Revival of a Dormant Tariff Authority: Section 338

On July 20, 2026, President Trump signed three proclamations imposing an additional 50% ad valorem duty on certain Canadian imports under Section 338 of the Tariff Act of 1930 (19 U.S.C. § 1338). The proclamations target motor vehicles, alcoholic beverages, and dairy products, and are scheduled to take effect on August 19, 2026. Although Section 338 has remained on the books for nearly a century, it appears never before to have been used to impose tariffs.

This move marks another shift in the administration’s tariff strategy following the Supreme Court’s February 2026 decision invalidating the use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs.

Background

Section 338 is a provision of the Smoot-Hawley Tariff Act of 1930. It authorizes the president, upon finding that a foreign country either (i) imposes an “unreasonable charge, exaction, regulation, or limitation” on U.S. products not equally enforced on like articles of every foreign country or (ii) “discriminates in fact” against U.S. commerce so as to disadvantage it relative to any other country, to impose additional duties of up to 50% ad valorem.

If the discrimination persists, the president may escalate to the exclusion of products from that country. The statute requires the duties to take effect no earlier than 30 days after the proclamation.

Unlike Section 301 or Section 232, Section 338 does not expressly require an agency administrative process before the imposition of tariffs. Rather, it appears to authorize the president to act directly upon finding that a foreign country has discriminated against U.S. commerce. Although the speed and flexibility of Section 338 may make it an attractive authority for the administration following the invalidation of IEEPA, the absence of judicial or administrative precedent under Section 338 creates substantial litigation risk.

1. What the President Issued

The three proclamations each target a different category of Canadian goods, and each rests on a separate finding that Canada is discriminating against American commerce. All three proclamations impose a 50% additional ad valorem duty, all taking effect on the same date and subject to the same exceptions.

• Motor vehicles. The proclamation states that Canada’s tariff system disadvantages American vehicles compared to vehicles from other countries. In support of this claim, it asserts that Canada imposes a 25% tariff on vehicles that do not qualify under the United States–Mexico–Canada Agreement (USMCA) and for non-USMCA qualifying vehicles, Canada charges 25% on all parts or content that do not originate in North America. According to the proclamation, Canada uses a tariff-rate quota system that is designed to encourage automakers to build cars in Canada rather than import them from the United States. It also points to an approximately 22% decline in U.S. motor vehicle exports to Canada—from about $25.9 billion to about $20.3 billion—between April 2025 and March 2026, while Canadian vehicle imports from Mexico, Japan, Korea, and Germany increased.

• Alcoholic beverages. The president found that Canadian provinces and territories discriminated against the United States by blocking the purchase, distribution, and retail sale of U.S. alcoholic beverages beginning in March 2025, while continuing to sell alcohol from other countries. For example, Ontario’s LCBO and Quebec’s SAQ removed U.S. products from their shelves. The proclamation cites an approximately 81% decline in U.S. alcohol exports to Canada (from roughly $718 million to $137 million).
• Dairy. The president found that Canada administers its cheese import quotas in a way that favors European dairy over American dairy. Specifically, Canadian retailers may use the quota established under the Canada-EU Comprehensive Economic and Trade Agreement (CETA) to import European cheese, but they are not allowed to use the equivalent quota under the USMCA to import American cheese. The result is that U.S. dairy producers face a disadvantage that European producers do not.

Annex II to each proclamation implements changes to the Harmonized Tariff Schedule and covers a broader set of Canadian goods beyond cars, alcohol, and dairy, including cement, furniture, fishing rods, seeds, clothing, and hockey equipment.

2. Why Lack of Precedent Under Section 338 Matters

Section 338 does not appear to have been used to impose tariffs, and its invocation has been infrequent. In the 1930s, the provision served as a source of diplomatic leverage in negotiations involving France and Spain.  Then, in 1935, the president identified what he characterized as discrimination by Germany and Australia against U.S. commerce, but rather than imposing duties under Section 338, he opted to withdraw certain trade benefits under separate authority. No court appears to have interpreted the provision. Since then, Section 338 largely fell into disuse as U.S. trade policy gravitated toward the Trade Act of 1974 and the World Trade Organization (WTO) framework.

Two unusual features of Section 338 are notable in this context:

1. Vague trigger. The statute does not define “discrimination,” and there appears to be no developed body of judicial or agency precedent explaining how the term should be applied.
2. No prescribed administrative process. Unlike Sections 232 and 301, Section 338 does not on its face require an investigation, public notice, a comment period, a hearing, or formal agency findings before the president acts. But there is also no body of precedent that addresses the adequacy or completeness of findings that the president must make in order to support its exercise—as well as what standard a court will review its exercise.

3. Why the Administration May Have Chosen Section 338

Swift Implementation Post-IEEPA

Section 338 offers features that other tariff authorities do not combine in a single statute.

• Section 122 permits only temporary tariffs of up to 15% for no more than 150 days and is limited to balance-of-payments concerns.
• Section 301 can support broader and potentially longer-lasting remedies, but ordinarily requires a USTR investigation and a public administrative process.
• Section 232 permits adjustments to imports, including the imposition of tariffs, but only after an investigation and a finding of a threat to national security.

Section 338, by contrast, allows the president to impose duties of up to 50% after a unilateral finding of discrimination, with as little as 30 days before implementation.

That combination of speed, permanence, and a comparatively high tariff ceiling may explain the administration's interest in reviving the statute. It also means that companies may receive far less advance warning than they would in a traditional Section 301 or Section 232 proceeding. The trade-off is that Section 338 has none of the legal track record that makes Sections 232 and 301 defensible in court, which is the core litigation risk.

Section 338 Tariffs as a USMCA Negotiating Tool

On July 1, the U.S. Trade Representative formally confirmed that the United States would “not agree to renew the USMCA in its current form,” setting in motion a lengthy period of negotiations while the agreement remains in force.

The use of Section 338 in this context may ultimately become a point of leverage—and perhaps also friction—as the administration continues its efforts to renegotiate the USMCA. Notably, each proclamation relies extensively on Canada’s alleged failure to afford the United States the treatment contemplated under the USMCA to support the president’s finding of “discrimination” under Section 338.

 If the administration continues to pursue modifications to—or even withdrawal from—the USMCA, Section 338 could provide an alternative mechanism for exerting negotiating leverage on the basis of Canada’s alleged departures from the USMCA that do not require relying on the USMCA’s state-to-state dispute settlement procedures.

4. What It Means for Businesses

• Immediate Cost Impact: Importers of covered Canadian autos, alcohol, dairy, and the broader list of products in the annexes face a 50% additional duty as of August 19, 2026, stacked on existing duties, with no USMCA relief. Supply chains built around USMCA duty-free treatment are directly affected.
• Difficulty Planning Ahead: Because Section 338 requires no investigation or comment period, tariff changes can appear with as little as 30 days’ notice. The president may also amend or escalate the tariffs to a complete import ban at any time. This makes Section 338 actions much harder to anticipate than other tariff statutes, which display warning signs publicly before implementation.
• Risk of Expansion: The same legal theory, that a country is discriminating against U.S. commerce, could in principle be applied to other trading partners that maintain country-specific trade measures. Companies with trade exposure beyond Canada should treat these proclamations as a potential template, not a one-time event.

Summer associate Christina I. Hill in the Washington, D.C. office contributed to the writing of this article.