The latest Trump tariff tool aimed at Canada is drawing sharp scrutiny from trade lawyers and policy analysts alike. On Monday, U.S. President Donald Trump signed orders invoking Section 338 of the Tariff Act of 1930. As a result, Canadian goods ranging from hockey sticks to wine could soon face steep new duties.

What Is Section 338 and Why It Matters

Section 338 is an almost century-old statute that has never before been used to impose tariffs. Consequently, trade experts say there is no real precedent for how this move will unfold. “Because Section 338 is an untested authority from the Great Depression era, we do not have a road map for how this will play out,” said Ryan Majerus, a Washington-based partner in the international trade team at King & Spalding.

The new duties would hit Canadian exports with a 50 per cent tariff starting Aug. 19. Unlike most of Trump’s other tariff actions, however, these ones would not exempt goods that comply with the Canada-U.S.-Mexico Agreement, better known as CUSMA. That detail alone sets this threat apart from earlier rounds of tariffs.

Under the statute, tariffs can climb as high as 50 per cent. Notably, no formal investigation is required before they take effect, and there is no limit on how long they can remain in place. Greta Peisch, former general counsel for the Office of the U.S. Trade Representative, explained that “Section 338 relates to instances when a foreign country discriminates against the commerce of the United States and puts it at a disadvantage as compared to third countries.”

U.S. Trade Representative Jamieson Greer has framed the move as a response to provincial bans on American liquor, Canada’s supply-managed dairy system, and quotas on certain U.S. vehicles. In other words, the administration is presenting this as retaliation rather than a standalone trade barrier.

How This Fits Into the Canada-U.S. Trade Fight

This tariff threat lands squarely in the middle of ongoing CUSMA negotiations. Prime Minister Mark Carney said Tuesday that he had spoken with Trump and that both leaders agreed to intensify trade talks. Still, Peisch noted that “this announcement is clearly focused on gaining leverage in the (CUSMA) talks, but it remains uncertain if the tariffs will be applied.”

Earlier this month, the Trump administration confirmed it would not renew CUSMA outright. That decision triggers a series of rolling annual reviews lasting up to a decade, after which the agreement would expire unless all three countries agree to extend it. Meanwhile, Mexico has already launched formal renegotiation talks with Washington, while Canada has yet to begin.

This backdrop matters because Section 338 gives the U.S. administration additional pressure points heading into those discussions. Therefore, many analysts view the tariff threat less as a finished policy and more as a negotiating tactic. Nevertheless, the consequences for Canadian exporters could be very real if the duties take effect as planned.

It’s also worth noting that this isn’t the administration’s only active tariff track. The U.S. Supreme Court struck down Trump’s use of the Emergency Economic Powers Act (IEEPA) earlier this year, which had underpinned his sweeping “Liberation Day” tariffs. As a result, the administration has since launched Section 301 investigations into 60 countries, including Canada, citing forced-labour concerns in supply chains. Greer has suggested that a 10 per cent Section 301 duty on Canada could arrive soon as well.

Legal Uncertainty and What Comes Next

Because Section 338 has never been tested for tariffs, its long-term legal footing remains genuinely uncertain. Majerus, Peisch, and Cato Institute trade policy analyst Alfredo Carrillo Obregon all expect legal challenges if the duties actually go into force. However, none of them could predict with confidence how a court might rule.

Obregon raised a broader concern about how the tool could be used going forward. He warned that if a country retaliates against the U.S. alone, Washington could label that retaliation “discriminatory” and use it to justify further Section 338 tariffs. “(It’s) sort of this vicious cycle that never ends,” he said.

Ultimately, the coming weeks will reveal whether this threat becomes policy or stays a bargaining chip. Either way, Canadian businesses and policymakers will be watching closely as the Aug. 19 deadline approaches. For now, though, the legal and economic stakes remain difficult to fully predict.

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