** 8/28/26 - CRS - U.S.-Canada Trade Relations + Slate - Is the Supreme Court Going to Let Trump’s New Trade War Fly? ...........
Buzz Sawyer
“We’re just waiting for someone who imported a hockey stick,” Busch said. But it’s anyone’s
guess how America’s courts will decide on them. Remember, this statute has never been used
to tariff, and it doesn’t spend much time defining discrimination, the keyword that’s enabling
Trump to try to tariff a longtime American ally into economic oblivion. One law firm partner
told the New York Times, “It’s hard to assess how vulnerable a Section 338 challenge would be,
simply because there’s no record of any judicial interpretation of this law.” Making matters even
less certain is the fact that just last month, SCOTUS refused to hear a lawsuit challenging
Trump’s use of Section 301.
Busch, however, is skeptical that the administration is operating within legal limits here.
According to his reading of Section 338, a “calibration” is required first to assess whether
any wrongdoing was committed by Canada that would warrant a U.S. tariff, and the
The InternationalTrade Commission would also have to deliver an evaluation of it. So far,
there hasn’t been any evidence that has happened.
U.S.-Canada Trade Relations
CRS Product Number: IF12595
Publication Date:08/28/2026
Author:Kitamura, Kyla H.
The United States and Canada have one of the largest bilateral trade relationships in the world, including highly integrated energy and automotive markets. Since 1989, U.S.-Canada trade has been governed by the U.S.-Canada Free Trade Agreement, then by the 1994 North American Free Trade Agreement (NAFTA), and now by the 2020 United States-Mexico-Canada Agreement (USMCA).
Since 2025, U.S.-Canada trade tensions have increased following the imposition of U.S. tariffs on Canadian exports. The two countries, along with Mexico, also are engaged in a review of USMCA, which could lead to significant changes in the agreement. If USMCA is not renewed, it is set to expire in 2036. Congress implemented USMCA through legislation (P.L. 116-113), and any revisions may need congressional approval. Congress may consider whether to exercise its prerogatives related to the U.S.-Canada economic relationship, including oversight of U.S. tariffs and the USMCA joint review process.
According to U.S. Bureau of Economic Analysis (BEA) data, Canada was the second-largest U.S. goods and services trade partner in 2025 (see Figure 1). According to Statistics Canada data for 2025, Canada exported 72% of its goods to, and imported 46% of its goods from, the United States. Services trade (e.g., financial services, tourism) is particularly robust, with the United States generally running a services trade surplus with Canada.
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Source: CRS, with data from the U.S. Bureau of Economic Analysis, June 24, 2026. |
Per BEA and Statistics Canada, as of 2025, the United States was the largest source of foreign direct investment (FDI) by stock in Canada ($488 billion), and Canada was the third-largest source of U.S. FDI ($747 billion). Canada is the largest supplier of U.S. energy imports—including crude oil, natural gas, and electricity. Canada's share of U.S. crude oil imports by quantity increased from 41% (1.1 billion barrels) in 2015 to 64% (1.4 billion barrels) in 2025.
U.S. Tariffs on Canadian Imports
Under USMCA, Canadian goods that are certified as having met product-specific rules can enter the United States largely duty-free; such goods also have been largely, but not wholly, exempt from U.S. tariff actions (see Table 1). According to U.S. Census Bureau data, in 2025, the United States imposed duties on about 15% of U.S. imports from Canada by value (about $56 billion total), with a total $10 billion in calculated duties (compared to $0.4 billion in 2024). Most Canadian goods entered duty-free, likely because goods were certified as USMCA-compliant.
In 2025, President Trump imposed tariffs on Canadian goods under the International Emergency Economic Powers Act (IEEPA; 50 U.S.C. §§1701 et seq.) and Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862). In February 2026, the U.S. Supreme Court held that IEEPA does not give the President authority to impose tariffs. Subsequently, the Administration ended the IEEPA tariffs and imposed a 10%, 150-day "temporary import surcharge" on most U.S. imports, including from Canada, under Section 122 of the Trade Act of 1974 (19 U.S.C. §2132). When these tariffs expired in July 2026, the Trump Administration imposed tariffs on 60 partners, including a 10% tariff on Canadian goods. These tariffs followed an investigation by the Office of the U.S. Trade Representative (USTR) under Section 301 of the Trade Act of 1974 (19 U.S.C. §§2411-2420) into "the failure of each economy to impose and effectively enforce a prohibition on the importation of goods produced with forced labor."
