From additional tariffs to exclusion from the market

The present escalation developed rapidly.

On 20 July 2026, the U.S. President issued proclamations under Section 338 concerning Canadian measures affecting alcoholic beverages, dairy products and motor vehicles. The additional duties were initially due to take effect on 19 August. Their operation was then suspended for three days while discussions continued.

When that suspension expired on 22 August, additional U.S. tariffs of up to 50% took effect on approximately C$27.6 billion worth of Canadian goods.

On 25 August 2026, the Government of Canada issued its formal announcement titled “Canada announces targeted countermeasures and substantive support for workers and businesses in response to U.S. tariffs”.

Canada announced that it would respond on what it described as a “dollar-for-dollar, rate-for-rate” basis. Its counter-tariffs, effective from 8 September 2026, apply at rates of 15%, 25% and 50% to C$27.6 billion worth of U.S. imports. The measures affect products in sectors including steel and aluminium, dairy, appliances, agricultural equipment, pulp and paper, and electronics.

Canada also announced a C$7.5 billion package intended to support workers and businesses affected by the tariff dispute.

The American response on 8 September moved the dispute into a materially different phase. Further presidential proclamations directed that specified Canadian products covered by the measures concerning alcoholic beverages, dairy and motor vehicles would be excluded from importation into the United States from 12:01 a.m. Eastern Time on 29 September 2026.

The relevant measures are contained in the following official proclamations:

• Proclamation concerning specified Canadian alcoholic beverages;
• Proclamation concerning specified Canadian dairy products; and
• Proclamation concerning specified Canadian motor-vehicle products.

The restrictions are not blanket prohibitions against every Canadian product falling broadly within those industries. Their legal scope is determined by the tariff classifications identified in the annexes to the proclamations. That qualification is essential. Customs liability is governed by the legal classification of the product, not merely by the commercial name under which it is marketed.

Nevertheless, the underlying shift is unmistakable. The dispute has progressed from imposing a financial burden upon selected imports to denying market entry to specified products.

Why Section 338 is central to the dispute

Section 338 of the U.S. Tariff Act of 1930 is codified at 19 U.S.C. § 1338 and is titled “Discrimination by foreign countries.”

In broad terms, it authorises the U.S. President to act where a foreign country is found to place a burden or disadvantage upon American commerce through an unreasonable charge, exaction, regulation or limitation that is not equally applied, or through discrimination that places U.S. commerce at a disadvantage compared with the commerce of another country.

The initial remedy available under the provision is the imposition of new or additional duties. Where the statutory findings are made and the President determines that action would serve the public interest, additional duties of up to 50% ad valorem—or their equivalent—may be imposed to offset the identified burden or disadvantage.

The wording is important. Section 338 refers to a new or additional duty of up to 50%. It should not automatically be understood as fixing the total customs burden at 50%. Whether other duties can operate alongside the Section 338 charge depends upon the relevant proclamations, customs instructions and the provisions of the Harmonized Tariff Schedule of the United States (hereinafter referred to as the “HTSUS”).

The legislation also contains a considerably stronger power. If, following an initial proclamation, the foreign country is found to have maintained or increased the discrimination, the President may issue a further proclamation excluding products from importation where such action is considered consistent with the public interest and the interests of the United States.

The September proclamations rely upon this second level of authority.

The U.S. Administration’s position is that Canada did not remove the measures identified in the earlier proclamations and instead maintained or increased the treatment considered discriminatory against American commerce. The Administration consequently moved specified products from an additional-duty regime to an import-exclusion regime.

Section 338 also permits a proclamation to be suspended, revoked, supplemented or amended when the President considers that the public interest requires such action.

The September proclamations further rely upon Section 604 of the Trade Act of 1974, codified at 19 U.S.C. § 2483, which permits the substance of statutes affecting import treatment—and actions taken under those statutes—to be embodied in the HTSUS.

The legal structure therefore gives the executive branch substantial flexibility: duties may be imposed, suspended, modified or supplemented, and specified products may ultimately be excluded if the required findings are made.

At the same time, the exercise of such extensive authority raises questions that may eventually receive judicial or treaty-based scrutiny. These could include the sufficiency of the statutory findings, the relationship between the earlier tariff proclamations and subsequent exclusions, the applicable procedural requirements, and the interaction between domestic trade authority and international commitments.

