Trade & Tariff Update #36 - Section 338 Tariffs Invoked Against Canada, International Tensions & More

Section 301 Determination Released for Brazil

USTR has begun the anticipated process of replacing the IEEPA tariff regime with Section 301 duties. Last week, USTR released the final determination for the Brazil Section 301 tariffs. The notice can be read here, and a copy of the Federal Register notice can be viewed here.

Although a lengthy list of products was exempted, the duty will be 25% for all other products beginning on July 22, 2026.  As with the IEEPA duties, the numerous exemptions are haphazardly applied against the general exemption standards: 

The Trade Representative also advised the President that, after considering significant comments and testimony on the proposed action, certain products warranted exemption from the tariff imposed in connection with this action as they are (a) raw materials that if subject to these tariffs could lead to the unavailability of domestic supply; (b) products that could cause economy-wide disruptions if subject to these tariffs; (c) products that cannot be grown or produced in sufficient quantities or at reasonable prices in the United States or obtained from other sources; or (d) articles for which these tariffs may not contribute substantially to the elimination of the acts, policies, and practices of Brazil determined to be actionable in the investigation. 

While the exempted products meet these criteria, many other products that also meet these criteria and for which exemptions were requested were not included.  So far, pleas for a more rational and nuanced application of its tariff agenda have gone unheeded by the Administration.  Political differences between President Trump and Brazilian President Lula have further complicated trade relations with Brazil, and Brazil has threatened to retaliate.  

Section 338 Tariffs Invoked Against Canada While Canadian Wildfires Add Smoke to the Trade Tension Fire 

President Trump announced yesterday, in three proclamations, that he will impose 50% tariffs on most Canadian goods, effective in 30 days, unless Canada halts what the Administration called “discriminatory” trade barriers against American products, including alcohol, motor vehicles, and dairy goods.  These new duties “apply to all covered goods,” including those otherwise qualifying for duty-free treatment under the existing United States/Canada free trade agreement.  The Administration relied on the rarely used Section 338 of the Tariff Act of 1930, a trade law that provides for tariffs of up to 50% against countries that discriminate against United States products.  It has been speculated that the 30-day delay is a negotiating tactic, and time will tell whether the duties are implemented after that period.   

Trade tensions between the United States and Canada are also increasing as a result of smoke from wildfires that are raging in Ontario.  For the last several years, fires have created unhealthy conditions in northern states, and American politicians have blamed lax Canadian forest management practices.  Sen. Bernie Moreno (R-OH) has threatened to introduce a bill that would impose sanctions, and President Trump indicated on social media that costs from the effects of the fires could be added to tariffs on Canadian imports.  According to a senior Administration official, the 338 tariffs imposed on Monday were not related to any frustration over the wildfires.   

Other Tariff Questions and International Tensions  

Meanwhile, this Friday, July 24, 2026, the expiration date for Section 122 duties is quickly approaching.  Also anticipated soon is a final determination on the Section 301 investigations into forced labor practices in 60 countries, including China, as well as the proposed duties for the Section 301 Excess Capacity investigation.  

 Congress has yet to respond conclusively, but efforts to advance Russia Sanctions legislation championed by the late Sen. Lindsay Graham (R-SC) that would give President Trump the ability to impose tariffs of up to 100% on countries importing Russian energy reflect a fairly high degree of ambivalence.

Inflation Down Largely Due to Drop in Fuel Prices

The Administration's tariff policy resolve tariff should only harden after June’s inflation report indicated the largest decline since 2020.  While this largely is because fuel prices dropped due to the now moribund Memorandum of Understanding with Iran, it is true that within the numbers, core prices (a measure that excludes food and energy) were flat compared with the prior month.  That is the best inflation reading since January 2021. For the year, core prices are up 2.6 percent, highlighting the fact that while tariffs have had a profound impact on businesses, the impact on consumers has been relatively modest.   

Regardless of the inflation numbers, polling numbers continue to reflect very low approval of the Administration, although they did result in a bump in the stock market.  With Members of Congress set to face a restive electorate during the August recess and the pending Summit with Chinese President Xi in September, the Administration will face challenges in navigating the tariff issue.  While the widely anticipated replacement of the IEEPA tariff regime with higher duties for countries (such as Brazil and Canada) with whom the President has disputes appears to be playing out, it remains to be seen how voters and markets will respond. 

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