Under a separate IEEPA action not affected by the February 2026 Supreme Court ruling, President Trump suspended duty-free treatment for all goods shipments valued at less than $800, including from Canada (19 U.S.C. §1321(a)(2)(C), referred to as de minimis). This action is facing legal challenges.
Sectoral Tariffs. In 2025, President Trump eliminated nearly all exemptions, including for Canada, from Section 232 steel and aluminum tariffs. President Trump also has imposed global tariffs on sectors key to the Canadian economy, including certain copper products, certain lumber and timber products, and vehicles and auto parts.
Canadian Retaliation. Canada initially responded to U.S. IEEPA tariffs with 25% tariffs on C$30 billion (about US$22 billion) worth of U.S. imports. Separately, Canadian provinces and territories announced retaliatory measures related to the sale of U.S. alcohol and government procurement. In response to U.S. sectoral tariffs, the Canadian government imposed 25% tariffs on C$29.8 billion (about US$22 billion) worth of U.S. imports and on non-USMCA-compliant vehicles from the United States, and the non-Canadian, non-Mexican content of vehicles traded under USMCA. Canada has challenged the Section 232 tariffs at the World Trade Organization (WTO). In April 2025, Canada exempted certain sectors and companies from its retaliatory tariffs on U.S. goods. From September 2025, Canada terminated some retaliatory tariffs. Canadian tariffs remain on U.S. vehicles and C$15.6 billion (US$11 billion) worth of U.S. steel and aluminum. The Canadian public also has engaged in an informal boycott of U.S. goods and reduced U.S. travel.
Tariffs to "Offset Canadian Discrimination." In August 2026, after the United States and Canada failed to finalize an agreement during bilateral talks, President Trump imposed 50% tariffs on certain Canadian goods to "offset Canadian discrimination" against U.S. commerce with respect to alcoholic beverages, dairy, and motor vehicles, including some abovementioned actions taken in response to U.S. tariffs. President Trump imposed tariffs under Section 338 of the Trade Act of 1930 (19 U.S.C. §1338)—the first time the United States has expressly cited this statute to impose tariffs. Canada has announced retaliatory tariffs on C$27.6 billion (US$20 billion) worth of U.S. goods starting on September 8, 2026, and financial support for domestic businesses.
USMCA Joint Review
In July 2026, Canada and Mexico announced their desire to renew USMCA; the United States declined to renew. The United States and Mexico have engaged in several bilateral negotiating rounds. Some observers have expressed concerns about the divergence in the progress of U.S. talks with Canada and Mexico given the trilateral nature of USMCA. Trump Administration officials have noted that the United States has differing issues with each country that they assert are better addressed bilaterally. Some U.S. observers assert that the review and U.S. tariffs provide an opportunity to resolve long-standing U.S.-Canada issues. Others have noted that bilateral tariff escalation may further complicate USMCA talks and increase uncertainty about the future of the agreement.
Automotive. USMCA tightened content requirements for duty-free automotive trade in North America. Mexico and Canada challenged the U.S. interpretation of the requirement—the United States argued for a stricter approach to calculating North American content, while Mexico and Canada advanced a more flexible interpretation of the content requirements. In 2022, a USMCA panel decided in favor of Mexico and Canada but did not determine how the issue was to be resolved. The parties have not reached a resolution. Other key U.S.-Canada issues include U.S. tariffs on Canadian automotive goods as well as steel and aluminum (key materials for automotive production), potential changes to automotive content rules as part of the USMCA joint review, and whether/how to harmonize approaches to investments and imports from non-USMCA countries.
Critical Minerals. Canada is a top U.S. source of critical minerals. The Defense Production Act (50 U.S.C. §§4501 et seq.) grants Canadian firms eligibility to receive U.S. federal funding, including for projects in Canada. At the President's direction, USTR is pursuing negotiations on a potential plurilateral agreement on critical minerals trade.