For businesses, however, a possible future challenge does not remove the immediate compliance obligation. Unless a measure is suspended, withdrawn, amended or invalidated through a legally effective process, importers must proceed on the basis of the rules being administered at the border.

Why product classification becomes decisive

The public discussion commonly refers to bans on Canadian alcoholic beverages, dairy products and motorcycles or motor-vehicle products. Such descriptions communicate the general policy direction, but they are not sufficiently precise for customs compliance.

The actual restrictions apply to products falling under the tariff classifications identified in the annexes to the presidential proclamations and incorporated into the HTSUS.

This distinction can determine whether goods worth millions of dollars may legally enter the United States. Two commercially similar products may fall under different tariff subheadings because of their composition, technical characteristics, intended use or degree of processing. One may be covered by the restriction while the other is not.

The opposite problem can also arise. A company may assume that its product is outside the measure because it is sold under a different commercial description, while its technical features place it within a listed tariff provision.

The correct inquiry is therefore not merely whether a product can loosely be described as dairy, alcohol or a motor vehicle. The business must determine its proper classification under the HTSUS and compare that classification with the applicable annexes, Chapter 99 notes, U.S. Customs and Border Protection instructions and any subsequent corrections.

The legally relevant customs event also matters. The applicable treatment may depend upon whether the goods have merely been shipped, have arrived in U.S. territory, have been entered for consumption or remain in a bonded warehouse.

The proclamations contemplate that goods imported before 29 September but not yet entered for consumption or withdrawn from warehouse may remain subject to the earlier 50% duty rather than the import exclusion. Companies with goods in transit or warehousing must therefore examine the precise customs status of each consignment.

A contract date or bill-of-lading date may not, by itself, determine the applicable tariff treatment.

Tariff stacking can multiply the commercial burden

The September actions also modify the scope of the existing Section 338 duties. Certain products were removed from tariff coverage, while others were added. The U.S. Administration indicated that these adjustments were intended to preserve approximately the same overall value of Canadian trade covered by the original measures.

More importantly, the United States changed the position concerning the interaction of Section 338 duties with duties imposed under Section 232 of the Trade Expansion Act of 1962, codified at 19 U.S.C. § 1862.

Section 232 is a separate trade authority dealing with imports considered to threaten or impair U.S. national security. Where both Section 338 and Section 232 apply and the governing instruments permit cumulative treatment, a Section 338 duty may operate in addition to a Section 232 duty.

This possibility—commonly called tariff stacking—can transform the economics of a transaction.

An importer cannot calculate its exposure by locating only one relevant tariff measure. It must examine every potentially applicable HTSUS Chapter 99 provision, the availability of exclusions or quotas, the product’s entered value and the rules governing cumulative duties.

A supply contract priced on the assumption of a single 25% or 50% tariff may become commercially unsustainable if another duty is added. The resulting dispute may then turn not only on customs law but also on the contractual allocation of unexpected governmental charges.

The USMCA remains in force—but that does not answer every legal question

The imposition of tariffs and import prohibitions has not automatically terminated the United States–Mexico–Canada Agreement, hereinafter referred to as the “USMCA.” The agreement is commonly referred to in Canada as the Canada–United States–Mexico Agreement or CUSMA.

Under Article 34.6 of the USMCA, a party may withdraw from the agreement by giving written notice to the other parties. Withdrawal takes effect six months after such notice.

Unless that procedure is followed, the agreement continues to operate.

The continued existence of the USMCA, however, must not be confused with the legality of every new measure adopted by one of its parties.

Whether a tariff, import exclusion or procurement restriction complies with the agreement requires a separate examination of the relevant market-access obligations, rules concerning quantitative restrictions, national-treatment provisions, government-procurement commitments, reservations, sector-specific chapters and any exception that may be invoked.

The existence of domestic authority under Section 338 also does not, by itself, determine compliance with an international agreement. Domestic statutory authorisation and treaty compatibility are distinct legal questions.

A measure may be validly implemented under domestic law and still become the subject of an international challenge. Conversely, an allegation of treaty inconsistency does not automatically prevent customs authorities from enforcing the measure while a dispute is pending.

