Tax Insights: US escalates trade measures in response to Canada's retaliatory surtaxes ─ Implications for Canadian businesses exporting to the US

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Issue 2026-37

In brief

What happened? 

On September 8, 2026, the US Administration escalated its trade measures against Canada — under section 338 of the US Tariff Act of 1930 — by issuing five presidential proclamations¹ that:

• prohibit the importation of certain Canadian products into the United States
• expand the scope of existing 50% section 338 tariffs² to cover additional Canadian products while also removing other products

The measures apply regardless of whether the goods qualify for preferential treatment under the Canada‑United States‑Mexico Agreement (CUSMA) and apply in addition to tariffs imposed under section 232 of the US Trade Expansion Act of 1962. See Appendix A for a summary, in plain language, of the principal Canadian‑origin commodity categories that are affected by the September 8, 2026 proclamations.

Why is it relevant?

These developments significantly increase trade risks for Canadian exporters and businesses with cross‑border supply chains, particularly in the dairy, alcoholic beverages, manufacturing, automotive, metals, construction materials, consumer products and procurement sectors.

Actions to consider

Canadian businesses should act promptly to identify affected stock keeping units (SKUs) and confirm their complete Harmonized Tariff Schedule of the United States (HTSUS) classifications. They should assess their exposure to import prohibitions and the cumulative impact of section 338, section 232 (sectoral) and other applicable tariffs. They should also review shipment timelines and transitional treatment in consideration of the September 15 and September 29, 2026 effective dates, and evaluate pricing, contractual, sourcing and alternative market strategies. Businesses should continue to monitor further guidance from US and Canadian authorities.

In detail

US Administration expands use of section 338 authority

On September 8, 2026, US President Trump imposed additional section 338 restrictions on imports from Canada — this was in response to Canada recently imposing surtaxes on various US-origin goods covering approximately $27.6 billion of imports.³ The US Administration views Canada’s surtax as discriminatory against US commerce and, in response, the US Administration:⁴

• effective September 15, 2026, has modified the scope of products subject to existing 50% section 338 tariffs by adding new product categories and removing others
• effective September 29, 2026, will impose import bans on:
  • certain Canadian alcoholic beverage products
  • certain Canadian dairy and related products
  • specific Canadian motor vehicle products

The US Administration has also directed federal agencies to remove approximately US$50 billion of Canadian‑origin products from US General Services Administration procurement schedules.

Implementation timeline and transitional treatment for pre-September 29 shipments

Canadian businesses should pay close attention to the above noted effective dates and ship goods that are subject to the import bans so that they arrive in the United States before September 29, 2026.

If the shipment does not arrive by, or is in transit on, September 29, 2026, the business will need to evaluate the legal effect of the prohibition using the proclamation's entry language and any subsequently issued US Customs and Border Protection (CBP) implementation instructions and not simply rely on the shipment or purchase date. Importers with goods dispatched, in transit, admitted to a foreign trade zone or entered for warehouse before September 29, 2026 should confirm whether a specific exception or transition rule applies before relying on the pre‑effective date treatment.

Products affected

Import bans

The US Administration is transitioning certain products from the 50% tariff regime to a complete import prohibition. Examples include:

• Alcoholic beverages – The prohibition is limited to the packaged Canadian alcoholic beverages described by the applicable HTSUS provisions and product descriptions; it should not be read as a blanket ban on every alcohol‑related input, bulk shipment or product containing alcohol. Beer, wine, cider, spirits, whisky, vodka, gin, rum, brandy and liqueurs may be covered when they meet the listed tariff and packaging criteria. Businesses should confirm the precise HTSUS classification, packaging form and any stated exclusions before concluding that a product is prohibited.
• Dairy and related products – Products identified for import prohibition include various whey products, modified whey, molasses products and non‑alcoholic beer.
• Motor vehicles – The listed motor vehicle import ban currently applies to motorcycles with engine capacities above 800 cubic centimeters (cc).

Expanded 50% tariff coverage

The US Administration is simultaneously broadening the application of section 338 tariffs by adding numerous Canadian products.

