What the new Section 338 tariffs mean for the U.S. and Canada

The new Section 338 tariffs should have a relatively limited economic impact on the U.S. but create a more significant headwind for Canada.

• The U.S. has imposed 50% tariffs on a subset of Canadian goods, affecting around 5% of Canadian exports to the U.S.; Canada has announced dollar-for-dollar retaliation from September 8, 2026.
• President Trump also announced a 50% tariff on Canadian automobiles, with implementation delayed until January 1, 2027.
• The U.S. economy is entering the dispute from a position of resilience, with unemployment near 4%, consumer spending intact and companies generating exceptionally strong earnings growth.
• Canada is more exposed because exports play a larger role in its economy and most Canadian exports go to the U.S.; its unemployment rate remains above Russell Investments’ estimate and growth is volatile.
• The tariffs could be reduced or reversed if negotiations resume, but escalation or a formal six-month notice to withdraw from USMCA/CUSMA remain possible.
• Russell Investments expects the Bank of Canada to prioritize economic support and sees a rate cut as more likely than a hike, while Canadian government bonds offer good value; Canadian equities may be cushioned because financials are less than 10% of GDP but about 30% of the TSX, and many large companies earn substantial revenues abroad.

Takeaway: Investors should expect a larger economic hit to Canada than to the U.S., favor Canadian government bonds and remain disciplined, while recognizing that a U.S. withdrawal from USMCA/CUSMA could create near-term market volatility.