Tax Insights: US imposes 50% tariffs on Canadian dairy, alcoholic beverages, motor vehicles and various other goods

August 25, 2026

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Issue 2026-26R

August 25, 2026 update: On August 22, 2026,* the additional 50% tariff (under section 338 of the US Tariff Act of 1930 and discussed in our Tax Insights below) became effective for covered Canadian‑origin goods. This Tax Insights has been updated to include:

Appendix A – summarizes, in plain language, the Canadian‑origin commodity categories subject to these tariffs
Appendix B – outlines applicable exclusions and conditions that may remove goods from the additional section 338 tariff

Given the scope and complexity of the tariff provisions, it is critical to correctly classify each commodity and determine whether it is within the scope of, or excluded from, these tariffs.

Canada intends to introduce:

retaliatory tariffs on US-origin goods that are planned to take effect September 8, 2026**
measures to support Canadian workers and businesses negatively affected by these tariffs

The remainder of this Tax Insights was published on July 27, 2026. Except for the addition of Appendices A and B, it has not been altered to reflect these recent developments.

^{* US President Trump had delayed the implementation date from August 19, 2026 to August 22, 2026, while Canada and the United States continued trade discussions. The section 338 tariffs came into effect on August 22, 2026.

** See our upcoming Tax Insights on these retaliatory measures, which will be available on our Tariffs and Trade Policy Resource Centre.}

US imposes 50% tariffs on Canadian dairy, alcoholic beverages, motor vehicles and various other goods
(originally published July 27, 2026)

In brief

What happened?

On July 20, 2026, US President Donald Trump signed three proclamations¹ under section 338 of the US Tariff Act of 1930, imposing, effective August 19, 2026, an additional 50% tariff — the maximum permitted under the statute — on certain Canadian‑origin dairy products, alcoholic beverages and motor vehicles, as well as a variety of other goods.

The tariffs are assessed in addition to all other applicable tariffs, taxes, fees and charges, and apply regardless of whether the goods qualify under the Canada‑United States‑Mexico Agreement (CUSMA). Certain products are excluded from these section 338 tariffs, including goods that are already subject to the section 232 tariffs under the US Trade Expansion Act of 1962.

Why is it relevant?

These proclamations mark the first use of section 338 in modern trade practice, continuing the US Administration’s expansion of executive tariff authority beyond the more commonly invoked International Emergency Economic Powers Act (IEEPA) and section 232 tariff authorities. Each proclamation identifies distinct Canadian trade practices that the President has found to discriminate against US commerce: dairy, alcoholic beverages and motor vehicles. These tariffs represent a substantial additional expense on a broad range of Canadian‑origin products that enter the US market.

Actions to consider

Organizations with Canadian trade exposure should act promptly to:

identify affected Harmonized Tariff Schedule of the United States (HTSUS) classifications, quantify their potential exposure and assess how it might affect pricing, profitability and contractual obligations with suppliers and customers
confirm whether products qualify for any exclusions or carve‑outs, and evaluate alternative sourcing, manufacturing or supply chain structures
review customs valuation and transfer pricing policies to ensure they align with related‑party transactions and monitor ongoing US Customs and Border Protection (CBP) guidance and HTSUS amendments

In detail

Background

Section 338 of the US Tariff Act of 1930 authorizes the President, upon finding that a foreign country discriminates against US commerce or imposes unreasonable or unequal restrictions, to proclaim additional tariffs of up to 50% on products from that country. Unlike section 232 (national security) or IEEPA (emergency powers), section 338 is specifically designed to address discriminatory trade practices — a narrower, but legally distinct, basis. Section 338 requires a minimum 30‑day effective date (in this case August 19, 2026, 30 days after the signing of the proclamations), which gives importers a defined compliance window.

Canadian trade practices considered to be discriminatory

The President has found that the following Canadian trade practices discriminate against US commerce:

Dairy – Canada’s CUSMA cheese tariff‑rate quota (TRQ) allocation rules exclude retailers from accessing quota quantities, while the Canada‑European Union (EU) Comprehensive Economic Trade Agreement (CETA) TRQ permits retailer access — an asymmetry the proclamation finds disadvantages US cheese exporters relative to EU competitors.
Alcoholic beverages – Since March 2025, all but two Canadian provinces have halted the purchase, distribution or retailing of US alcoholic beverages while continuing to import from other countries.
Motor vehicles – Canada’s United States Surtax Order (Motor Vehicles 2025) imposes a 25% tariff on US vehicles (or on non‑Canada/Mexico content up to 85% of value) and applies exclusively to US‑origin vehicles.

