Tariffs are back in the news again and businesses would be wise to take them seriously.
President Trump announced a new round of tariffs that took effect July 24, 2026. The tariffs apply to 60 trading partners. Notably, the tariffs apply to imports from some of the United States’ biggest trade partners including Canada, Mexico, China and all countries in the European Union, and separate from the tariffs on certain imports from Canada announced July 20, 2026 to take effect August 19, 2026.
The President enacted the tariffs under Section 301 of the Trade Act of 1974, based on investigations into whether any of these trading partners fail to prohibit or to effectively enforce a prohibition on the importation of goods produced wholly or in part with forced labor and whether the failure is unreasonable or discriminatory and burdens or restricts U.S. commerce. The Section 301 investigations began in March.
The tariffs range from 10% to 12.5% — countries that committed to introducing prohibitions on forced labor will pay a 10% duty, while those that haven’t will be charged 12.5%. A fact sheet on the new tariffs noted they will apply to 99.4% of U.S. imports.
“The Trade Representative determined that the acts, policies, and practices of each of these economies are unreasonable and burden or restrict U.S. commerce and thus are actionable under section 301(b)(1),” Trump wrote in his proclamation.
These tariffs are in addition to President Trump’s July 20, 2026, promise to, on August 19, 2026, impose 50% tariffs on electronics, plastics, alcohol, dairy and more than 500 Canadian products. The president said they are designed to offset unfair disadvantages faced by key American exports.
“Canada, through discrimination or an unreasonable and unequal imposition, burdens U.S. commerce but not the commerce of other countries and disadvantages U.S. commerce compared to the commerce of other countries,” the president said in his proclamation.
The President instituted the new Canadian tariffs under the long-dormant Section 338 of the Tariff Act of 1930. This mechanism had never been used before and is likely to draw legal challenges.
The Canadian tariffs come at a time of tense relations between the two countries, after Canada retaliated on Trump’s initial tariffs, which Canada claimed violated the US-Mexico-Canada Agreement (USMCA), which the United States has refused to renew. While the Canadian tariffs will likely face legal challenges, the good news is, both sides seem willing to negotiate, and many experts feel the 50% tariffs are likely only leverage for those negotiations.
But the Section 301 tariffs are more likely to remain in effect.
How Businesses Can Prepare
While businesses have been living with 10% tariffs for some time, some of those will increase and the prospect of 50% tariffs on Canadian goods may be enough for businesses to rethink supply chains.
Contingency plans could include:
- Diversify supply chains by moving production to another country with lower tariffs.
- Pull forward Canadian goods and store them here in the United States before tariffs kick in.
- Temporarily outsource to countries with lower tariffs.
- Reshore operations to the United States.
- Pass on increased costs to the consumer.
And, as I noted in a May 2025 amNY Law Journal article entitled “Five Ways for Businesses to Handle Contracts in the Age of Tariffs,” there are actions businesses can explore regarding contracts and insurance:
Force Majeure Provisions: A force majeure provision is a clause excusing one or both parties from their contractual obligations if an extraordinary event outside their control makes it difficult or impossible to meet those obligations. Tariffs could trigger the provision as an unforeseen government action that could disrupt supply chains or increase costs to a prohibitive level.
Price Adjustments: Current contracts may have clauses that allow for price adjustments to reflect changes in tariff rates, especially if tariffs are implemented after the contract is signed. Conduct a thorough audit to determine any opportunity to adjust the contract.
Cost Inclusion and Sharing: Does your contract include tariff costs in the acquisition cost of imported goods for inventory costing purposes? Does it include cost-sharing clauses, so the costs of tariffs are split between the buyer and seller?
Escalation Clauses: These contract provisions allow for adjustments to the contract price when certain conditions are met, such as price increases in materials or labor.
Change order procedures: These formalize how contract scope, cost and schedule are modified due to unexpected price increases or delays caused by tariffs or other unforeseen circumstances.
Insurance: Some insurance policies provide businesses with protections against financial losses when a customer can’t pay because of conditions such as economic downturns, supply chain disruptions and tariffs. Businesses can leverage trade credit insurance if their suppliers or customers are negatively impacted by trade barriers. These policies often cover nonpayment, including defaults caused by tariff-related economic disruptions or supply chain issues.
Section 301 and Section 338
Both sets of tariffs are likely to face legal challenges. Small businesses filed a lawsuit over the Section 301 tariffs on the day they were announced, calling them overly broad.
Experts generally believe the Section 301 tariffs are more likely to withstand legal challenges than President Trump’s sweeping “Liberation Day” tariffs struck down by the U.S. Supreme Court, especially since an investigation was conducted by the U.S. Trade Representative in connection with the Section 301 tariffs.
“Today’s action strikes an overdue blow against the prevalence of forced labor in global supply chains and sends a clarion call to the world to join the United States in adopting the most common sense of policies to combat this indefensible practice,” wrote Trade Representative Jamieson Greer in the fact sheet on the tariffs.
The Section 338 tariffs may have a more difficult legal path. U.S. importers faced with higher costs could challenge the new tariffs with litigation on several points:
- Explicitly denying preferential duty-free treatment to otherwise USMCA-compliant goods directly breaches existing North American free-trade pacts;
- It is unclear if the U.S. International Trade Commission was legally required to conduct a formal, independent investigation before the tariffs were announced.
- The Trade Expansion Act of 1962 and the Trade Act of 1974 – newer legislation than Section 338 — channeled trade disputes through institutional, multilateral-compliant systems, mandating formal investigations, public hearings, and statutory timelines before addressing unfair foreign trade practices. This is quite different from Section 338’s allowing the president to do it by proclamation only.
On the other hand, the stated purpose of Section 338 focuses on discrimination by foreign countries that places the commerce of the United States at a disadvantage. Canada has banned the import and distribution of U.S. alcohol in certain provinces, limited U.S. dairy producers’ access to the Canadian market and placed a cap on certain U.S. vehicle imports – all moves that could be deemed to disadvantage the United States, allowing the use of Section 338 to withstand legal challenges.
Leverage for Trade Negotiations
More likely, the new tariffs will be leverage in a new trade agreement. President Trump has threatened or instituted tariffs on various countries many times since taking office, only to negotiate better trade deals.
From a fact sheet on the new tariffs released by the White House: “President Trump’s tariffs have resulted in 18 deals opening new markets for U.S. exports and bringing reciprocity back to America’s trade relations. Yet Canada has elected to discriminate against the United States rather than address Canadian trade barriers.”
The fact sheet specifically called out Canada for not negotiating with the United States.
“Over the past year and a half, only two countries have chosen to retaliate against President Trump’s tariffs rather than negotiate a deal with the United States: the People’s Republic of China and Canada,” it said.
While uncertainty exists on the use of both 301 and Section 338, it is very clear the Trump administration considers tariffs a priority and businesses will need to adjust. Harris Beach Murtha’s International Trade Practice Group has a great deal of experience in this area. If you need assistance, please reach out attorney Ross B. Hofherr at (212) 313-5482 and rhofherr@harrisbeachmurtha.com, or the Harris Beach Murtha attorney with whom you most frequently work.
This alert is not a substitute for advice of counsel on specific legal issues.
Harris Beach Murtha’s lawyers and consultants practice from offices throughout Connecticut in Bantam, Hartford, New Haven and Stamford; New York State in Albany, Binghamton, Buffalo, Ithaca, New York City, Niagara Falls, Rochester, Saratoga Springs, Syracuse, Long Island and White Plains; as well as in Boston, Massachusetts, and Newark, New Jersey.