By Carlo Dade

July 22, 2026

The Section 338​ ​tariffs imposed this week by the Trump administration ​bring a radically more powerful tool to the U.S. President to impose tariffs on subnational jurisdictions, states and, in Canada’s case, provinces. ​​

​​At the ​University of Calgary School of Public Policy’s New North America Initiative, this ​​divide-and-conquer approach to trade negotiations from Washington has been our overriding concern​​ for months​, and has informed our fieldwork on the potential implications of 338 tariffs and what strategies might be deployed to fight them. ​ ​

​​Given the current regional tensions in Canada​ — ​the already significant, widely divergent impact of U.S. tariffs between provinces ​(​from severe harm to almost no harm​)​, and elevated, almost unique​,​ influence of Canadian provinces on trade policy and negotiation​s​​ — ​any U.S. actions at the provincial level open the door for serious influence, mischief and disturbance in Canada. ​​​

​​The Americans already exert provincial pressure from Section 232 tariffs, which are not exempt under the trade agreement, and which cover 37%​ ​of everything Canada exports to the U.S. But, given that Section 232 tariffs are product specific and not every province in Canada exports the same things to the U.S., e.g., oil and gas vs. autos and aluminum, these tariffs have largely been province specific. ​     ​​

What changes with Section 338 tariffs​ is that President Trump can explicitly, rather than implicitly, target provinces. For products several provinces produce, the administration ​now ​has the ability to impose tariffs on certain provinces while allowing others to enter the U.S. duty-free — i.e. wine from B.C. and Nova Scotia can enter the U.S. tariff-free while wine from Quebec is charged 50%. Or, beer from Alberta and Saskatchewan vs​.​ beer from Ontario.

In anticipation of the imposition of Section 338 tariffs, the New North America Initiative has been conducting fieldwork and research on the specific question of how Canada can respond to the imposition of Section 338 tariffs.  Based on that work, this note has options for strategic response by federal and provincial governments.

50% Tariffs in Effect August 19th

​​In three proclamations signed ​on ​July 20, the administration invoked Section 338 of the Tariff Act of 1930 — the Smoot-Hawley Act — to impose 50% tariffs on a wide range of Canadian goods, from wine to hockey sticks to cement. ​     ​​

The proclamations cite three grievances: Canadian treatment of U.S. autos, alcohol and dairy. The tariffs take effect August 19th. They apply even to goods that qualify ​as duty free ​under CUSMA, though energy, potash, fish, critical minerals are exempted as are products already covered by Section 232 tariffs. It is the first actual use of Section 338​. The​ last time it was ​even ​discussed was 1949.

​​T​hat last point is key: what is most worrying about the Section 338 tariffs is the ability of an administration to explicitly and specifically target subnational jurisdictions like provinces instead of blanket national tariffs. That the administration has chosen — so far — not to act on that ability does not mean that it will not do so.

For an explainer on presidential tariff powers, see the ​pol​​icy brief ​we published last year by Inu Manak of the Council on Foreign Relations.

​​A U.S. president has only five mechanisms to impose tariffs under powers granted to the executive by Congress, and the administration has now burned through two of them. The first was the International Emergency Economic Powers Act (IEEPA​), or ​“fentanyl and immigration” tariffs​, that ​was struck down by the ​U.S. ​Supreme Court in February. Its replacement, Section 122 of the Trade Act of 1974, carries a 150-day statutory limit that expires ​on ​Friday, July 24. ​

U.S. Tariff Strategy: But Wait, There’s More!

The replacement for the replacement, tariffs under Sections 301–310 of the same act, is just rolling out. Throughout all of this, Section 232 national security tariffs — better known in Canada as the “steel and aluminum tariffs” — have remained in place. ​​​However, ​they are cumbersome, requiring a separate, months-to-almost-years-long investigation for each product. So, the administration has sought easier tariff paths while not abandoning Section 232.

​​It appears the administration is using a tariff-leverage strategy of “​but ​wait, there’s more” to force countries to make concessions on tariffs, trade rules or irritants. Faced with years-long waits for ​​lawsuits​ against the tariffs to reach the Supreme Court, and knowing that, should the suits succeed, the administration will simply reach for another tariff power, countries are folding and ceding to U.S. demands. ​​​

So far, 20 countries, including at least three with pre-existing free trade agreements with the U.S., have voluntarily accepted new tariffs and trade rules and offered concessions in exchange for relief from still-higher tariffs. When IEEPA fell in the Supreme Court, the administration moved to Section 122 within days.

​​T​​he question is, ​why invoke Section 338 tariffs if Section 232 and Section 301 tariffs are in place and working?

The answer may lie in the ability to focus these tariffs on individual provinces and in Canada’s somewhat unique vulnerability to internal division over trade with the U.S. and tariff exposure. The critical sections of the act state:

(c) Application of proclamation

Any proclamation issued by the President under the authority of this section shall, if he deems it consistent with the interests of the United States, extend to the whole of any foreign country or may be confined to any subdivision or subdivisions thereof; and the President shall, whenever he deems the public interests require, suspend, revoke, supplement, or amend any such proclamation.

