The US tariff on Canada: A blind alley again

Editor's note: He Weiwen is a senior fellow at the Center for China and Globalization; and executive council member with China Association of International Trade. This article reflects the author's opinion, and not necessarily those of CGTN. 

The Trump Administration has announced a 50% Section 338 tariff on selected Canadian goods, effective 0:01 am August 22, 2026 local time. The 50% tariff covers motor vehicles, alcohol, wine, holiday stock, cement and dairy products, with a total volume of $20 billion, and no exemption via the United States–Mexico–Canada Agreement (USMCA).

In a statement on July 20, USTR Ambassador Jamieson Greer said that, "Canada has taken US alcohol products off Canadian shelves... Today, President Trump took decisive action to hold Canada accountable for its retaliation and discrimination."  The USTR fact sheet also claimed that Canada imposed a tariff system on only US motor vehicles and treats the commerce of foreign countries more favorably than commerce of the United States with respect to motor vehicles.

The 50% tariff on the relevant Canadian goods is neither grounded in fact nor based on legal justification. The "fact sheet," full of angry condemnation, gives no facts. No facts are mentioned showing how Canada had really taken American dairy products off shelves, nor afforded any preferential treatment to the EU. Its legal base, Section 338 of the 1930 Tariff Act the notorious Smoot-Howley Tariff Act, has never been used for such inadequate reasons.

In fact, the 50% tariff on Canadian goods presents three new tendencies relating to Trump's trade policy and related moves.

Firstly, they are unrepentant when it comes to unilateral tariff measures despite all the frustrations. The Trump administration first launched the worldwide "reciprocal tariff" under IEEPA, which drew multi-state lawsuits and was finally ruled unconstitutional by the US Supreme Court on February 20, 2026. Then it rolled out the worldwide Section 122 tariff the very same day, which also faced multi-state legal challenges before it was terminated on July 24. It then announced Section 301 tariffs against 60 trading nations over so-called "forced labor" claims, taking effect right upon the expiry of Section 122. As expected, this new round of tariffs was challenged in court by 25 US states.

Nonetheless, all the frustrations have not changed the tariff agenda of the Trump administration. It can be well expected that its use of tariff tools will only continue, because Trump's constituency and voter base needs the tariff narrative; and the GOP political agenda needs tariffs, especially when the mid-term elections are approaching. Unfortunately, the existing US trade-related laws have enough tariff tools.

Secondly, the tariff tool is increasingly harsh in individual cases. The 50% tariff rate on Canadian products is harsh, as it is much higher than the previous 25% on automotive vehicles, also double the 25% retaliatory tariff by Canada on selected US goods. Considering the existing tariff on imports from Canada is 15.9% on average, the 50% tariff will add up to 65.9% tariff on the said products, thus having a greater effect. Washington and Ottawa have been at odds since the start of the second Trump administration, starting from his rhetoric on turning Canada into the 51st state of the US, to tariff retaliation last year, and the staunch position taken by Mark Carney, the Canadian Prime Minister. Logically, if a trading partner is firm in resisting the US unilateral bullying, a new, unreasonable tariff will follow.

Thirdly, the tariff tool is becoming increasingly inexplicable and unfounded. The excuse for the recent 301 tariff on 60 economies was absurd, because its narrative of "forced labor" is totally irrelevant. A "forced labor" probe must target a particular product, its producer and exporter. There is never such a thing as "forced labor" in 60 economies at the same time, identified just in a few weeks. Then, the current tariff imposed on Canada even resorts to Section 338 tariffs under the 1930 Tariff Act. The act in question, the Smoot-Howley Tariff Act, is notorious and represents a dark chapter in US history. In 1930, 1,028 leading economists wrote to President Hoover, demanding he not impose across-the-board tariffs. However, President Hoover did impose the tariff under the act and triggered a three-year-long world trade free-fall, aggravating the Great Depression.

While the direct negative impact may not be too devastating, as the tariff involves only $20 billion of Canadian goods, or 5% of its total exports to the US, the profound purpose is to blackmail Canada with a heavy stick of 50% tariff, twice the 25% tariff that they claimed Canada imposed on US products. The 50% Section 338 tariff is in addition to all the existing tariffs, bringing the final actual tariff level to almost 70%, the threshold of trade killing. In this way, the White House forces Canada to yield, not only in the current case, but also in future trade deals, aiming at a new unequal bilateral trade arrangement, similar to the Turnbull US-EU agreement.

It is equally clear that continuous use of the Washington tariff weapon will get nowhere in the end.

Firstly, Canada will definitely retaliate. It will sue at the WTO and most likely win the case, despite the domain of its appellate body. At the same time, Canada will also impose counter-tariffs on US goods. Transportation equipment and chemicals rank among top US export categories to Canada. Canada, meanwhile, remains the top foreign supplier of oil and gas to the United States, with 2025 shipments estimated at $95.88 billion.

Secondly, and more importantly, facts over the past 19 months since Trump returned to the White House have proved that the tariff tool has been of little use, even harmful to the US. It has not cut down the goods trade deficit, which stood at $105.9 billion in May and $101.5 billion in June. The CPI in July stood at 3.4%, well above the Fed rate cut threshold of 2%. The tariff has not created jobs either, with non-farm new jobs falling by 23,000 in July. Hence, the right solution is dialogue for a balanced solution. The tariff tool, if it persists, will only lead the US down a blind alley.