from other trading partners, since the statute imposes no procedural check comparable to a WTO dispute or a formal USTR investigation. Importers should treat Section 338 duties as active and collectible unless and until a court orders otherwise, rather than assuming litigation will unwind them.
How Technology Helps: KlearNow.AI’s Section 338 Tariff Tracking
KlearNow.AI’s customs and trade compliance platform helps importers stay ahead of fast-moving, legally novel tariff actions like Section 338 by continuously monitoring presidential proclamations, court filings, and negotiation updates that could change which goods are affected. Instead of manually checking whether a shipment’s Harmonized Tariff Schedule classification and country of origin fall within the latest proclamation, importers can see in real time whether an entry is subject to Section 338, Section 301, Section 232, or Section 122, and how a pause, extension, or court ruling might change that status.
Because Section 338 has no statutory expiration and no established legal track record, manual tracking leaves compliance teams exposed to sudden changes with little warning. KlearNow.AI’s platform flags affected HTS codes, models landed-cost exposure as new duties take effect, and maintains an audit trail of the legal basis for each duty, so brokers and compliance teams are not caught off guard by a new proclamation, a negotiated deal, or a court decision.
Compliance Steps for Importers of Canadian Goods
Importers with Canadian supply chains should confirm the correct Harmonized Tariff Schedule subheading for every affected SKU before filing, since the three proclamations apply at the subheading level rather than to Canadian imports broadly. Section 338 duties can take effect just 30 days after a proclamation is signed, so compliance teams should treat any future action covering additional products or countries as something that can move from announcement to enforcement within about a month. A USMCA certificate of origin does not exempt goods from Section 338 duties, and landed-cost models should be updated to reflect the full 50% duty rather than assuming a preferential rate will apply.
Frequently Asked Questions
What is the legal basis for Section 338 tariffs?
Section 338 tariffs are authorized under Section 338 of the Tariff Act of 1930, codified at 19 U.S.C. 1338. The statute lets the President impose additional duties of up to 50% ad valorem, or exclude goods entirely, on products from a foreign country found to discriminate against the commerce of the United States.
Are the Section 338 tariffs on Canada in effect?
Yes. After a brief pause, the 50% duties on Canadian motor vehicles, alcoholic beverages, and dairy products took effect on August 22, 2026, applying to goods entered for consumption on or after that date. Because the underlying negotiations have moved quickly, importers should confirm current status with U.S. Customs and Border Protection or their broker before relying on this article alone.
How is Section 338 different from Section 301 tariffs?
Section 301 requires a formal United States Trade Representative investigation into specific unfair trade practices and is typically used after a lengthy review. Section 338 requires no comparable investigatory procedure, only that President Trump or a future president act after due investigation, and can move from finding to duty in a matter of weeks.
Why was Canada targeted under Section 338?
The July 2026 proclamations cited Canada’s 25% tariff on U.S. motor vehicles, its administration of dairy tariff-rate quotas, provincial alcohol distribution practices, and retaliatory tariffs Canada had imposed on U.S. goods as evidence of Canadian discrimination against U.S. commerce. The administration also pointed to a 23.6% increase in Canada’s motor vehicle imports from Mexico over the same period as evidence that Canadian policy was steering trade away from U.S. suppliers specifically.
Could Section 338 be used against other countries?
Yes. Nothing in the statute limits its use to Canada. Because the trigger is a country-specific finding of discrimination, the administration could in principle invoke Section 338 against any trading partner, including countries in the European Union or elsewhere, if it makes a similar finding.
Who pays Section 338 tariffs?
As with other U.S. tariffs, the importer of record pays Section 338 duties to U.S. Customs and Border Protection at the time of entry, in addition to any regular customs duty already owed. The cost is typically passed along the supply chain to distributors, retailers, and ultimately consumers.