In a Trade War, the Guns Are Pointed Inward

Before turning specifically to Trump’s deployment of Smoot-Hawley Section 338 against Canada and Canada’s response, I invite readers to consider a chart illustrating the broader picture, in which Trump’s aggressive tariff policies have played a decisive role. It shows the trajectory of the US dollar during Trump 1.0 and Trump 2.0. The visual demonstrates how much different and damaging 2.0 has been to date, as revealed in the value of the currency and the key interest rate.

As of Thursday, we had prepared a discussion and detailed list of Section 338 impacts for this Sunday. Things have changed.

Maybe cooler heads have prevailed. That appears to be the case on the Canadian side. As this is written, we can only speculate about the American side.

On August 26, Canada changed its retaliatory tariffs list. Gone is the tariff on shellfish. Gone is a tariff on orange juice. Notice that the Florida citrus industry is silent about Section 338.

In the beginning the list of targets numbered more than 800 items. Now it numbers 629. Canada’s Department of Finance announced the change in a tweet:

Finance Canada@FinanceCanada

2:10 AM · Aug 27, 2026 · 74.6K Views

18 Replies · 35 Reposts · 186 Likes

Here is a link to the Morningstar story describing the change. It bears reading as context for the discussion that follows. Notice the commentary about Senator Susan Collins and Maine and the shellfish industry.

“Canada Pulls US Seafood Off Retaliatory Tariff List — 3rd Update” | Morningstar

The entire list of 629 US products (rather than the original 800+) still subject to Canadian tariffs may be found here:

“List of products from the United States subject to counter-tariffs effective September 8, 2026” | Department of Finance Canada

Trump’s unleashing of Smoot-Hawley Section 338 triggered Canada’s retaliatory action. The US attacks in a geographical system; Canada counters in a product-specific system. This is a rapidly changing landscape. There is no historical precedent. The economic research is general, and impact analysis is ramping up among professionals.

I’m in dialogue with others who are working on the Section 338 issue. Many think the Detroit auto industry is ground zero. Maybe it is.

I originally thought it would be Florida because product targets like fish and orange juice abound in Florida and the Section 338 shocks would pile on top of the shock generated by the revocation of temporary protected status (TPS) for Haitian workers. Now it looks as though Florida will not be ground zero in terms of impacts from the Canadian retaliatory tariffs. Key Florida products such as orange juice and seafood and ornamental fish are now no longer targeted for tariffs.

There is political fallout from Trump’s Section 338 Smoot-Hawley tariff use. With control of both the US Senate and the House of Representatives hanging in the balance, the economic harm dealt by this tariff war generates new political pressure for candidates in states and districts tied closely to cross-border commerce. The hardships are real when relations between neighbors fall apart. Peter Boockvar provided an example last week, drawing from his time in the Maine woods at Camp Kotok:

No side wins, it’s just who loses less at this point it seems.

One anecdote but I’m sure you’ve heard many. When I was up in Maine three weeks ago on the annual Camp Kotok fishing trip, my guide one day on a canoe told me his family has had a hotel/motel up there for generations and that visitation from their Canadian customers this summer was down 80% from where it was vs 2024 and they’ve scrambled to replace that as best they could with domestic travelers.
(“Enough already/Ag/Trucking/DICK’S/Data” | The Boock Report)

Republican candidates find themselves caught in a vise—forced to choose between defending a volatile executive trade policy or answering to anxious local manufacturers, farmers, and workers who are watching their supply chains fractured by Canadian retaliation [thehill.com, cbsnews.com].

The US strategy relies on a specific mechanism built into Section 338 that allows the White House to bypass the national government in Ottawa and enact a localized, “divide-and-conquer” trade war [csis.org, bhfs.com]. Because the statute targets foreign entities maintaining “discriminatory practices” against American commerce, the administration has designed its penalties to surgically isolate specific Canadian provinces [bhfs.com].

• The Provincial Origin Penalty: Instead of penalizing all of Canada uniformly, US Customs and Border Protection tracks the specific province of origin for incoming freight. If a product like beer or wine originates from a province like Alberta that has complied with US demands, it enters duty-free. If it originates from Ontario or Quebec—provinces that maintained restrictive bans on American alcohol—it is hit with the 50% tariff.

• The Industrial Squeeze: By focusing heavily on Ontario, the US is aiming directly at Canada’s economic engine. This includes placing auto components and dairy imports in the crosshairs to force provincial premiers to back down on localized procurement blocks and energy export surcharges. As negotiations broke down, President Trump escalated the rhetoric via social media, mockingly suggesting that the US could officially rename Lake Ontario to “Lake America” [washingtonpost.com, usnews.com]. An executive order followed.