(i) “Foreign country” defined

When used in this section the term “foreign country” means any empire, country, dominion, colony or protectorate, or any subdivision or subdivisions thereof (other than the United States and its possessions), within which separate tariff rates or separate regulations of commerce are enforced.

The Americans have been able to exert a de facto provincial tariff policy toward Canada through Section 232 tariffs. Not every province in Canada exports autos or aluminum or copper. By targeting these specific products, the administration is in effect targeting these provinces.

​​Now, under Section 338, the administration can explicitly state that tariffs are targeted at products from one province — or lifted from one. The “naming and shaming” has already begun. ​This week’s ​proclamation on alcoholic beverages singles out Alberta and Saskatchewan as the only provinces to have lifted their bans on U.S. alcohol, in contrast to every other province and territory. For now, the 50% tariffs apply to all of Canada. But Section 338 expressly authorizes the ​president ​to suspend, revoke, supplement or amend any proclamation.

The obvious next step is a carve-out: beer from Alberta and Saskatchewan would be welcome tariff-free, with an implicit or explicit notification that should the Nova Scotia Liquor Corporation follow Alberta and Saskatchewan, wine from the Gaspereau Valley would also be welcome tariff-free. For a province that has seen its wine exports to the U.S. nearly halved, this could prove tempting. The possibilities for mischief for personal or economic reasons are endless.

Making an Example of Canada

The ​potential for ​mischief is not only economic. A carve-out that rewards one province and tempts the next is also designed to​ work​ public opinion — to make each province’s electorate weigh a separate path.

​​A potential second reason for imposing​ Section​ 338 tariffs is to make an example of Canada for other countries that may be considering retaliation against U.S. trade arm-twisting and tariffs. This would also be useful to keep the 20 countries that have agreed to new tariffs in line. ​​​

As the administration is fond of reminding Canadians when they visit D.C. — and as Monday’s White House fact sheet ​states ​— only two countries have dared to impose retaliatory tariffs on the U.S., and both countries begin with a “C.”​ ​The Americans have fewer levers to retaliate against China, and what they have done has not worked. Canada, on the other hand, isn’t China.

​​U.S. Trade ​Ambassador ​Jamieson ​Greer made this, ​“​make an example of Canada” reasoning in his announcement of the tariffs: “While the Administration continues to secure fair and reciprocal trade deals with our trading partners, Canada, unlike other partners and allies, continues to retaliate against the United States for its efforts to rebalance trade and protect U.S. industry in national-security sensitive sectors​.​”

So, other than capitulating to American demands, how can Canada respond?​ ​Our fieldwork suggests three considerations for Canadian policy makers in the federal and provincial governments.

1. 1. ​​Treat the 30-day window as a contest over public understanding, not only a negotiation. The room available to Canadian negotiators will depend partly on how the public understands the pressure being applied. Canadians need a clear account of what Section 338 permits, how province-specific exemptions could be used, and who benefits when provinces compete against one another for relief. In our preliminary fieldwork, participants who best understood how the pressure works were the least drawn to going it alone.​
   2. ​​Identify the divide-and-conquer threat in Section 338 tariffs as a deliberate American tool. ​​​ ​​​​Before the Americans use Section 338 tariffs to divide and conquer, make the threat clear. In our preliminary fieldwork, this was the idea people were least likely to hold going in and the one they moved the furthest on. The pull toward a province “going it alone” was strongest among those who understood the trade file least. The public conversation over the coming weeks​ will shape how effective Section 338 becomes as a divide-and-conquer tool. Making the mechanics and the divide-and-deal design legible is not a communications afterthought; it is the critical part of the Canadian response.
   3. Demonstrate that unilateral concessions do not guarantee relief.  The two Canadian provinces that lifted U​.​S​.​ alcohol bans have fared no better than those that have not. The U.S. ambassador drinking bourbon in Alberta the day the tariffs were announced did not spare the province’s exporters from a 50% ​cent tariff. ​The Americans may eventually come around and reward Saskatchewan and Alberta. But the fact that this was not their first thought and action is telling.

Be Prepared and Proactive

Canada cannot control what Washington does. It can, theoretically, control or influence the Canadian response. But it can only do so if it is prepared and proactive.

The two — prepared and proactive — of course go hand in hand. This is the challenge facing Canada going forward. Having the capacity to anticipate American actions is a major, missing part of what will be required in managing a relationship with the Americans that we can neither avoid nor flee. This will require more resources, more research, more preparation and require it on an ongoing basis. Once the Pandora’s Box of a tariff war is cracked open is not easily shut.

Carlo Dade is the Director of International Policy and head of the New North America Initiative at the University of Calgary’s School of Public Policy, a member of the Expert Group on Canada-US Relations, and a member of the Mexican Council of Foreign Relations (COMEXI).