Scope and mechanics of the section 338 tariffs

The three proclamations share a common structure:

Rate – 50% tariff (the maximum rate under section 338).
Stacking – The 50% tariff is in addition to existing tariffs. For products also subject to general most‑favoured nation (MFN) rates, the total applicable tariff may now exceed 50% when combined with the underlying rate.
CUSMA irrelevance – Preferential CUSMA‑originating status does not exempt goods from the section 338 tariff. This represents a significant departure from the trade agreement framework.
Foreign trade zone (FTZ) treatment – Covered goods must enter FTZs under privileged foreign status, which ensures that they are dutiable at the rate that applies on the date of admission rather than the potentially lower rate at the time of entry for consumption.
Exclusions – Section 232‑covered goods (which includes steel, aluminum, copper and certain automobiles), civil aircraft agreement goods, energy, potash, fish and critical minerals are excluded.

The goods subject to the section 338 tariffs are listed in Annex I and Annex II of the proclamations and include goods in addition to those related to dairy, alcohol and motor vehicles. CBP can also make HTSUS technical modifications by giving notice through the Federal Register, which does not require additional presidential actions; this means that the product scope can shift over time.

Transfer pricing and cost allocation implications

For businesses that import into the United States from Canadian affiliates, the 50% additional tariff raises immediate transfer pricing questions. The customs value on which the tariff is assessed must align with the arm’s length transfer price. When the tariff‑inclusive landed cost increases are material, businesses should evaluate whether existing intercompany pricing appropriately allocates the tariff burden and whether the transfer pricing methodology or cost‑sharing arrangements need to be adjusted.

Next steps for Canadian businesses

Canadian businesses that export to the United States should:

review their tariff classification – Confirm HTSUS classification of affected imports to identify potential misclassification risk and ensure goods are correctly captured (or excluded), based on Annex I and Annex II of the proclamations.
quantify their tariff exposure – Model the financial impact of the 50% tariff on current import volumes into the United States, factoring in any existing MFN or section 232 rates that already apply.
perform a contractual review – Examine purchase agreements, distribution contracts and customer pricing to determine tariff pass‑through rights and renegotiation triggers.
consider a protest and refund strategy – If the legal basis of section 338 is challenged (which has occurred with other executive tariff authorities), timely protests will be essential to preserve refund rights.

Canadian multinational enterprise groups should:

explore alternative supply chains – Assess whether sourcing from non‑Canadian suppliers, shifting production to the United States, or restructuring supply chains to fall outside the scope of the section 338 tariffs is commercially viable before August 19, 2026.
align their customs valuation with transfer pricing – Ensure customs valuations and intercompany transfer prices are consistent, particularly for related‑party imports of dairy, beverages or vehicle components.
ensure cross‑functional coordination – Engage tax, legal, procurement and trade compliance teams and ensure they coordinate given the range of affected product categories and the compressed 30‑day implementation timeline.

The takeaway

The section 338 tariffs represent a new front in the US‑Canada trade dispute, imposing the maximum statutory tariff on a targeted, but commercially significant, set of Canadian products. US businesses with Canadian trade exposure should immediately assess their import portfolios, quantify their financial impact and evaluate both compliance obligations and potential mitigation strategies. The application of these tariffs irrespective of CUSMA status underscores the US Administration’s willingness to override preferential trade agreement treatment — a development with potentially broader implications for cross‑border supply chains.

^{1 Proclamations at www.whitehouse.gov:

- “Imposing Additional Duties to Offset Canadian Discrimination Against the Commerce of the United States with Respect to Dairy” (July 20, 2026)

- “Imposing Additional Duties to Offset Canadian Discrimination Against the Commerce of the United States with Respect to Alcoholic Beverages” (July 20, 2026)

- “Imposing Additional Duties to Offset Canadian Discrimination Against the Commerce of the United States with Respect to Motor Vehicles” (July 20, 2026)

The goods are listed in Annex I and Annex II of the above proclamations.}

Appendix A – Commodities subject to section 338 tariffs

The following tables summarize Canadian-origin commodity categories covered by the section 338 tariffs, organized by tariff heading and described in plain language (for ease of reading) rather than by individual HTSUS codes. The applicable HTSUS classification and government tariff provisions apply in all cases.

