Importers Face New 50% Tariffs on Canadian Goods; Canada Responds with Retaliatory Tariffs

New 50% ad valorem additional duties on Canadian goods took effect on August 22, 2026 following the breakdown of trade negotiations between the U.S. and Canada. U.S. Customs and Border Protection (CBP) has issued operational guidance for importers and brokers applying the new tariffs.

Trade tensions escalated further on August 24 when President Trump announced that tariffs on all Canadian automobiles and trucks, automotive parts, and steel will increase to 50% starting January 1, 2027.

In response, Canada announced dollar-for-dollar retaliatory tariffs on August 25. Those tariffs of up to 50% ad valorem go into effect on September 8, 2026 and cover over 700 categories of American goods equaling $20 billion, including steel, dairy products, fresh and frozen fish, kitchen appliances, clothing, tools and farm equipment.

For importers, the immediate issue is whether either sets of duties apply to imported and exported goods. Because both the Section 338 and Canadian retaliatory duties are based on lists of tariff codes, it is critical to verify the correctness of the tariff code applied to the applicable good under the Harmonized Tariff Schedule of the United States (HTSUS) or the Customs Tariff (Canada).

If the tariff code(s) is/are included on any of the U.S. and Canadian lists of covered items, the central question then becomes whether an exclusion applies, and whether recovery opportunities such as drawback are available.

Background

The new tariffs on Canadian imports were imposed under Section 338 of the Tariff Act of 1930 — the first time this provision has been used by a U.S. president — via three presidential proclamations issued by President Trump on July 20, 2026 (for prior coverage, see the trade alert dated July 23, 2026 (First-Ever Section 338 Tariffs and New Aluminum and Defense Supply-Chain Controls: What Businesses Need to Know)). The proclamations address alleged Canadian discriminatory policies relating to alcoholic beverages, dairy, and motor vehicles, but the covered HTSUS tariff lines reach a broader range of goods.

The proclamations provide for an additional 50% ad valorem duty on products listed in annexes to the proclamations and will affect about $20 billion of Canadian goods. The duties apply in addition to other applicable duties, but not to products already subject to Section 232 duties, and — unlike many other trade remedy duties — are not barred from duty drawback eligibility. Prominently, the new duties also apply regardless of whether the goods qualify for preferential treatment under the United States-Mexico-Canada Agreement (USMCA). 

The Section 338 duties on Canadian goods were originally scheduled to take effect August 19, 2026. As that date approached, U.S. and Canadian negotiators intensified efforts to reach a broader trade deal, and on August 18, the President issued Proclamation 11056, temporarily suspending the additional duties for three days and resetting the effective date to August 22. The suspension proclamation cited Canada’s expressed commitment to remove the discriminatory measures at issue.

The reprieve was short-lived. Late in the evening of August 21, Prime Minister Carney instructed Canadian negotiators to suspend trade talks and announced his intention to apply retaliatory tariffs the following day when the new Section 338 duties went into effect. Canada’s new retaliatory tariffs were announced on August 25 and will take effect on September 8.

CBP Implementation Guidance

On August 21, 2026, CBP issued CSMS #69606660, which provides implementing instructions for importers and brokers applying the Section 338 duties. The CSMS message confirms the applicable Chapter 99 HTSUS provisions and directs filers to a list mapping Chapter 1-97 classifications to each Chapter 99 heading. Key provisions include:

• 9903.03.12, 9903.03.13, and 9903.03.14 — apply the 50% additional ad valorem duty to covered articles, as provided in subdivisions (b)(1), (b)(2), and (b)(3) of U.S. Note 51, corresponding to the alcoholic beverages, dairy, and motor vehicle proclamations;
• 9903.03.15 — applies a 0% additional rate, i.e., an exclusion from the Section 338 duty, to aluminum, steel, or copper or their derivatives; passenger vehicles, light trucks, and their parts; medium- and heavy-duty vehicles and parts; wood products; semiconductor articles; and patented pharmaceutical articles — reflecting the proclamations’ exclusion for goods already subject to Section 232 duties; and
• 9903.03.16 — excludes civil aircraft (other than military or unmanned aircraft), their engines, parts, components, and ground flight simulators, consistent with the WTO Civil Aircraft Agreement carve-out.

CBP’s guidance addresses several important operational issues importers should evaluate immediately. For instance, covered merchandise admitted into a U.S. foreign trade zone generally must be admitted in privileged foreign status unless eligible for domestic status is available. Also, the additional Section 338 duties remain eligible for duty drawback. In addition, for certain Chapter 98 entries (including USMCA-related HTSUS 9802.00.40, 9802.00.50, 9802.00.60, and 9802.00.80), the additional duty applies only to the value added by the foreign repair, alteration, processing, or assembly, rather than the full value of the returned article.

BDO Perspective

With CBP guidance now in place and the duties in effect, importers should move from monitoring to active compliance and planning. 

Affected companies should confirm that CBP entries filed on or after August 22, 2026 use the proper HTSUS code for covered imports into the U.S. and apply the corresponding Chapter 99 heading. They should verify whether covered products qualify for the Section 232 or civil aircraft exclusions under 9903.03.15 or 9903.03.16, and evaluate duty drawback opportunities where merchandise is re-exported or destroyed. Companies should also assess the cross-border impact of Canada’s September 8 retaliatory tariffs on integrated North American supply chains.