JOINT BASE ANDREWS, MARYLAND – JULY 27: U.S. President Donald Trump returns from a trip to Michigan on July 27, 2026 at Joint Base Andrews, Maryland. Trump visited the General Motors’ Milford Proving Ground facility and spoke to supporters about U.S. auto manufacturing, tariffs, and supporting Republican candidates ahead of the August 4 primary. (Photo by Andrew Harnik/Getty Images)
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My calendar for July had two dates circled in red:
July 1: This was the deadline for the Trump administration to renew the United States-Mexico-Canada Agreement (USMCA) for an additional term of 16 years. USMCA is the trade pact that operates as successor to the much-maligned North American Free Trade Agreement. Mexico and Canada already signaled their desire to extend USMCA under the agreement’s joint review process (article 34.7); the United States declined to do likewise. The pact remains in full force through its original expiration date of July 1, 2036, unless extended, terminated, or renegotiated before then. The White House wants portions of USMCA rewritten.July 24: This was the expiration date for President Trump’s initial batch of replacement tariffs, imposed under section 122 of the Trade Act of 1974. These tariffs were announced in February, within hours of the Supreme Court decision invalidating Trump’s previous tariffs based on the International Emergency Economic Powers Act (IEEPA). (Prior analysis: Tax Notes Int’l, Mar. 2, 2026, p. 1707.) They applied to a wide range of imports and a wide range of countries, functioning much like a baseline tariff; a sort of across-the-board price for accessing the vast U.S. consumer market. By statute, section 122 tariffs expire after a period of 150 days, unless extended by an act of Congress. The section 122 tariffs rested on dubious legal grounds. They were justified on a balance-of-payment crisis that is nonexistent. Several importers have successfully challenged them before the Court of International Trade and are owed refunds.
These calendar entries have much in common. They hint at a protracted drama that complicates U.S. trade relationships and causes uncertainty for businesses. As a reminder, a major purpose of trade pacts, like USMCA, is to make cross-border trade more stable and more predictable. What we see is the opposite.
Dismantling USMCA
As August begins, two of the three parties to USMCA (Mexico and the United States) are willing to renegotiate key provisions; the third side (Canada) is not. In fact, U.S. trade officials have been speaking with their Mexican counterparts for some time. U.S. Trade Representative Jamieson Greer traveled July 21-23 to Mexico City for the third leg of USMCA talks, meeting with Mexican President Claudia Sheinbaum and Economics Minister Marcelo Ebrard. It’s awkward to be holding bilateral talks regarding the fate of a trilateral trade pact.
Although the government of Canadian Prime Minister Mark Carney took part in the USMCA joint review process, which was mandatory, it is not participating in recent talks to renegotiate the substance of the trade pact. The refusal makes a tactical statement — nations should respect their treaty obligations. That’s in direct response to Trump who, during his second term, has implemented tariffs that violate USMCA. Trump apparently feels unconstrained by the terms of his own trade deal. That’s a serious problem for Canada.
WASHINGTON, DC – DECEMBER 05: Mark Carney, Prime Minister of Canada, and U.S. President Donald Trump chat during the FIFA World Cup 2026 Official Draw at John F. Kennedy Center for the Performing Arts on December 05, 2025 in Washington, DC. (Photo by Dan Mullan/Getty Images)
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It’s not as though USMCA is some rusty relic of a past era. It was initially signed in 2018, signed again (after minor alterations) in 2019, and ratified in 2020. Trump once celebrated the agreement, calling it “the largest, fairest, most balanced, and modern trade agreement ever achieved.” (White House, “Remarks by President Trump at a Signing Ceremony for the USMCA” (Jan. 29, 2020).) Also, the agreement is massive in scope, easing barriers for an estimated $2 trillion in annual trade, accounting for roughly 30 percent of global GDP. Moreover, the agreement seems to be operating as intended, at least from a regional perspective. Since USMCA took effect intraregional trade has risen 37 percent, with intraregional foreign direct investment climbing 16 percent. Yet, these days Trump makes a point of publicly saying the United States would be better off without the USMCA. What has caused Trump to turn so sharply against one of the major achievements of his first term?
There’s little evidence USMCA has lessened the U.S. trade deficit — an issue of particular emphasis to the White House. According to the USTR, the U.S. trade deficit with Mexico for 2025 was $197 billion — an increase of 14 percent relative to 2024. The trade deficit with Canada for 2025 was $46 billion — a 25 percent decrease from 2024. The recent data might not be representative of the broader trends under USMCA, because of the atypical activity witnessed during 2025. Trump’s International Emergency Economic Powers Act tariffs included carveouts for USMCA-compliant goods, but Mexico and Canada felt the full brunt of Trump’s section 232 tariffs on steel and aluminum — which applied irrespective of USMCA obligations. Ditto for Trump’s worldwide tariff on automobiles and auto parts, which initially applied in full to autos imported from Canada and Mexico in violation of USMCA. He later amended the auto tariff to permit exceptions for the U.S.-content of the vehicles, but the USMCA violation remained.