Alcoholic beverages and related goods

Product category	Description
Beer and malt beverages	All types of malt-based beer
Wine	Sparkling wine, still wine in various container sizes, grape juice intended for wine production
Vermouth and flavoured wines	Aromatized wines with added botanicals
Cider, perry and mead	Fermented apple, pear and honey beverages, and other fermented drinks
Ethyl alcohol	Undenatured high-strength alcohol for beverage use
Spirits and liqueurs	Whisky, rum, gin, vodka, brandy, liqueurs and cordials, tequila, and other distilled spirits
Essential oils	Various botanical extracts including citrus and mint oils
Densified wood	Compressed wood blocks and boards
Wooden tableware and kitchenware	Wooden utensils, bowls, cutting boards and similar items
Ornamental wood articles	Picture frames, jewellery boxes, and decorative wooden items
Other wood articles	Clothes hangers, wood dowels, spools, and similar items
Basketwork and wickerwork	Woven basket and wicker products
Kraft paper and paperboard	Uncoated kraft paper and paperboard products
Vegetable parchment	Greaseproof and parchment paper
Coated paper and paperboard	Kaolin-coated and other coated paper products
Sports and athletic equipment	Miscellaneous sporting goods

Dairy products and related goods

Product category	Description
Milk and cream	Powdered, concentrated, sweetened or unsweetened varieties in various fat contents
Whey products	Whey and modified whey in various forms
Milk protein concentrates	Isolated milk proteins and other milk components
Bones and horn-cores	Processed animal products derived from bones
Hop cones	Fresh or dried hops and lupulin for brewing
Natural gums, resins and lac	Natural plant-based gums and resins
Sugars	Lactose, glucose, fructose and other dairy‑adjacent agricultural products; does not include maple sugar/syrup
Molasses	Cane molasses and other specified molasses
Malt extract and food preparations	Food preparations based on flour, meal or starch
Non-alcoholic milk beverages	Flavoured milk drinks and similar non-alcoholic beverages containing milk
Essential oils	Peppermint oil
Casein and caseinates	Milk-derived casein products
Albumins	Egg albumin and milk albumin
Peptones and protein substances	Other derived protein products

Other goods

This heading covers a broad range of goods beyond dairy, alcoholic beverages and motor vehicles.