Canada lacks the legal authority under its own trade frameworks to target specific American states. To achieve the exact same political result, Ottawa has deployed an aggressive counterstrategy of “product-specific targeting”[theguardian.com, pbs.org]. By closely analyzing the US economic map, Canadian officials crafted a “dollar-for-dollar, rate-for-rate” counter-tariff package totaling roughly 700 products [theguardian.com, thehill.com]. Canada selects goods that are produced almost exclusively in politically sensitive US battlegrounds, effectively forcing localized American industries to lobby their own government for relief [thehill.com, cbsnews.com]. To protect its own economy, Ottawa coupled the measures with a $7.5 billion CAD ($5.4 billion USD) domestic business aid packageintended to insulate Canadian workers and companies from the immediate fallout [usnews.com].

• The Rust Belt Auto Hit: Canada applied 50% tariffs to American steel, aluminum, and manufacturing components [thehill.com, cbsnews.com]. This action directly disrupts the just-in-time logistics of the Great Lakes region, causing immediate supply crunches and cost spikes for factories in Michigan and Ohio.

• The Agricultural Heartland Hit: Canada leveled 25% to 50% tariffs on American agricultural machinery, specialized farm equipment, and dairy processing tools [thehill.com]. This directly penalizes high-export agricultural states like Iowa and Nebraska.

• The Coastal and Consumer Squeeze: Canada initially placed steep tariffs on American distilled spirits (hitting Kentucky’s bourbon industry) and was planning heavy tariffs on live or frozen seafood (hitting the lobster and finfish sectors of Maine). These tariffs are among those removed from the list for implementation on September 8.

This precise cross-border targeting has placed a long list of critical Senate and House races in immediate jeopardy, highlighting the exact anxieties that previously drove the US Senate to pass a bipartisan 51–48 resolution attempting to block the administration’s broader trade emergency declarations [congress.gov, senate.gov].

The Senate Battlegrounds

• Michigan & Ohio: In these premier Senate battlegrounds, the 50% Canadian counter-tariffs on metals and auto parts have sent shockwaves through manufacturing centers, leaving candidates to navigate intense voter anxiety over factory layoffs and supply chain instability.

• Maine: The Canadian tariff on American seafood would have directly squeezed coastal economies, forcing incumbent politicians to heavily defend local maritime interests. Of note is that Senator Susan Collins was one of the four Republicans who voted against this type of Trump Section 338 behavior. She knows how damaging it can be.

• Iowa: As Canada’s top international customer, the state is bearing the brunt of Canada’s heavy tariffs on American-made tractors and farm implements.

• Georgia: Canada is Georgia’s largest export market. It accounts for 11% of Georgia’s total goods exports ($6.8 billion) [AtlantaNewsFirst.com]. Georgia manufacturers of machinery and equipment (36% of Georgia’s exports) [Canada-in-USA.com] will be hit hard, along with producers of carpeting, pulp, paper, corrugated boxes, plastics and cooling equipment.

The House Battlegrounds

• Nebraska’s 2nd District (Open Seat): With centrist Republican Rep. Don Bacon retiring, Republican Omaha City Councilmember Brinker Harding faces a steep climb against Democrat Denise Powell as local agriculture and food processing sectors would have to absorb Canada’s steep equipment surcharges.

• California’s 13th District: Democratic Representative Adam Gray is defending this razor-thin agricultural pivot district against Republican challenger Kevin Lincoln amid deep farmer anxieties over shifting Pacific and northern trade routes.

• Michigan’s 10th District (Open Seat): Left open by Rep. John James’s successful primary run for Governor of Michigan, this vital automotive district is highly vulnerable to shifting blue-collar sentiment as component costs spike at the Detroit-Windsor border [nbcnews.com, clickondetroit.com].

• Pennsylvania’s 1st District: Centrist Republican Rep. Brian Fitzpatrick is fighting a grueling re-election battle against Democrat Bob Harvie as suburban Philadelphia consumer-goods manufacturers could face a wall of Canadian trade barriers.

What we now know is that Canada has changed its approach and is carefully evaluating impacts and trying to be tightly parallel with what the US does to Canada. That’s why Florida orange juice is not a retaliatory target for Canada. Canada doesn’t grow oranges.

We have no idea where or when this ends. It’s clear that Mark Carney doesn’t want this dispute with the United States. It’s also clear that Trump’s use of Section 338 has changed the rules of engagement. And Americans don’t like this trade war any more than Canadians do.