The expanded list includes products such as:

• additional dairy and cheese products
• aluminum bars, rods, profiles, tubes and pipes
• structural steel products
• certain paper and paperboard products
• golf carts and similar small motor vehicles not exceeding 1000 cc
• marine products including certain motorboats
• furniture, mattresses and various manufactured goods

At the same time, certain products including rock salt, cement and various industrial products have been removed from the section 338 tariff list.

Other considerations

HTSUS-level scope analysis

The scope of each prohibition, addition or removal is determined at the cited HTSUS heading, subheading or statistical reporting number level, together with any accompanying product description, chapter note or limitation. Product category summaries are illustrative only. Importers should map each SKU to the complete US tariff classification, review material composition, use, packaging and technical specifications, and retain support for the classification applied. Near matches should not be treated as covered or excluded based only on a commercial description.

Interaction with section 232 tariffs – tariffs are stacked

Section 338 tariffs are cumulative with applicable section 232 and other tariffs. Importers should assess the aggregate tariff liability and confirm the applicable HTSUS Chapter 99 reporting sequence and exclusions. For example, an imported Canadian aluminum product with a customs value of US$100 that is subject to a 50% section 338 tariff and a 50% section 232 tariff would incur US$100 in additional duties — US$50 under each measure — before considering ordinary customs duties or other applicable charges.

Impact on Canadian businesses

Immediate customs and supply chain implications

Canadian exporters should assess whether any products fall within either the new import prohibition lists or the expanded tariff schedules. Businesses with goods in transit, inventory positioned near the border, or long‑term supply contracts may need to evaluate the timing of shipments before the effective dates.

Companies that export products newly subject to the 50% tariff may experience:

• reduced competitiveness in the US market
• contract repricing requirements and margin pressures
• supply chain restructuring needs
• increased customs compliance obligations

Procurement impacts

Canadian suppliers to US federal government agencies may face additional commercial challenges following the US Administration's direction to remove Canadian‑origin goods from General Services Administration procurement schedules. Companies that depend on US federal procurement opportunities should monitor implementation details closely.

Sector-specific concerns

The sectors likely to face the greatest exposure include:

• alcohol producers and exporters
• dairy processors and food manufacturers
• automotive and transportation companies
• metals and aluminum manufacturers
• industrial goods producers and building products suppliers
• businesses with significant US government procurement sales

Next steps for Canadian businesses

Canadian businesses engaged in US trade should:

• conduct a SKU‑level tariff classification review using the complete HTSUS provision, product description, composition, use and packaging details
• identify whether goods fall within the precise HTSUS‑level scope of an import prohibition, tariff addition or removal, including the packaged alcohol limitations
• review supply chain and sourcing arrangements
• assess the aggregate liability arising from section 338, section 232 and other applicable tariffs
• review goods in transit, warehouse entries and foreign trade zone admissions against the proclamation's entry rules and any CBP transitional guidance before the September 29 effective date (for the import prohibitions)
• consider alternative market strategies where exposure is significant
• monitor potential Canadian government responses and future negotiations between Canada and the United States

The takeaway

The September 8, 2026 US presidential actions represent one of the most significant escalations in the current Canada‑US trade dispute. The combination of import bans, expanded 50% tariffs and procurement restrictions increases compliance, cost and market-access risks for Canadian businesses operating in the US market. Companies with cross‑border operations should immediately assess the impact of these measures on their products, supply chains, customers and contractual arrangements and prepare for further developments as the trade dispute evolves. 

Appendix A – Summary of affected classification categories

The table below provides a plain‑language overview of the principal Canadian‑origin commodity categories affected by the September 8, 2026 proclamations. It is intended as a screening tool only. The cited HTSUS provisions, HTSUS Chapter 99 requirements, product descriptions, packaging conditions and exclusions govern the actual scope (the specifics are available in the annexes of the September 8, 2026 proclamations and CBP guidance [see footnote 4] when available).

Businesses should screen all affected SKUs against the complete HTSUS provision and the applicable proclamation annex and review all products that could fall within more than one measure. The review should also address section 232 stacking, Chapter 99 sequencing, exclusions and transitional treatment for entries around the effective dates.