July 22, 2026
Trump administration’s latest Canadian tariffs suggest a divide and conquer strategy at a provincial levelċ
ċThe Section 338 tariffs imposed this week by the Trump administration elevates the contentious policy tool to a new level by empowering the U.S President to impose tariffs on subnational jurisdictions, states and, in Canada’s case, provinces. ċ
ċThis ċdivide-and-conquer approach to trade negotiations from Washington has been our overriding concern ċċthat the New North America Initiative for months.
ċGiven the current regional tensions in Canada — the already significant, widely ), and elevated, almost unique, influence of Canadian provinces on trade policy and negotiationsċ — any U.S. actions at the provincial level open the door for serious influence, mischief and disturbance in Canada. ċ
ċThe Americans already exert provincial pressure from Section 232 tariffs, which are not exempt under the trade agreement, and which cover 37 per cent of everything Canada exports to the U.S. But, given that Section 232 tariffs are product specific and not every province in Canada exports the same things to the U.S., e.g., oil and gas vs. autos and aluminum, these tariffs have largely been province specific. ċ
What changes with Section 338 tariffs is that they can be explicitly, rather than implicitly, province specific. For products several provinces produce, the administration now has the ability to impose tariffs on certain provinces while allowing others to enter the U.S. duty-free – wine from B.C. vs. wine from Nova Scotia vs wine from Quebec. Or beer from Alberta and Saskatchewan vs. beer from Ontario.
In anticipation of the imposition of Section 338 tariffs, the New North America Initiative has been conducting fieldwork and research on the specific question of how Canada can respond to the imposition of Section 338 tariffs. Based on that work, this note has options for strategic response by federal and provincial governments.
50 per cent tariffs in effect Aug. 19
ċIn three proclamations signed on July 20, the administration invoked Section 338 of the Tariff Act of 1930 — the Smoot-Hawley Act — to impose 50 per cent tariffs on a wide range of Canadian goods, from wine to hockey sticks to cement. ċ
The proclamations cite three grievances: Canadian treatment of U.S. autos, alcohol and dairy. The tariffs take effect Aug. 19. They apply even to goods that qualify as duty free under CUSMA, though energy, potash, fish, critical minerals are exempted as are products already covered by Section 232 tariffs. It is the first actual use of Section 338. The last time it was even discussed was 1949.
ċThat last point is key: what is most worrying about the Section 338 tariffs is the ability of an administration to explicitly and specifically target subnational jurisdictions like provinces instead of blanket national tariffs. That the administration has chosen — so far — not to do that does not mean that it will not do so.
For an , see the polċicy brief we published last year by Inu Manak of the Council on Foreign Relations.
ċA U.S. president has only five mechanisms to impose tariffs under powers granted to the executive by Congress, and the administration has now burned through two of them. The first was the International Emergency Economic Powers Act (IEEPA), or “fentanyl and immigration” tariffs, that was struck down by the U.S. Supreme Court in February. Its replacement, Section 122 of the Trade Act of 1974, carries a 150-day statutory limit that expires on Friday, July 24.
U.S. Tariff Strategy: But wait, there's more!
The replacement for the replacement, tariffs under Sections 301–310 of the same act, is just rolling out. Throughout all of this, Section 232 national security tariffs — better known in Canada as the “steel and aluminum tariffs” — have remained in place. ċHowever, they are cumbersome, requiring a separate, months-to-almost-years-long investigation for each product. So, the administration has sought easier tariff paths while not abandoning Section 232.
ċIt appears the administration is using a tariff-leverage strategy of "but wait, there's more" to force countries to make concessions on tariffs, trade rules or irritants. Faced with years-long waits for ċlawsuits against the tariffs to reach the Supreme Court, and knowing that, should the suits succeed, the administration will simply reach for another tariff power, countries are folding and ceding to U.S. demands. ċ
So far, 20 countries, including at least three with pre-existing free trade agreements with the U.S., have voluntarily accepted new tariffs and trade rules and offered concessions in exchange for relief from still-higher tariffs. When IEEPA fell in the Supreme Court, the administration moved to Section 122 within days.
ċTċhe question is, why invoke Section 338 tariffs if Section 232 and Section 301 tariffs are in place and working?
The answer may lie in the ability to focus these tariffs on individual provinces and in Canada's somewhat unique vulnerability to internal division over trade with the U.S. and tariff exposure. The critical sections of the act state:
(c) Application of proclamation
Any proclamation issued by the President under the authority of this section shall, if he deems it consistent with the interests of the United States, extend to the whole of any foreign country or may be confined to any subdivision or subdivisions thereof; and the President shall, whenever he deems the public interests require, suspend, revoke, supplement, or amend any such proclamation.
(i) "Foreign country" defined
When used in this section the term "foreign country" means any empire, country, dominion, colony or protectorate, or any subdivision or subdivisions thereof (other than the United States and its possessions), within which separate tariff rates or separate regulations of commerce are enforced.
The Americans have been able to exert a de facto provincial tariff policy toward Canada through Section 232 tariffs. Not every province in Canada exports autos or aluminum or copper. By targeting these specific products, the administration is in effect targeting these provinces.