Dairy and Supply Management. Canada supports its dairy sector by limiting production, setting prices, and restricting imports ("supply management"). Under USMCA, Canada committed to provide greater access for U.S. dairy exports through 14 U.S.-specific tariff-rate quotas (TRQs), which allow specified quantities to be imported into Canada at preferential duty rates. Some Members assert that Canada is not fulfilling its USMCA obligations. USTR challenged Canada's dairy TRQs twice under USMCA with mixed results. In June 2025, Canada enacted legislation preventing the government from increasing dairy TRQs or reducing over-quota tariffs in future negotiations.
Softwood Lumber. The United States and Canada have had a decades-long dispute over trade in softwood lumber—primarily used in residential construction. The last agreement governing U.S.-Canada softwood lumber trade expired in October 2015. Since the agreement's expiration, the United States has imposed antidumping (AD) and countervailing duties (CVD) on imports of Canadian softwood lumber. Canada has challenged the duties through NAFTA, USMCA, the WTO, and the U.S. Court of International Trade. AD/CVDs apply on top of Section 232 tariffs on timber and lumber imports.
Digital Services. Some Members of Congress have criticized Canadian bills that regulate or require financial contributions from large digital services providers. The United States is home to several of the world's largest digital services providers, and some Members have argued that certain Canadian regulations unfairly affect U.S. companies. Since 2025, in the face of U.S. criticisms and Canadian concerns about raising costs, the Canadian government has repealed the digital services tax and taken steps to adjust the implementation of funding requirements for online streaming companies.
Issues for Congress
Congress has a constitutional role in U.S. trade policy and may consider whether to bolster or curb presidential authorities related to tariffs and U.S.-Canada trade talks. Members seeking greater oversight may direct the Administration and/or agencies such as the U.S. International Trade Commission to assess the economic impacts of U.S. tariffs and Canadian retaliatory measures. Members could consider whether and how to engage with the USMCA joint review, including seeking changes or preserving existing provisions. Congress also could codify specific U.S. tariff rates on Canada. Such action could prompt consideration about consistency with U.S. trade obligations under USMCA.
These documents were prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material.
Is the Supreme Court Going to Let Trump’s New Trade War Fly?
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President Donald Trump is back at it with tariffs, announcing over the weekend that the U.S. is imposing a 50 percent tariff on $20 billion worth of Canadian goods ranging from hockey sticks to feathers to building materials. And he’s threatening even more tariffs on Canada’s auto industry come Jan. 1, 2027, claiming that the U.S. has been “carrying” Canada for decades and that our northern neighbors have been ripping Americans off. Just six months ago, the Supreme Court rejected Trump’s 2025 firestorm of tariffs, but now the administration thinks it has identified a new way to try to execute the president’s agenda. In this latest Canada fight, the Trump administration is dusting off a section of trade law that has never actually been used to tariff before. If it sticks, it could immediately allow the president to tariff just about anyone in the world with few guardrails.
The administration has discovered the Tariff Act of 1930, and within it, Section 338, a little-known statute that allows the president to impose duties of up to 50 percent on any foreign country he finds has discriminated against the U.S., either directly or indirectly. No U.S. president has ever used it to tariff another country until now, so Trump’s application of it new and uncharted legal territory. Marc Busch is worried, as a former adviser to the U.S. Department of Commerce and the U.S. Trade representative. He believes that this new approach faces better legal odds than the tariffs Trump attempted to enact through the International Emergency Economic Powers Act that the Supreme Court shot down last term.
“What Trump may discover, and Canada might just turn out to be the beta test, is that he has the most latitude with Section 338, because it just says ‘discrimination.’ It clearly says ‘tariff.’ It clearly says he doesn’t need to really consult widely. There may or may not be a role for the International Trade Commission,” Busch, the Karl F. Landegger Professor of International Business Diplomacy at Georgetown University, told me. “That’s why the world is going to pay really close attention to the 338s, because this may be the only way he gets closer to the degree of freedom he had under IEEPA.”