Over the last 18 months, Mexico and Canada have adopted very different approaches for dealing with these tensions. Mexico has been more willing to offer concessions (including non-tax issues such as immigration and fentanyl). Canada has been more confrontational, reflected in Carney’s flat refusal to renegotiate USMCA. Thus, we have the current state of affairs. Canada is content to live with USMCA, as ratified, for the foreseeable future. The White House views that as obstinate. The result, unsurprisingly, is more tariffs aimed at Canada. There’s a nontrivial chance Trump will attempt to unilaterally terminate USMCA, allowing him to sign a stand-alone bilateral trade deal with Mexico and isolate Canada in the process. The question of termination is complicated by a Senate Finance Committee report which opines that the executive branch cannot terminate trade pact without congressional approval. That’s economic diplomacy in 2026.
Beer, Cheese, and Hockey Sticks
Separately, the Trump administration has spent the first half of the year seeking alternate legal authority for its aggressive trade stance. IEEPA tariffs are off the table (thankfully), and section 122 tariffs were always a temporary fix. We learned in June that Trump’s next batch of replacement tariffs would be based on section 301 of the Trade Act of 1974, justified (supposedly) by foreign “forced labor” practices. The section 301 tariffs took effect July 24, concurrent with expiration of the section 122 tariffs. The newer measures aren’t quite a global baseline tariff, but they’re close. They cover imports from about 80 countries, representing the bulk of U.S. imports. They apply at rates ranging between 10 percent and 12.5 percent. (Prior analysis: Tax Notes Int’l, June 22, 2026, p. 2201.)
Beyond those of section 301, the additional tariffs aimed at Canadian imports are noteworthy for the statutory framework on which they’re based. Here, Trump dares to venture down a path few thought he’d take. He’s relying on section 338 of the Tariff Act of 1930, better known as the Smoot-Hawley legislation. It’s the first time any U.S. president has done that in 96 years.
It’s natural to draw historical comparisons. Trump is borrowing a page from Hoover’s economic playbook. Let’s hope things work out better than they did in 1930. If it’s any small comfort, we can be pleased that these new tariffs are not officially linked to the wildfires in rural Ontario that recently caused sooty air to foul the skies over U.S. cities — contrary to Trump’s previous threat.
WASHINGTON, DC – JULY 17: Smoke from massive wildfires in Canada and Minnesota engulf the Washington, D.C. skyline, reducing visibility and casting a colored haze over the U.S. Capitol Building on July 17, 2026 in Washington, D.C. Authorities are continuing to monitor for unsafe conditions as air quality alerts are in effect across a vast portion of the United States. (Photo by Finn Gomez/Getty Images)
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Until now, Smoot-Hawley has been known for two things — neither of them favorable. First and foremost, the statute is blamed for making the Great Depression much worse and much longer than it needed to be. Section 338 bears a natural link to the beleaguered presidency of Herbert Hoover, whose name is indelibly associated with economic decline and mass unemployment — as in “Hoovervilles.” The second connotation is a cinematic snippet (from the 1980s classic Ferris Bueller’s Day Off) that is now a cultural meme for academic discussions that lull participants to sleep out of sheer boredom.
To that list, we can add a third entry. Section 338 authorizes the president to impose ad valorem tariffs at rates up to 50 percent upon the finding that a foreign government has discriminated against U.S. exports. The discrimination — real or imagined — is the basis for new tariffs targeting a hodgepodge of Canadian goods totaling $20 billion per year. The affected goods include wine, dairy products, cement, plywood, wigs, men’s suits, and (symbolically) hockey sticks.
The administration’s fact sheet explains that the section 338 tariffs will apply to all covered goods regardless of the application of the USMCA. They exclude the importation of some Canadian fish, critical minerals, and energy products — as well as Canadian goods already subject to tariffs under section 232 of the Trade Expansion Act of 1962. The 50 percent tariffs are scheduled to take effect August 19, following a 30-day notice period.
Section 338 frames executive branch tariff authority as a defensive countermeasure. It’s a weapon to be wielded against trade partners who misbehave, discriminating against U.S. exports. It’s a fair question — has Canada been discriminating against U.S. products so that it deserves to be hit with these punitive 50 percent tariffs? While the White House fact sheet is thin on detail, it provides a hint as to what the administration takes to be discriminatory treatment. Here’s the essence of those complaints:
Autos: Trump accuses Canada of charging a heavy tariff (25 percent) on the import of U.S. automobiles, which is not charged on imported cars made elsewhere. For example, a Ford imported into Canada suffers a tax that proportionally exceeds the equivalent charge on a Volkswagen imported from Germany. According to the White House, these Canadian taxes have directly affected U.S. exports, which declined more than 20 percent over the 12-month period between April 2025 and March 2026, relative to the same stretch over 2024 and 2025.Beer: Another complaint concerns the treatment of exported beer. Several Canadian provinces, including Ontario and British Columbia, have curtailed the distribution and sale of U.S. beer and alcoholic beverages at government-operated sales outlets, while not similarly restricting the sale of non-U.S. beverages. Thus, shoppers in Toronto and Vancouver can purchase a Heineken imported from the Netherlands but not a Coors imported from Colorado. This has caused an 81 percent drop in export sales over the same 12-month period.Cheese: There’s a further complaint against Canada. It operates a protectionist dairy system that assigns harsh rate quotas on U.S.-made cheeses, but not on cheeses originating from the EU. As such, the importation of French brie is favored relative to the importation of Wisconsin cheddar.
