Trump's Section 338 tariffs on Canada revive Smoot-Hawley trade war risks

September 7, 2026 at 11:30 PM2 min

This digest was compiled by AI from multiple sources — links to the originals are below.

The U.S. invoked Section 338 of the Smoot-Hawley Tariff Act to impose 50% tariffs on Canada in July 2026, a provision unused since 1930. Canada retaliated with tariffs up to 50% on U.S. goods on Aug. 25, 2026, after trade talks collapsed. The dispute now threatens U.S. consumers, companies, and midterm elections.

Key Facts

Canada imposed tariffs of up to 50% on hundreds of U.S. goods on Aug. 25, 2026.
President Trump first threatened 50% tariffs on Canada under Section 338 in July 2026.
U.S. Commerce Secretary Howard Lutnick allegedly withdrew tariff reductions on steel, aluminum, autos, and trucks during late-stage negotiations.
Canada pulled the Keystone oil pipeline deal off the table after the U.S. nixed lower steel and aluminum tariffs.
U.S. trade fell by two-thirds from 1929 to 1932 under Smoot-Hawley tariffs and foreign retaliation.

Section 338 Invocation

Section 338 of the Tariff Act of 1930 allows the president to impose unilateral 50% tariffs if a foreign country's policies discriminate against the United States. The provision was never invoked until July 2026, when President Trump threatened 50% tariffs on Canada for discriminatory treatment of U.S. products. Economists generally agree that Smoot-Hawley's escalating retaliatory tariffs extended the Great Depression by sparking a global trade war. U.S. trade fell by two-thirds from 1929 to 1932, amplified by foreign retaliation and falling global GDP.

Negotiation Collapse

Canada sought to reduce U.S. tariffs on steel, aluminum, and autos, claiming a preliminary deal to lower steel and aluminum tariffs from 50% to 25%. U.S. Commerce Secretary Howard Lutnick was lobbied heavily by U.S. steel and aluminum producers to hold the line on tariffs. Lutnick also opposed reductions in U.S. auto and truck tariffs and allegedly withdrew whatever reductions were on the table. Canada had offered to reopen the Keystone oil pipeline deal canceled by President Joe Biden in 2021, but pulled the offer after the tariff deal was nixed. The U.S. also demanded that Canada reverse provincial removals of U.S. liquor from store shelves, where sales of U.S. booze have plunged.

Political and Economic Fallout

President Trump called Canada "one of the worst countries in the world to deal with" the day after Canada imposed retaliatory tariffs. Canadian Prime Minister Mark Carney claimed Trump was trying to destroy Canada's auto industry. The trade war threatens U.S. consumers, companies, and midterm elections, according to an economist who has studied trade policy for 49 years.