What back-channel communications convinced Carney to pivot, we don’t know. Revisions to the list of tariffs fine-tune the Canadian reaction to a more measured and strategic response. Carney has decided not to escalate—he has balanced making a point with modulating tariff-generated damage. Could he be thinking, maybe we can get this situation ratcheted back and reach a sane outcome, meaning stop Smoot-Hawley Section 338, make a new trade deal and get it solidified?

As I see it, there is one grownup in the room, the Prime Minister of Canada. Mark Carney, as a seasoned, skilled economist and leader, pivoted, and without fanfare. Carney has led both Canada’s central bank and the UK’s. Carney’s credentials in worldwide financial stability evidence his understanding of how serious the tariff war threat is. Whether he pivoted on his own or whether a team around him influenced him, we do not know. But he did it — gold star, A+. Will the US see this and seize it and turn this never-before-used trade weapon around? As the wise saying goes, “In a trade war, the guns are pointed inward.” Carney understands this. Marco Rubio and Bessent probably understand this. I don’t know what Lutnick understands or what Trump does.

Where this goes depends on the US. More will be revealed.

“Pain Tolerance” | The World Isn’t Ending, from Mauldin Economics

Executive Actions and Legal Authorities

1. Understanding President Trump’s New Tariffs on Canadian Imports
   Center for Strategic and International Studies (CSIS)
   csis.org
   Details the legal structure of the July 2026 invocation of Section 338 targeting $20 billion in Canadian goods.

2. President Trump Imposes Tariffs on Canada Under Section 338
   Brownstein Hyatt Farber Schreck Legal Briefs
   bhfs.com
   Analyzes the administrative implementation of the 50% tariff surcharges following the mandatory review period.

3. Trump Imposes Harmful and Illegal Section 338 Tariffs Against Canadian Imports
   The Volokh Conspiracy via Reason Magazine
   reason.com
   Explores the historical dormancy of the 1930 Smoot-Hawley Act provision and the constitutional debate surrounding its modern use.

4. Trump Pivot to Section 338 Poses Problems for Economy, Separation of Powers
   Competitive Enterprise Institute (CEI)
   cei.org
   Outlines the criticism from free-market scholars regarding the lack of CFR implementing regulations or judicial precedents.

5. Trump Says US Could Rename Lake Ontario Amid Canada Trade War
   The Washington Post
   washingtonpost.com
   Reports on the escalating public and digital rhetoric targeting the province of Ontario.

Canadian Product-Specific Countermeasures

6. Canada Retaliates With Surcharges on Range of US Goods
   The Guardian
   theguardian.com
   Covers the official response from Ottawa establishing matching product-specific trade barriers.

7. Watch Live: Canada Announces Retaliatory Tariffs Against the US
   PBS NewsHour
   pbs.org
   Broadcast overview detailing the joint press conference detailing the “dollar-for-dollar” retaliation framework.

8. Canada Trade War Escalates After Trump Tariffs
   The Hill
   thehill.com
   Examines the 700-item product retaliation list targeting steel, manufacturing components, and agricultural tools.

9. Trump Canada Tariffs: Goods and US Price Impact
   CBS News
   cbsnews.com
   Assesses how the product-specific targeting strains domestic businesses and drives up operational costs in the Rust Belt.

10. Trump Considers Renaming Lake Ontario as Trade War Escalates
    US News & World Report
    usnews.com
    Details Canada’s $7.5 billion CAD domestic business aid package deployed alongside their counter-tariffs.

Congressional Battles and Midterm Dynamics

11. S.J.Res. 37: A joint resolution relating to the disapproval of the President’s declaration of a national emergency
    Official US Congress Bill Tracker
    congress.gov
    Official roll call and text of the bipartisan 51–48 vote led by the Senate to push back against emergency trade declarations.

12. Kaine and Colleagues Introduce Bipartisan Legislation to Repeal Trump’s Global Tariffs
    Office of Senator Tim Kaine
    senate.gov
    Press release highlighting the political and consumer motivations driving the Senate’s legislative challenge.

13. John James Wins Michigan’s GOP Primary for Governor
    NBC News
    nbcnews.com
    Verifies that Rep. John James left his competitive 10th congressional district seat open to successfully run for Governor.

14. John James Wins 2026 Michigan Gubernatorial Republican Primary Election
    WDIV-TV ClickOnDetroit
    clickondetroit.com
    Regional tracking of the open-seat vacuum created in Michigan’s auto-

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