It’s true that Canada has engaged in these practices. But the narrative shouldn’t end there. What the Trump administration neglects to mention is that Canada took those actions in response to antecedent steps taken by the United States. According to Carney, Canada “merely matched” what the U.S. government was doing, “as is its right.” (Ian Austen, “What to Know About Trump’s Tariffs on Canada, and What’s Next,” The New York Times, July 22, 2026.)
It’s common for international trade disputes to involve sequences of tit-for-tat retaliation. In this instance, against the background of the USMCA, it’s challenging to portray our Canadian neighbors as the instigators. Sure, for decades Canada took full advantage of NAFTA’s provisions related to the cross-border trade in auto parts and semi-finished vehicles. But if we’re assigning blame, that’s not so much Canada’s fault as it is an established feature of NAFTA’s framework for the continental auto sector. Canada then negotiated USMCA in good faith and adhered to its terms, until Trump’s second term, when U.S. tariffs deviated from the accord.
To put it bluntly, the logic of the Smoot-Hawley tariffs is that the United States has been victimized by another country’s discriminatory trade practices. With an awareness of recent events, the better description is that the United States is the primary offender and Canada is simply matching one violation of USMCA with another.
The White House fact sheet cites a final grievance that justifies the imposition of section 338 tariffs. Since the beginning of Trump’s second term, it says, only two nations have “chosen to retaliate” against U.S. exports “rather than renegotiate” a revised trade agreement: China and Canada. The statement is an admission against interest because it concedes that what Canada has done — regarding some U.S. exports — is a countermeasure to provocations made by Washington.
Fundamentally, the Trump administration is upset that Canada, over the past year, has stood its ground and retaliated when provoked. That’s no more than we should expect of any sovereign nation. In trade wars, submitting to one’s rival is rarely a winning strategy. The idea is to negotiate (or renegotiate) from a position of relative strength. The next reasonable step for Canada would be to implement even higher tariffs on U.S. goods, going well beyond its current treatment of cars, beer, and cheese. Escalation of the U.S.-Canada trade spat will not benefit either side’s economic outlook, and it will be interesting to see which side blinks first. Domestic political considerations often influence how these matters work themselves out, and it’s in Canada’s favor that Trump is fixated on the approaching congressional midterms.
Back to Brazil
I couldn’t wrap things up without commenting on Trump’s section 301 tariffs aimed at Brazilian imports, announced July 15. The new tariffs amount to an additional 25 percent tax on top of existing baseline tariffs. Normally, you’d expect to see the USTR issue a statement accompanying such an announcement. Here, we received an accompanying statement from Secretary of State Marco Rubio, who took the opportunity to lob insults at Brazilian President Luiz Inácio Lula da Silva. That might be peculiar if the new tariffs were exclusively about economics and trade. Rubio’s involvement tells you everything you want to know about what’s behind this batch of taxes.
Brazilian President Luiz Inacio Lula da Silva formalizes his candidacy for reelection at the national convention of the Workers’ Party at the Expo Centre Norte in Sao Paulo, Brazil, on Sunday, August 2, 2026 (Photo by Isabella Finholdt/NurPhoto via Getty Images)
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The USTR has complaints about Brazil’s digital payment framework, which undermines the ability of U.S.-based firms to effectively compete in the local market. However, the tariffs are at least partly an attempt to help Lula’s opponent in the country’s forthcoming elections scheduled for October. That would be Flávio Bolsonaro, son of Jair Bolsonaro — the country’s former president and a Trump ally. Last year, the younger Bolsonaro urged Trump impose high tariffs on Brazilian products as a means of pressuring Lula’s government into dropping the criminal case against his father. The move didn’t work, and it’s doubtful that it will work this time.
The new tariffs will have a limited range. They avoid some 400 product lines, which are likely to translate to higher retail prices for U.S. consumers. That’s things like coffee beans, orange juice, cocoa, iron and magnesium ore, petroleum, and civil aircraft. They also exclude product lines already subject to U.S. tariffs under section 232, such as steel, aluminum, copper, cars, and lumber. Combined, these exclusions cover 44 percent of Brazil’s exports to the United States. As a result, the new tariffs are unlikely to harm Brazilian manufacturers as much as they otherwise might.
It’s a useful illustration of the practical limits on Trump’s tariffs-as-leverage trade stance. If the White House is serious about wanting to inflict maximum pain on Brazilian exporters, it runs the risk of collateral damage on the homefront. Based on last year’s experiences, that’s rarely a risk worth taking. The larger question, of course, is whether U.S. trade policy should ever be shaped by the government taking sides in another country’s democratic elections.