ċNow, under Section 338, the administration can explicitly state that tariffs are targeted at products from one province — or lifted from one. The “naming and shaming” has already begun. This week’s proclamation on alcoholic beverages singles out Alberta and Saskatchewan as the only provinces to have lifted their bans on U.S. alcohol, in contrast to every other province and territory. For now, the 50 per cent tariffs apply to all of Canada. But Section 338 expressly authorizes the president to suspend, revoke, supplement or amend any proclamation.
The obvious next step is a carve-out: beer from Alberta and Saskatchewan would be welcome tariff-free, with an implicit or explicit notification that should the Nova Scotia Liquor Corporation follow Alberta and Saskatchewan, wine from the Gaspereau Valley would also be welcome tariff-free. For a province that has seen its wine exports to the U.S. nearly halved, this could prove tempting. The possibilities for mischief for personal or economic reasons are endless.
Washington to make an example of Canada
The potential for mischief is not only economic. A carve-out that rewards one province and tempts the next is also designed to work public opinion — to make each province's electorate weigh a separate path.
ċA potential second reason for imposing Section 338 tariffs is to make an example of Canada for other countries that may be considering retaliation against U.S. trade arm-twisting and tariffs. This would also be useful to keep the 20 countries that have agreed to new tariffs in line. ċ
As the administration is fond of reminding Canadians when they visit D.C. — and as Monday's White House fact sheet states — only two countries have dared to impose retaliatory tariffs on the U.S., and both countries begin with a "C." The Americans have fewer levers to retaliate against China, and what they have done has not worked. Canada, on the other hand, isn't China.
ċU.S. Trade Ambassador Jamieson Greer made this, “make an example of Canada” reasoning in his announcement of the tariffs: “While the Administration continues to secure fair and reciprocal trade deals with our trading partners, Canada, unlike other partners and allies, continues to retaliate against the United States for its efforts to rebalance trade and protect U.S. industry in national-security sensitive sectors.ĝ
So, other than capitulating to American demands, how can Canada respond? Our fieldwork suggests three considerations for Canadian policy makers in the federal and provincial governments.
- ċTreat the 30-day window as a contest over public understanding, not only a negotiation. The room available to Canadian negotiators will depend partly on how the public understands the pressure being applied. Canadians need a clear account of what Section 338 permits, how province-specific exemptions could be used, and who benefits when provinces compete against one another for relief. In our preliminary fieldwork, participants who best understood how the pressure works were the least drawn to going it alone.
- ċIdentify the divide-and-conquer threat in Section 338 tariffs as a deliberate American tool. ċ ċċBefore the Americans use Section 338 tariffs to divide and conquer, make the threat clear. In our preliminary fieldwork, this was the idea people were least likely to hold going in and the one they moved the furthest on. The pull toward a province "going it alone" was strongest among those who understood the trade file least. The public conversation over the coming weeks will shape how effective Section 338 becomes as a divide-and-conquer tool. Making the mechanics and the divide-and-deal design legible is not a communications afterthought; it is the critical part of the Canadian response.
- Demonstrate that unilateral concessions do not guarantee relief. The two Canadian provinces that lifted U.S. alcohol bans have fared no better than those that have not. The U.S. ambassador drinking bourbon in Alberta the day the tariffs were announced did not spare the province’s exporters from a 50 per cent tariff. The Americans may eventually come around and reward Saskatchewan and Alberta. But the fact that this was not their first thought and action is telling.
Be prepared and proactive
Canada cannot control what Washington does. It can, theoretically control or influence the Canadian response. But it can only do so if it is prepared and proactive.
The two, prepared and proactive, of course go hand in hand. This is the challenge facing Canada going forward. Having the capacity to anticipate American actions is a major, missing part of what will be required going forward in managing a relationship with the Americans that we can neither avoid nor flee. This will require more resources, more research, more preparation and require it on an on-going basis over the decades ahead. Once the Pandora’s Box of tariff policy is cracked open is not easily shut.
A future U.S. administration would be hard pressed to explain why it should relinquish an economic coercion tool that has proved so effective at extracting concessions from trade partners. Future U.S. administrations modifying the use of the tool, putting the velvet glove back on the iron fist, to mitigate harms to the U.S. is eminently possible if not more than likely. But getting rid of the use of tariffs altogether is unlikely from either the new right or the new left emerging in the U.S.
The Enhanced Representation Initiative (ERI) in the U.S., a major Canadian foreign policy program in the early 2000s to expand Canada’s diplomatic and commercial footprint across the United States, is the type of investment that, had it not been discontinued, would be a much-needed boon right now.
Yet, as soon as the crisis of the early 2000s passed, Canadian governments cut funding for the effort and the investments made were lost. It’s left Canada vulnerable, lost in a new U.S. where things like tariff policies from the 1930s re-emerge to upend generations of the way business had been done and the comfort that came from that.
Section 338 tariffs are yet another object lesson in how much the U.S. has changed and the types of – long-term – investments that Canada needs to make to be able to respond.ċċ