You may remember that initially Trump tried to implement his “Liberation Day” tariff agenda through IEEPA, targeting Canada and over 65 other countries and the European Union. Those tariffs faced an onslaught of lawsuits, and by February 2026, the Supreme Court intervened and ruled that the president could not use the act to unilaterally tariff, as that particular law makes no mention of tariffs, duties, taxes, or anything else that would suggest Congress wanted to give the executive tariff power. To date, the Trump administration has refunded about $100 billion to American businesses because of that decision (though consumers have yet to see any of that money).
The president did not simply abandon his tariff agenda, though, instead identifying new ways to tariff under existing federal trade law. In February, Trump claimed that the U.S. was facing “fundamental international payment problems” that were, among other things, endangering the country’s ability to finance its spending. He used Section 122 of the Trade Act of 1974 to impose a temporary 10 percent tariff on “all countries.” A lawsuit was quickly filed, and within a few months the U.S. Court of International Trade shot down the administration’s use of Section 122.
By July, Trump officials identified a new avenue, this time through Section 301 of the Trade Act of 1974. That allowed the president to tariff 60 countries “for their failure to impose and effectively enforce a prohibition on the importation of goods produced with forced labor.” Section 301 allows a president to tariff as a targeted economic diplomacy measure to induce a foreign government to abandon a particular practice. Again a lawsuit was filed challenging this use of Section 301, alleging that the Trump administration never conducted an investigation to determine if U.S. trading partners were in fact engaging in forced labor. The Supreme Court declined to hear the case, leaving the tariffs in place.
That brings us to the present day, where the administration is targeting Canada through Section 338 of the Tariff Act of 1930. The two countries have been waging a trade war since last year, when Trump first tried to use IEEPA to impose a 25 percent tariff on certain Canadian products, claiming that Canada had failed to stop the flow of fentanyl across the two countries’ shared border. Canada was one of the few countries to push back on tariffs, imposing retaliatory tariffs on U.S. goods that included everything from whiskey to aluminum and steel, and the two countries have been going at it ever since. Upping the ante was the fact that the U.S.–Mexico–Canada trade agreement—which Trump negotiated in his first term—was coming due this year, but last month the U.S. declined to renew it.
Trump is leveraging Section 338 by arguing two main things. First, he’s claiming that Canada discriminated against the U.S. when it imposed its initial retaliatory tariffs. Busch believes that this is simply Trump being petty. “Section 338 got dusted off and used to take a swipe at Canada because the president has a particular grudge against Canada and China for having retaliated for his earlier tariffs and needs to make a demonstration effect come across as a result of this action,” he said. Given the U.S. manufacturing industry’s heavy reliance on China, Canada became the target to mollify Trump.
The second argument behind Section 338 has to do with cheese. The Trump administration says Canada awarded the EU a better trade quota for its cheese than it offered the U.S., and that is also proof of discrimination. This battle over cheese does not pass the smell test for Busch, who argues the U.S. also gives preferential treatment to countries it establishes trade deals with—including Canada.
“The U.S. also has preferential market access to the Canadian market through the U.S.–Mexico–Canada trade pact. So it’s a little odd to enjoy preferential market access under USMC, but call what Europe has discrimination,” Busch explained.
Lawsuits challenging the Trump administration’s use of Section 338 are likely to drop soon. “We’re just waiting for someone who imported a hockey stick,” Busch said. But it’s anyone’s guess how America’s courts will decide on them. Remember, this statute has never been used to tariff, and it doesn’t spend much time defining discrimination, the keyword that’s enabling Trump to try to tariff a longtime American ally into economic oblivion. One law firm partner told the New York Times, “It’s hard to assess how vulnerable a Section 338 challenge would be, simply because there’s no record of any judicial interpretation of this law.” Making matters even less certain is the fact that just last month, SCOTUS refused to hear a lawsuit challenging Trump’s use of Section 301.
Busch, however, is skeptical that the administration is operating within legal limits here. According to his reading of Section 338, a “calibration” is required first to assess whether any wrongdoing was committed by Canada that would warrant a U.S. tariff, and the International Trade Commission would also have to deliver an evaluation of it. So far, there hasn’t been any evidence that has happened.
Yet, in classic Trump style, regardless of the legality of his use of Section 338, he’s already threatened a 50 percent tariff on Canadian autos come 2027. We may or may not get a court ruling before then.