First-Ever Section 338 Tariffs and New Aluminum and Defense Supply-Chain Controls: What Businesses Need to Know

On July 20, 2026, the Trump administration announced a new set of customs and trade measures that collectively signal a further expansion of the administration’s use of tariff and supply-chain authorities to advance industrial policy, national security, and reciprocal trade objectives:

• Three presidential proclamations imposing additional duties on Canadian products under Section 338 of the Tariff Act of 1930 — a trade authority that, while long on the books, had never been used by a U.S. president for tariff action (Imposing Additional Duties to Offset Canadian Discrimination Against the Commerce of the United States with Respect to Motor Vehicles; Imposing Additional Duties To Offset Canadian Discrimination Against the Commerce of the United States With Respect to Alcoholic Beverages; and Imposing Additional Duties to Offset Canadian Discrimination Against the Commerce of the United States with Respect to Dairy);
• A new Section 232 aluminum investment incentive program designed to increase U.S. primary aluminum capacity; and
• A sweeping Executive Order (EO) tightening defense sourcing and supply-chain requirements for critical materials.

Taken together, these announcements reflect an increasingly aggressive and untested use of existing trade statutes to push domestic production, reduce reliance on foreign supply chains, and respond to perceived discriminatory treatment of U.S. exports. Importers, exporters, manufacturers, and government contractors should expect continued implementation activity, including agency guidance, tariff schedule changes, and compliance-related rulemaking.

Section 338 Actions Target Canada

The most novel development is the issuance of three separate presidential proclamations under Section 338 of the Tariff Act of 1930, each imposing an additional 50% ad valorem duty on certain Canadian products, effective 12:01 a.m. eastern time on August 19, 2026. According to the administration, these actions are intended to offset burdens and disadvantages to U.S. commerce resulting from Canada’s allegedly discriminatory treatment of U.S. exports in three areas: motor vehicles, alcoholic beverages, and dairy.

In each proclamation, the administration found that Canada treated U.S. commerce less favorably than the commerce of other countries and concluded that additional duties were warranted in the public interest. The accompanying fact sheet states that the covered Canadian products vary by proclamation and span a broad range of goods. 

The proclamations also state that the new Section 338 duties are generally in addition to other applicable duties, but do not apply to products already subject to Section 232 duties, among certain other exceptions. Critically, unlike many Section 232 measures, the proclamations do not bar Section 338 duties from duty drawback eligibility, which can offer a recovery lever for companies that export or destroy covered merchandise. The specific scope of affected tariff lines will depend on the annexes and related Harmonized Tariff Schedule of the United States (HTSUS) modifications. 

Notably, no exceptions exist for goods qualifying as USMCA-originating. Unless imports from Canada are subject to the Section 232 metals tariffs, they will be assessed with the new 50% Section 338 tariffs, even if the goods would otherwise enter duty-free as USMCA-originating.

Aluminum and Defense Supply-Chain Actions Expand Domestic Production Push

Separate from the Canada measures, President Trump modified the existing Section 232 aluminum regime to create an incentive program for companies that commit to building, refurbishing, or expanding U.S. facilities capable of producing primary aluminum. Under the proclamation, approved companies may be allowed to import a quantity of primary aluminum corresponding to anticipated annual output from the onshoring project at 50% of the otherwise applicable Section 232 duty rate, subject to Commerce approval, monitoring, and possible rescission if commitments are not met. The measure appears intended to use tariff relief selectively to support new domestic investment rather than broadly liberalize aluminum imports. Canada is a major exporter of aluminum products to the U.S.

The separate EO focuses on defense supply chains and domestic acquisition of critical materials. Among other things, the EO would:

• Sharply limit waivers beginning January 1, 2027 for certain covered materials;
• Require mitigation plans where waivers remain available; and
• Direct the development of regulations requiring contractors and subcontractors to map critical supply chains down to raw materials.

The EO also contemplates increased vetting of suppliers, corrective-action obligations, accelerated qualification of alternative domestic sources, and potential contractual consequences for noncompliance. While principally aimed at defense procurement, the order signals the administration’s broader strategic trajectory: more detailed supply-chain transparency, tighter sourcing expectations, and less tolerance for reliance on non-aligned foreign suppliers.

Practical Considerations for Companies

Companies affected by these announcements should begin evaluating both immediate tariff exposure and longer-term compliance implications. Key considerations include: 

• Whether any imports from Canada may become subject to the new Section 338 duties beginning August 19;
• Whether currently imported goods could be carved out because they are already subject to Section 232 duties or another stated exception; 
• Whether aluminum investment opportunities may warrant review under the new incentive framework; and
• Whether defense contractors or suppliers will need to prepare for significantly more rigorous sourcing, mapping, and supplier-vetting requirements.

Because these measures were announced through multiple authorities and are likely to be operationalized through follow-on agency action, businesses should closely monitor annexes, HTSUS updates, Federal Register notices, and implementation guidance from Commerce, Customs and Border Protection, USTR, and defense agencies. The combined effect of these actions is not simply higher duties in isolated sectors, but a broader indication that tariff policy and supply-chain regulation are continuing to converge.