On July 20, 2026, U.S. President Donald Trump invoked Section 338 of the Tariff Act of 1930 for the first time, citing Canada’s discriminatory treatment of U.S. automobiles, alcoholic beverages, and dairy products. The measure imposed an additional 50% tariff on 554 tariff lines and took effect on August 19. Ming-Min Yang, Assistant Executive Director of the Center for International Trade Policy at the Chung-Hua Institution for Economic Research (CIER), said products are not exempt even if they comply with the rules of origin under the United States-Mexico-Canada Agreement (USMCA). The duties may also be imposed on top of other tariffs. The measure affects nearly US$20 billion in trade, equivalent to approximately 5% of total U.S. imports from Canada.
For Taiwan, the significance of the case extends beyond the 50% tariff itself. The United States is continuing to expand the range of legal instruments available for imposing tariffs. Section 338 had rarely been used for decades and focuses primarily on discriminatory treatment. If a foreign country imposes unreasonable and discriminatory measures on U.S. goods, the U.S. president may levy additional tariffs of up to 50% or even prohibit imports. Compared with Sections 301 and 232, Section 338 involves fewer procedural requirements, while its scope remains subject to legal dispute. It could therefore become a new tool for exerting pressure in future U.S. trade negotiations.
Long-Dormant Section 338 Returns, but Taiwan Faces a Lower Immediate Risk Than Under Section 301
Taiwan’s immediate exposure to Section 338 remains limited, but it should not be complacent. Section 338 does not target trade deficits alone. In principle, the United States would still need to identify specific discriminatory treatment before invoking it against Taiwan. Potential examples could include agricultural quotas, government procurement rules, technical standards, or preferential treatment granted to other countries through Taiwan’s free trade agreements. A bilateral trade deficit or general industrial policies alone may not provide sufficient grounds for applying the provision.
However, Section 338 had remained largely unused for decades, and its scope and legal boundaries have not undergone extensive judicial review. Taiwan must therefore continue identifying policies that the United States could interpret as discriminatory and reduce the risk of the provision being invoked in the future.
Canadian Retaliation Fails to Secure Concessions, Suggesting Taiwan Should Avoid Sweeping Countermeasures in U.S. Negotiations
Canada’s experience offers another important lesson: broad retaliation does not necessarily produce negotiating leverage. The U.S.-Canada tariff dispute progressed from additional U.S. tariffs to Canadian countermeasures, after which the United States characterized Canada’s response as discriminatory and raised tariffs further. This created a cycle of retaliation and counter-retaliation. Taiwan has a comparatively smaller market, meaning sweeping retaliatory measures would exert limited economic pressure on the United States while potentially increasing the political and economic costs of bilateral relations.
A more viable response to U.S. tariff policies would therefore be for Taiwan to leverage procurement, investment, market access, regulatory adjustments, and industrial cooperation. These measures could help secure targeted product exclusions and transitional arrangements, rather than merely pursuing the political effect of reciprocal retaliation.
Section 301 Poses the More Immediate Threat to Taiwan, with the Overcapacity Investigation Warranting Closer Attention
Compared with Section 338, Taiwan should currently pay greater attention to Section 301. In March 2026, the Office of the United States Trade Representative (USTR) included Taiwan in two investigations concerning forced labor and manufacturing overcapacity. The forced labor investigation concluded with final measures in July. Because Taiwan had already committed under the Taiwan-U.S. Agreement on Reciprocal Trade to prohibit imports of goods produced with forced labor, the additional tariffs imposed on Taiwan were relatively limited.
The investigation into manufacturing overcapacity warrants greater attention. If the United States determines that Taiwan’s industrial policies have harmed U.S. commercial interests, it could impose tariffs or other trade measures. USTR has yet to determine the scope and rates of any such measures. Taiwan should use this time to compile comprehensive evidence and develop robust legal arguments for potentially affected industries and products.
As the United States Continues to Expand Its Tariff Toolkit, Taiwan Should Build Negotiating, Legal, and Industrial Defenses
Future U.S. tariff policy may continue to be shaped by court rulings, Congress, industry lobbying, and the administration’s choice of legal instruments. When one legal mechanism is constrained, the government may turn to another. Rather than trying to predict which legal tool the United States will invoke next, Taiwan should focus on preparing in advance.
Taiwan should establish three lines of defense simultaneously. The first is a strategy for negotiations with the United States. The second is a legal response strategy. The third is a domestic industrial adjustment plan. Canada’s experience shows that tariff retaliation does not necessarily secure concessions. The most effective way to mitigate the impact is to fully understand bilateral industrial interdependence, convert Taiwan’s industrial strengths into negotiating leverage, and address policy and institutional vulnerabilities that the United States could target.
As the United States continues to expand its tariff toolkit, Taiwan should look beyond the rates of the next potential tariffs and shift from avoiding tariffs to enhancing its negotiating stance. These are the two most important lessons Taiwan can draw from Canada’s experience.
Author: CIER Editorial Team
Date: August 24, 2026