Tax Insights: USTR imposes final section 301 tariffs on 60 economies for failure to enforce forced labour import prohibitions: Canada subject to a 10% tariff

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Issue 2026-30

In brief

What happened?

On July 23, 2026, US President Donald Trump issued a memorandum¹ directing the US Trade Representative (USTR) to impose final tariffs, under section 301 of the US Trade Act of 1974, on all 60 economies investigated for their failure to impose and effectively enforce prohibitions on the importation of goods produced with forced labour. The USTR published a Notice of Action² (Notice) in the Federal Register, which applies additional tariffs to products entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 am ET on July 24, 2026.³

This final action converts what was, in March 2026, a preliminary investigation⁴ into an immediately effective tariff obligation for goods entering the United States from Canada. All products with a country of origin of Canada are now subject to a 10% additional tariff, subject to limited exemptions. Notably, if goods qualify under the Canada-United States-Mexico Agreement (CUSMA), they are exempt from the section 301 tariffs.

Why is it relevant?

The new 10% section 301 tariff applies in addition to existing most-favoured-nation (MFN) duties and any other applicable US tariff measures (e.g. section 232 tariffs on steel and aluminum). It affects all Canadian-origin goods entering the United States, unless specifically exempted in the Annexes to the Notice.

Action to consider

Businesses that export from Canada to the United States, source through Canadian supply chains or rely on transfer pricing structures crossing the Canada–US border should reassess their landed-cost models, commercial agreements and compliance posture immediately.

In detail

Background

On March 12, 2026, the USTR initiated 60 investigations, under section 301 of the US Trade Act of 1974, into the acts, policies and practices of 60 economies related to the failure of each economy to impose and effectively enforce a prohibition on the importation of goods produced with forced labour. Canada was one of those 60 economies. On June 2, 2026, the USTR determined that acts, policies and practices of each of the 60 economies are actionable under section 301.

Of the 60 economies investigated:

• 54 were found to have failed both to impose and to effectively enforce a forced labour import prohibition
• Six — Canada, Ecuador, the European Union, Indonesia, Mexico and Pakistan — were found to have failed specifically to effectively enforce an existing prohibition

Final tariff rates

On July 23, 2026, the US President directed the USTR to impose the following final tariff rates, which the USTR adopted in its Notice:

For the European Union and Taiwan, the “net of MFN” mechanic means the MFN duty plus the section 301 tariff totals 10%; where the MFN duty already equals or exceeds 10%, the section 301 tariff is zero. The same logic applies to Japan, Korea and Switzerland at the 12.5% rate.

Canada’s position

The USTR determined that Canada has failed to effectively enforce its existing forced labour import prohibition. Accordingly, Canada is subject to a flat 10% section 301 tariff on all products of Canada, effective July 24, 2026, subject to the exemptions set out in Annexes I and II, Part A of the Notice.

Exemptions

Products exempted from the section 301 tariffs (as identified in Annexes I and II to the Notice) include:

• raw materials, tariffing of which could cause domestic supply unavailability
• products that could cause economy-wide disruptions if subject to additional tariffs
• products that cannot be produced in sufficient quantity or at reasonable prices in the United States or obtained from other sources
• products for which additional tariffs would not meaningfully advance elimination of the forced-labour practices
• certain products of specified economies, to incentivize those economies to fulfill Agreements on Reciprocal Trade (ART) commitments or adopt/enforce forced labour import prohibitions

Exempted categories also include auto parts already subject to section 232 tariffs, civil aircraft parts and certain pharmaceutical articles. Businesses should review the specific Harmonized Tariff Schedule of the United States (HTSUS) subheadings listed in the Annexes to confirm whether their products qualify.

Goods that qualify under the CUSMA are exempt from the section 301 tariffs.

Foreign trade zones (FTZs)

Goods entered into a US FTZ that are subject to the additional tariff must be admitted under “privileged foreign status” (19 CFR 146.41), rather than “domestic status,” effective as of the date the tariff applies. Businesses using FTZs to manage inventory should review their admission elections immediately.

Textile tariff-rate quotas

The USTR will separately establish, when feasible, tariff-rate quotas (TRQs) for Bangladesh, Cambodia, Indonesia and Malaysia (initial three-year duration) to encourage importation of US cotton and textile inputs. Until those TRQs are established, the standard 10% rate applies to textile and apparel goods from those economies. These TRQs do not apply to Canada.

Severability

The Notice includes a severability clause: each economy’s tariff action is legally independent of every other economy’s tariff action. Invalidity of one does not affect the others. This means Canada’s 10% tariff stands regardless of the outcome of any legal challenge to tariffs imposed on other economies.

Status of the structural excess capacity investigation

The separate section 301 investigation into structural excess capacity and production in manufacturing sectors (which was also initiated in March 2026 and covers 16 economies) is not addressed in this Notice, but is still ongoing. Canada was not named in that investigation, but many of Canada’s key trading partners (including China, Japan, Korea, Mexico and the European Union) were. Businesses should continue to monitor that proceeding for potential additional tariff actions that could affect Canadian supply chains.

Next steps for businesses

Canadian businesses and their US affiliates should:

• confirm whether specific products qualify for exemptions under Annex I or Annex II, Part A of the Notice and adjust customs entries accordingly
• reassess landed-cost, transfer pricing and customer pricing models now that the 10% tariff is finalized and in effect
• review commercial agreements (including incoterms, duty-sharing provisions and pricing adjustment clauses) to determine which party bears the cost of the new tariff
• evaluate foreign trade zone strategies — goods subject to the additional tariff must now be admitted under “privileged foreign status”, rather than “domestic status”
• monitor the separate, still-pending, section 301 investigation into structural excess capacity in manufacturing (which does not include Canada directly, but affects many of Canada’s key trading partners and supply chains)
• assess exposure arising from the severability clause: Canada’s 10% tariff stands independently of any legal challenge to duties imposed on other economies

The takeaway

The imposition of a final 10% section 301 tariff on all Canadian-origin goods entering the United States represents a significant escalation of trade costs for Canada–US commerce. Unlike the March 2026 investigation announcement — which was prospective and subject to a comment period — this action is final and immediately effective. The tariff is layered on top of existing MFN duties and any other applicable measures, increasing the cumulative tariff burden on Canadian exports to the United States.

Canadian businesses should act now to quantify the financial impact, identify available exemptions and adjust their cross-border commercial arrangements. Given the severability clause, there is no realistic prospect of the Canadian tariff being vacated as a consequence of challenges directed at other economies’ tariff actions.