Tariff Watch: Canadian Tariffs Hit the Border After Brief Pause, and 301 “Top-Ups” Clarified
This week’s Tariff Watch covers the implementation of 50% Section 338 tariffs on Canadian imports, new clarification around Section 301 “top-up” duties, and other trade developments affecting importers and supply chains.
Welcome to the latest edition of Tariff Watch, the weekly series from J.M. Rodgers that keeps importers, manufacturers, and supply chain leaders on top of the latest US trade news.
The past week has been a rollercoaster ride for North American supply chains. An unprecedented 50% tariff on a US neighbor was paused at the last minute, only to go live just days later. Meanwhile, importers are discovering that the new forced labor tariffs are more mathematically complex than anticipated. Here’s everything you need to know this week:
What’s New
- A last-minute delay of Canadian tariffs: On Tuesday, August 18, the President issued a proclamation temporarily suspending the 50% Section 338 tariffs on roughly $20 billion of Canadian goods that were set to take effect the next day. The proclamation shifted the effective date from Wednesday to Saturday, allowing more time for bilateral negotiations. This delay left businesses on both sides of the border optimistic that the first-ever use of Section 338 of the Tariff Act of 1930 could be averted.
- The Section 338 tariffs officially hit the border: Despite the pause and public announcements that a deal was in the works, the 50% ad valorem duties on Canadian dairy, alcoholic beverages, motor vehicles, and other covered goods took effect at 12:01 am Eastern on August 22. The Section 338 tariffs apply to covered goods regardless of whether they qualify for duty-free preferential treatment under the US-Mexico-Canada Agreement (USMCA).
- Section 301 “top-up” duty adds complexity: Customs and Border Protection (CBP) has clarified the two-tier structure of the new Section 301 forced labor tariffs. Some 55 economies face an additional 10% or 12.5% duty, meaning that if a product has a base duty of 4% and the country of origin faces a 10% Section 301 tariff, the importer adds them together and pays a total duty of 14%. However, the other five economies — the European Union, Japan, Taiwan, South Korea, and Switzerland — are subject to a “top-up” calculation. For these five, the Section 301 tariff acts as a ceiling, only charging the amount needed to bring the total duty up to 10% or 12.5%.
Who’s Impacted
Now that Section 301 and Section 338 tariffs are in place, trade looks a lot different than it did just a month ago. Here’s who’s affected the most right now:
- US importers of Canadian products: The reality of the 50% Section 338 tariffs is now settling in. Any US business importing popular Canadian goods, from motor vehicles and dairy to wood, paper, and hockey equipment, is facing a stiff 50% cost increase.
- Importers of European and Asian goods: Calculating landed costs just got a lot more complicated, thanks to the Section 301 “flat addition vs. top-up” structure. While companies importing from nations like India or Vietnam may end up paying a total duty of more than 10% or 12.5%, their Section 301 calculations are far simpler than those sourcing from the EU, Japan, South Korea, Switzerland, and Taiwan.
What We’re Seeing
As always, proactive supply chain leaders never miss an opportunity to reduce their compliance burden. Here’s how we saw them react this week:
- Importers took advantage of the three-day Section 338 reprieve: When the 50% tariffs on Canada were delayed from Wednesday to Saturday, businesses treated that 72-hour window as a race against the clock. Cross-border logistics teams worked around the clock to clear as much Canadian freight through CBP as possible before the August 22 deadline arrived.
- Businesses are overhauling landed cost calculators: Given the two different Section 301 calculations (flat additions vs. top-ups), the country of origin can now significantly change the total duty burden on otherwise identical products. In response to this new complexity, compliance teams are having to quickly rebuild their landed cost models.
- Companies abandoning USMCA-based logistics plans: Because Section 338 tariffs apply regardless of preferential treatment under the USMCA, businesses are now forced to discard sourcing plans built upon that free trade agreement. Supply chain leaders are evaluating the new trade landscape in hopes of protecting their margins.
What We’re Monitoring
The trade experts at J.M. Rodgers continue to closely watch these ongoing stories:
- The September 1 textile TRQ rollout: We’re just over a week away from the expected launch of the tariff-rate quota (TRQ) system for textile and apparel imports from specific nations impacted by the new Section 301 tariffs. We’re looking to CBP for details on the official quota limits and new entry instructions, as well as any signs that the TRQ implementation may be delayed.
- The post-de minimis landscape: Ripples continue to be felt throughout the supply chain following the permanent suspension of the $800 de minimis exemption late last month. In particular, B2C shippers are reporting longer transit times as the postal network adapts to the new requirement for formal entries on low-value parcels.
Sources
- 3-Day Suspension of Section 338 Additional Duties, Troutman Pepper Locke
- What’s Getting Hit With the New US.-Canada Tariffs, The Wall Street Journal
- New Section 301 Tariffs Reach Nearly All US Imports, Ward and Smith, PA