This distinction is commercially important. Businesses cannot safely continue shipments merely because they believe a tariff or prohibition may eventually be challenged under the USMCA or another agreement.

Possible implications under wider international trade law

The dispute may also engage obligations under the General Agreement on Tariffs and Trade 1994, forming part of the World Trade Organization legal framework.

Additional duties may raise questions concerning tariff commitments and most-favoured-nation treatment. Import prohibitions may engage the general discipline against quantitative restrictions. The treatment of domestic and imported products—or differences in treatment between trading partners—may raise further questions depending upon the precise design and application of the measures.

That does not mean that every restriction is necessarily unlawful. International trade agreements contain exceptions, qualifications and dispute-settlement mechanisms. Their application depends upon the exact measure, the legal justification advanced, the product involved and the obligations accepted by the parties.

There is also an important distinction between a government’s ability to bring a treaty claim and the remedies available to a private company.

A business may contest classification, origin, valuation or entry treatment through customs and domestic judicial procedures. It may also provide evidence to its government and seek diplomatic or institutional intervention. It does not, however, ordinarily bring a World Trade Organization state-to-state dispute in its own name.

The practical remedy available to a company may therefore be narrower and more immediate than the wider international dispute between the governments.

Why Indian businesses should pay attention

The commercial effects of the dispute are not confined to American and Canadian companies.

An Indian manufacturer may supply a component to a Canadian company that incorporates it into a finished product exported to the United States. An Indian exporter may send goods to Canada for processing, finishing or packaging before onward sale. An Indian business may rely upon a North American distributor, warehouse or logistics provider. A bank, insurer or shipping company may finance or support a transaction involving affected goods.

Each arrangement can create indirect exposure.

The first question is origin. The country from which a product is shipped is not necessarily its country of origin. Goods routed through Canada do not automatically become Canadian, while processing in Canada may or may not be sufficient to confer Canadian origin.

The result depends upon the applicable origin rule and the nature of the manufacturing activity.

The second question is classification. A commercial product name used in India may not correspond with its classification under the HTSUS.

The third question is valuation. If a tariff is imposed on an ad valorem basis, customs value becomes central. Related-party pricing, royalties, assists, commissions and other adjustments may affect the amount against which the duty is calculated.

Origin, classification and valuation are separate legal inquiries. An error in any one of them can produce an incorrect duty calculation or an inaccurate customs declaration.

Conclusion

The latest U.S.–Canada measures represent more than another round of retaliatory tariffs. They demonstrate how a trade dispute can progress from additional duties to product exclusions, tariff stacking and government-procurement restrictions while the underlying regional trade agreement formally remains in force.

For governments, the dispute raises questions concerning statutory authority, treaty compliance and the appropriate limits of economic retaliation.

For businesses, the consequences are more immediate. Goods may become more expensive, lose access to a public market or be prohibited from entering altogether. Existing contracts may no longer allocate risk adequately, and supply chains designed around stable market access may require urgent reassessment.

A tariff can sometimes be absorbed, negotiated or passed on. An import ban may leave no transaction to price.

That is why cross-border trade protection must begin before the contract is signed—through correct classification, defensible origin analysis, careful allocation of regulatory risk and a workable legal response if market access changes.

Official references

1. Section 338 of the U.S. Tariff Act of 1930—19 U.S.C. § 1338
2. U.S. proclamation concerning specified Canadian alcoholic beverages
3. U.S. proclamation concerning specified Canadian dairy products
4. U.S. proclamation concerning specified Canadian motor-vehicle products
5. Government of Canada announcement of countermeasures and support measures
6. United States–Mexico–Canada Agreement
7. USMCA Chapter 34—Final Provisions, including Article 34.6
8. Section 232 of the Trade Expansion Act of 1962—19 U.S.C. § 1862
9. General Agreement on Tariffs and Trade

This article provides general information and does not constitute legal advice. The treatment of any transaction depends upon product classification, origin, customs value, contractual terms, entry date and the measures in force at the relevant time.

Jurist & Jurist International
Corporate Law | International Trade | Cross-Border Contracts | Commercial Disputes
info@juristandjurist.com | www.juristandjurist.com