A tariff clause written in 1930 for trade discrimination is now the Canada tariff, and USMCA status does not shield the goods

For ninety-six years section 338 of the Tariff Act of 1930 sat in the statute books as a warning rather than a tool. It was written to let the President answer a foreign country that treats American goods worse than everyone else’s, and by Thomson Reuters’ account no President had used it to impose a duty, though Franklin Roosevelt’s administration was among those that considered it⁸. On July 20 President Trump signed three proclamations under it, each finding that Canada discriminates against U.S. commerce and each imposing an additional 50 percent duty on a list of Canadian goods from August 19^1,2,3. The policy significance lies less in the rate than in the choice of instrument. With emergency tariffs gone after the Supreme Court’s February ruling and the balance-of-payments surcharge at the end of its 150 days^5,8, the administration has found an authority that needs no agency investigation, no hearing and no emergency, only a presidential finding of fact^6,8.

The instrument: a discrimination clause with a ceiling and a sequel

Section 338 was enacted on June 17, 1930, as part of the law better known as Smoot-Hawley^6,8. Its text descends from section 317 of the Tariff Act of 1922, which the 1930 law superseded and repealed⁶. The provision the proclamations rely on lets the President, when he finds that the public interest will be served, declare additional duties to offset a burden or disadvantage placed on U.S. commerce^1,6. The triggering conduct comes in two forms. A foreign country may impose an “unreasonable charge, exaction, regulation, or limitation which is not equally enforced” on like articles of every foreign country, or it may discriminate in fact against U.S. commerce so as to put it at a disadvantage compared with the commerce of any other country^1,6.

The statute sets two limits. The duty may not exceed 50 percent ad valorem or its equivalent, and it may not take effect earlier than 30 days after the proclamation^1,6. Each of the July 20 proclamations goes to that ceiling and sets the first date the statute allows^1,2,3.

The statute also has a sequel. If the country “maintained or increased its said discriminations” after a proclamation, the President may exclude its products from entry altogether, and articles brought in against such an exclusion are forfeited to the United States whether imported directly or indirectly⁶. A separate subsection lets the President confine a proclamation to parts of a country, and to suspend, revoke, supplement or amend it⁶. The proclamations recite both powers^1,3. Unlike section 301 of the Trade Act of 1974 or section 232 of the Trade Expansion Act of 1962, section 338 lets the President act by proclamation alone, with no investigation or hearing first⁸. The President’s approval authority over implementing customs regulations is delegated to the Trade Representative¹.

Three findings against Canada, one remedy

Each proclamation rests on a different Canadian measure.

Motor vehicles. Since April 9, 2025, Canada has charged a 25 percent surtax on U.S.-origin motor vehicles^1,7. The order, SOR/2025-118, applies the surtax to the full value for duty of vehicles that do not qualify for the agreement’s tariff treatment; for qualifying vehicles it deducts the value of Canadian and Mexican content, or a flat 15 percent of value⁷. The proclamation adds that Canada runs company-specific duty-free quotas for qualifying vehicles, does not publish the quantities and has cut them for automakers that moved production to the United States¹. Canadian imports of U.S. motor vehicles fell about 22 percent, from roughly $25.9 billion to $20.3 billion, between the twelve months to March 2025 and the twelve months to March 2026, while imports from Mexico rose about 23.6 percent over a slightly shorter period¹.

Alcoholic beverages. On March 4, 2025, the Liquor Control Board of Ontario stopped buying U.S. products and pulled them from its shelves, and Quebec asked its provincial liquor corporation to do the same³. Every province and territory halted purchase, distribution or retail of U.S. alcohol; only Alberta and Saskatchewan lifted their bans, in June 2025³. The proclamation puts the fall in Canadian imports of U.S. alcoholic beverages at about 81 percent, from roughly $718 million to $137 million, while imports from other countries rose by more than $170 million³.

Dairy. The dairy case is narrower and more technical. Canada administers a tariff-rate quota for cheeses of all types under the United States-Mexico-Canada Agreement and another under its Comprehensive Economic and Trade Agreement with the European Union². Retailers can hold and use quota under the European agreement but not under the North American one, and the proclamation treats that difference in eligibility as discrimination in fact against U.S. cheese².

The remedy is the same in all three: an additional 50 percent ad valorem duty on the goods in the proclamation’s Annex II, on top of any other duties, for entries on or after 12:01 a.m. eastern time on August 19^1,2,3. Articles subject to section 232 duties are excluded, as are civil aircraft covered by the WTO aircraft agreement, unmanned aircraft apart¹. Goods admitted to a foreign trade zone on or after that date must enter in privileged foreign status¹. Customs and Border Protection is directed to issue implementing guidance and to make any further changes to the tariff schedule by Federal Register notice¹.

Who pays when the duty lands on hockey sticks

The duty does not track the titles of the proclamations. The White House describes the covered products as “ranging from wine to hockey sticks to cement”⁴, and Thomson Reuters lists plywood, furniture, fishing rods, seeds, clothing, wigs and swimming pools among them⁸. It reports a USTR estimate of nearly $20 billion in covered imports, about 5.2 percent of the $382 billion in goods the United States bought from Canada in 2025⁸. Energy, potash, fish and critical minerals are left out, along with everything already under section 232⁴. Because goods under section 232 are carved out, Canadian products already carrying national-security tariffs are not charged a second time¹.

The largest change for importers is the treatment of the trade agreement. The administration states that the duty applies whether or not a good qualifies under the USMCA⁴. The section 122 surcharge, imposed in February for 150 days, had exempted goods entering duty-free as goods of Canada or Mexico, and by its own terms it ran through 12:01 a.m. on July 24⁵. For a Canadian good that qualifies under the agreement, the rate moves from zero to 50 percent in one step. Those who pay at the border are U.S. importers of record, and Thomson Reuters stresses that the duty is owed in addition to other duties, taxes and fees, not in place of them⁸. The proclamations themselves claim a benefit for U.S. producers who compete with the covered goods, and say the duties “may spur Canada to remove the discrimination”¹.

The statute speaks of duties that offset a burden. None of the proclamations shows a calculation linking the covered trade in Annex II to the export losses it describes, about $5.6 billion in vehicles and $582 million in alcohol by the administration’s count^1,3,4. Section 338 does not appear to require one; it asks for a determination, which each proclamation makes^1,6.

The longer view: a reciprocity statute meets a treaty review

Section 338 belongs to the interwar tariff acts, carried from the 1922 law into the 1930 one as a weapon against discrimination by trading partners⁶. That the clause then went unused for nearly a century is part of its significance now⁸. There is no earlier proclamation to show how a finding of discrimination is made, measured or contested.

This journal’s coverage of the Brazil action traced the same search for footing after the IEEPA ruling, in that case to section 301. The Canada proclamations take a different route, one with fewer procedural steps, and they arrive during the review of the North American agreement. The fact sheet states that the United States “did not agree to renew” the USMCA in its current form, and names China and Canada as the only two countries that chose to retaliate rather than negotiate⁴. Two of the three Canadian measures, the vehicle surtax and the provincial alcohol bans, are policies Canada could withdraw itself^3,7. The dairy finding concerns how Canada administers quota eligibility under the agreement².

The dated steps are short. The duty applies from August 19, CBP guidance and any technical corrections to the annexes are still to come, and the President may suspend or amend any of the three proclamations at any time^1,6. If Canada maintains or increases the measures, subsection (b) allows him to bar the listed goods from entry altogether⁶. That provision has never been applied.