Section 338-tariff uncertainty highlights the knowledge problem

Last month, the Trump administration invoked Section 338 of the Tariff Act of 1930 to impose new 50 percent tariffs against Canada. A White House fact sheet states that the duties will cover “products ranging from wine to hockey sticks to cement” and will take effect on August 19.

As CEI analyst Steve Swedberg wrote, this presidential action creates “a new source of uncertainty for companies making investment, hiring, and supply-chain decisions.” No president has ever used Section 338 to raise tariffs, and its legal limitations are untested.

Another unknown for American businesses is whether Canada retaliates. Experience shows retaliatory tariffs reflect the priorities and expectations of a particular country at a specific time. This makes it impossible to know exactly which industries will be affected by a new tariff action and to what extent.

In 2018, the Trump administration unilaterally imposed worldwide tariffs on steel and aluminum. In response, major economies levied tariffs on 8 percent of US exports. These tariffs were inconsistently applied between countries and affected American industries unrelated to steel or aluminum. As one 2022 study concludes, “it is striking how much heterogeneity there is among the products chosen for retaliation across countries,” from cigarettes to sweetcorn.

Russia and Turkey targeted “products with larger trade values.” Canada concentrated tariffs on products made in districts with Republican members of Congress, even though prices rose at home. Like Canada, the EU imposed tariffs on politically sensitive industries, but its response “sought to minimize domestic economic disruptions.”

America’s main trade rival, China, took yet another approach. Twenty-one percent of its 2018 retaliatory tariffs were designed “to protect its own politically important industries.” This suggests Beijing assigned “a certain probability to the possibility that the US tariffs will remain permanently in place.”

Not even economists know what to expect. The authors of the paper cited above wrote in April 2025, “surprisingly little … is known about how exactly countries retaliate, i.e. which goods and industries they tax to retaliate and why, partly because retaliation has been a fairly rare event in recent decades.”

Three Federal Reserve economists conceded defeat in March 2026, writing that “understanding the effects of retaliation on the retaliator necessarily requires examining particular episodes.”

Today, executives must already consider many variables as trade patterns become less certain.

These include a marginalized World Trade Organization, petty threats against friends and foes, and an international shift from global free-trade agreements to narrower regional deals. Businesses must wade through the political noise to identify what really matters. As the market cascade following Liberation Day 2025 proves, firms are not always successful.

A June 2026 report from an United Arab Emirates trade authority warned, “Businesses should expect escalation, not resolution, as the default setting for trade policy in the years ahead.” This burden falls hardest on companies struggling to rationalize President Trump’s “gut feelings” that motivate his tariff crusade, as CEI Senior Economist Ryan Young wrote. Firms are less able to predict export revenue and import expenses, which weighs on economic confidence and discourages investment.

The administration’s Section 338 tariffs add to this dynamic in a major way. Not only must US businesses worry about how the courts will interpret an arcane piece of trade law, but they must also brace for the unknowable when it comes to retaliatory measures. Section 338 highlights the knowledge problem created by trade instability at the expense of ordinary businesses and the economy at large.