Product category	Description
Food, agricultural and natural products
Natural honey	All types of natural honey
Feathers and down	Bird feathers and down for various uses
Bones and horn-cores	Unworked animal bones and horn products
Ivory, tortoise-shell, coral	Animal-derived decorative materials and similar products
Other animal products	Animal products not classified elsewhere
Live plants and mushroom spawn	Bulbs, roots, cuttings and plant propagation materials
Cut flowers and foliage	Roses, chrysanthemums, carnations, lilies and other fresh-cut flowers
Dried and preserved foliage	Preserved and dried plant materials
Seeds	Grass seed, clover, vegetable seeds and other agricultural seeds
Pharmaceutical plants	Plants used in pharmacy, perfumery or as insecticides
Seaweeds and algae	Marine plant products
Natural gums and resins	Shellac, balsams and vegetable saps
Vegetable plaiting materials	Bamboo, rattan, reeds and similar materials
Other vegetable products	Plant-based products not classified elsewhere
Food preparations	Malt extract and food preparations of cereal
Other distilled spirits	Miscellaneous spirits not covered under HTSUS heading 9903.03.12
Chemicals, essential oils and cosmetics
Salt	Sodium chloride including rock salt and sea salt
Cement	Portland cement and similar products
Sugar alcohols	Mannitol, sorbitol and other sugar-derived alcohols
Other sugars	Chemically pure sugars
Paints, varnishes and lacquers	Coating products for various applications
Putty and fillers	Glaziers' putty and similar filling compounds
Printing ink	Inks for printing applications
Essential oils	Lemon, orange, other citrus, eucalyptus and various botanical oils
Odoriferous substance mixtures	Flavouring and fragrance compounds
Perfumes and toilet waters	Fragrance products
Cosmetics and skincare	Lip, eye, skin and hair care products
Candles and tapers	Wax candles and similar products
Albumins and protein substances	Various protein-based chemicals
Dextrins and modified starches	Starch-derived products
Fuel additives	Antiknock preparations and other fuel additives
Fats and oils	Industrial fatty acids, glycerol and animal/vegetable oils
Chemical preparations	Chemical products not specified elsewhere
Polycarbonates and polyesters	Engineering plastics in primary forms
Plastics and rubber
Self-adhesive plastic film and tape	Adhesive-backed plastic sheets and tapes
Plastic floor coverings	Tiles, rolls, and other plastic flooring
Other plastic sheets and film	Non-adhesive plastic film and foil products
Plastic foam products	Expanded and cellular plastic materials
Plastic containers	Boxes, cases, crates, sacks, bags, bottles and caps
Plastic tableware and kitchenware	Plastic utensils, plates, cups and similar items
Plastic office and school supplies	Binders, folders and other stationery items
Other plastic articles	Fittings for furniture, vehicle mud-flaps, gaskets, sign plates
Rubber gaskets and seals	Rubber washers, seals and gasket materials
Other rubber articles	Miscellaneous rubber products
Leather, furs and hides
Raw hides and skins	Bovine hides, whole and split, and other raw skins
Saddlery and harness	Equestrian and animal harnessing equipment
Handbags and travel goods	Briefcases, wallets, handbags and similar items
Leather gloves and mittens	Hand coverings made from leather
Other leather articles	Miscellaneous leather goods
Raw furskins	Unprocessed animal furs
Tanned or dressed furskins	Processed furs and fur apparel
Wood and paper products
Wood fuel	Chips, pellets and logs for burning
Wood charcoal	Charcoal derived from wood
Sawn lumber	Dimensional lumber of various species
Veneer sheets	Thin wood sheets for decorative use
Mouldings and profiled wood	Standard and custom wood mouldings
Particle board and oriented strand board (OSB)	Engineered wood panels including OSB made from wood particles, strands or chips bonded together
Fibreboard	Medium-density, high-density and other density fibreboards
Plywood and laminated wood	Multi-layer wood panels of various species and sizes
Decorative veneered panels	Panels with decorative surface veneers
Builders' joinery and carpentry	Doors, windows and frames
Wooden frames and ornaments	Picture frames and decorative wooden items
Other wood articles	Spools, bobbins, clothespins and similar items
Chemical wood pulp	Dissolving grades of pulp
Paper and paperboard	Uncoated, coated and various weight papers
Cigarette paper	Thin paper for cigarette manufacture
Wallpaper	Decorative wall covering papers
Writing pads and stationery	Paper stationery products
Paper labels and tags	Paper identification and labelling products
Other paper articles	Miscellaneous paper goods
Textiles and apparel
Raw silk and silk waste	Unprocessed silk fibres and by-products
Raw wool and animal hair	Unprocessed wool and other animal fibres
Raw cotton and cotton waste	Unprocessed cotton and by-products
Woven synthetic fabrics	Fabrics woven from synthetic fibres
Synthetic yarn	Thread and yarn of synthetic materials
Nonwoven fabrics	Various weight non-woven textiles
Twine, cord and rope	Twisted and braided fibre products
Carpets and floor coverings	Textile-based rugs and floor materials
Narrow woven fabrics	Ribbons, tapes and other narrow woven goods
Coated and laminated textiles	Treated textile products
Knitted apparel	T-shirts, sweatshirts, sweaters, pullovers and gloves
Outerwear	Men's and women's jackets, coats, trousers and suits
Protective apparel	Waterproof and safety clothing
Other garments and accessories	Clothing items not specified elsewhere
Curtains and drapes	Window coverings of textile
Sacks and bags	Textile containers and carry bags
Tents and camping goods	Outdoor shelter equipment
Other textile articles	Miscellaneous textile products
Footwear	Shoes with outer soles of rubber or plastic
Headwear	Knitted caps, safety helmets and other head coverings
Wigs and artificial hair	Synthetic and natural hair pieces
Stone, glass, ceramics and metals
Plaster articles	Boards, panels and other gypsum products
Concrete articles	Pre-cast and formed concrete products
Glass containers	Bottles, jars and other glass packaging
Glassware	Stemware, drinking glasses and decorative glass
Industrial diamonds	Diamonds for industrial cutting and polishing
Silver	Semi-manufactured silver products
Jewellery	Gold, silver and precious metal jewellery
Imitation jewellery	Non-precious metal fashion jewellery
Coins	Numismatic and bullion coins
Pig iron and cast iron	Primary iron products
Lead	Unwrought lead and lead products
Other base metals	Various base metals not specified elsewhere
Tools, hardware and machinery
Hand tools	Shovels, spades, mattocks, axes and hedge shears
Hand saws and blades	Saws and replacement saw blades
Files, rasps and pliers	Shaping and gripping tools
Spanners and wrenches	Fastener-turning tools
Screwdrivers and vises	Driving and clamping tools
Tool sets	Assorted hand tools in cases
Cutting tool tips and inserts	Carbide and cermet cutting tips
Razors and razor blades	Shaving implements
Padlocks, locks and clasps	Security and fastening hardware
Safes and strongboxes	Secure storage containers
Metal ornaments and frames	Decorative metalwork
Hydraulic turbines	Water wheels and hydraulic power equipment
Fans and ventilation equipment	Blowers and ventilation machinery
Refrigerators and freezers	Display and household cooling appliances
Industrial heating and cooling	Commercial temperature control equipment
Filter parts and accessories	Components for filtration systems
Packaging and bottling machinery	Equipment for product packaging
Spraying and dispersing equipment	Liquid and powder application machinery
Cranes and derricks	Lifting and hoisting equipment
Harvesting and threshing machinery	Agricultural equipment
Dairy processing machinery	Equipment for milk and dairy production
Bookbinding machinery	Equipment for binding printed materials
Printing and typesetting machinery	Commercial printing equipment
Other industrial machinery	Machinery not specified elsewhere
Electronics, equipment and other manufactured goods
Vacuum cleaners	Industrial vacuum cleaning equipment
Telephones and smartphones	Mobile and fixed-line communication devices
Network equipment	Routers, switches and base stations
Video equipment	Recording and playback devices
Recorded media	Optical discs and solid-state storage media
Cameras	Television cameras and digital cameras
Broadcast equipment	Radio and television transmission equipment
Radar and navigation apparatus	Remote control and navigation electronics
Television monitors and displays	Liquid crystal display (LCD), light emitting diode (LED) and organic LED (OLED) screens
Parts for AV equipment	Components for televisions, cameras and broadcast systems
Printed circuit boards	Electronic circuit substrates
Switchboards and control panels	Electrical distribution and control equipment
Other electrical machines	Electrical devices not specified elsewhere
Insulated wire and cable	Electrical conductors with insulation
Electric motorcycles	Battery-powered two-wheeled vehicles
Ships and floating structures	Marine vessels and platforms
Scientific instruments	Navigation, surveying and measurement devices
Furniture	Metal, wood, plastic and other furniture
Lighting fixtures and lamps	Illumination products
Toys and games	Playthings and recreational games
Video game consoles	Gaming systems and accessories
Festive and carnival articles	Seasonal and celebration decorations
Sporting goods	Golf equipment, water sports, and fitness equipment
Fishing rods and tackle	Angling equipment
Paintings and original artwork	Fine art paintings
Original sculptures	Three-dimensional artwork
Postage stamps and collectibles	Philatelic and collectible items
Antiques	Items over 100 years old

The dairy grievance described in the proclamation relates to Canada’s cheese tariff-rate quota allocation rules. The covered HTSUS list for the dairy-related section 338 tariff does not itself include cheese or maple sugar/syrup. Appendix A is therefore only a plain-language summary and should be read in conjunction with the applicable HTSUS list before determining whether a specific product is subject to the section 338 tariffs.

Appendix B – Exclusions from section 338 tariffs

The following products are excluded from the section 338 tariffs. An exclusion removes only the additional section 338 tariff; it does not remove the most favoured nation (MFN) duty or any other tariff, tax, fee, charge or separate trade remedy that may apply.

Product category	Reason for exclusion
Aluminum, steel and copper	Articles already covered by section 232 tariffs
Passenger vehicles	Sedans, SUVs, crossovers, minivans and cargo vans already covered by section 232 auto tariffs
Passenger vehicle parts	Parts for passenger vehicles and light trucks already covered by section 232 auto parts tariffs
Wood products	Wood products already subject to countervailing or antidumping duties under existing headings
Commercial vehicles	Medium- and heavy-duty vehicles, buses and other commercial vehicles already covered
Commercial vehicle parts	Medium- and heavy-duty vehicle parts already covered
Semiconductor articles	All semiconductor products
Patented pharmaceuticals	Pharmaceutical products identified in HTSUS headings 9903.04.60 through 9903.04.66 under a separate tariff action

Businesses should check whether their products are eligible for exclusion before calculating their section 338 exposure. If a product appears in an included commodity category, but also qualifies for an exclusion, the exclusion governs for purposes of the additional section 338 tariff.

Civil aircraft, including aircraft other than military and unmanned aircraft, as well as engines, parts, components, subassemblies and ground flight simulators, are excluded from the section 338 tariffs if they meet the General Note 6 criteria of the HTSUS. This exclusion includes a broad range of aircraft-specific components, such as:

Component category	Examples
Structural and mechanical	Rubber parts, plastic fittings, steel and iron tubes and pipes, copper fittings, titanium articles, hardware and fasteners
Engines and power systems	Aircraft engines and turbines, pumps and compressors, electric motors and generators, transformers, batteries, ignition equipment
Environmental systems	Air conditioning equipment, refrigeration and heating equipment
Operational equipment	Lifting and handling equipment, printers and computing equipment, navigation instruments, measuring instruments
Electrical systems	Wire and cable, telecommunications equipment, audio and video equipment
Interior and other	Seats, furniture, lighting, clocks and clock movements, glass and paper products

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