Policy Pause: Trade — Tariff Authority, the China Truce, and a Canada Flashpoint

Policy Pause: Trade — Tariff Authority, the China Truce, and a Canada Flashpoint

Where U.S. trade policy stands as of August 20, 2026 — the legal ground under tariffs, the state of the China truce, and a last-minute Canada de-escalation.

Three threads define the trade picture heading into late summer: the legal ground under U.S. tariffs is still shifting after two court losses, the U.S.–China truce is holding but has a hard expiration on the calendar, and Canada just avoided a fresh 50% tariff at the deadline.

Where tariff authority actually stands

The broad emergency-powers regime is gone. What remains rests on narrower, slower statutes, and the picture is both fragmented and actively litigated.

The Supreme Court struck down the IEEPA-based tariffs on February 20, 2026 (Learning Resources / V.O.S. Selections), holding that the President cannot impose tariffs under emergency-powers authority. Within hours, the White House terminated the IEEPA orders and reimposed a flat ~10% global surcharge under Section 122 of the Trade Act of 1974.

Section 122 proved a weak substitute. A divided Court of International Trade panel invalidated it on May 7, 2026 (Oregon v. United States / Burlap and Barrel), though relief was limited to the specific plaintiffs and the government has appealed. Section 122 also carried a 150-day statutory clock and lapsed in late July 2026 regardless.

The durable footing now is sector-specific: Section 232 "national security" tariffs (steel, aluminum, copper, autos, and heavy trucks, with investigations open on pharmaceuticals, semiconductors, critical minerals, aircraft, and more) and Section 301 unfair-trade actions. The administration has also reached for Section 338 of the 1930 Tariff Act — never previously used and widely viewed as legally untested — for the Canada action below.

Refund exposure is live. The CIT heard argument on August 6, 2026 in V.O.S. Selections on whether importers can pursue refunds of unlawfully collected IEEPA duties as a class rather than through individual suits. CBP's liquidation timeline and the CAPE refund portal (now in Phase 2) govern who is still eligible.

Commercial implication: Any client that paid IEEPA or Section 122 duties has a potential refund claim, but eligibility turns on liquidation timing — entries liquidated more than 90 days ago are generally out. Companies should be mapping which entries remain open and documenting refund-allocation terms with counterparties. Effective landed costs on many goods have fallen from the 2025 peak, but Section 232/301 duties on electronics, metals, and machinery are unaffected and are not going away.

Watch: The Federal Circuit appeal of the Section 122 ruling; the CIT's class-certification decision on refunds; and any new Section 232 determinations from the open investigations, which would land durable, hard-to-challenge tariffs.

U.S.–China truce: holding, but on a clock

The truce is intact and largely implemented — but it is a tactical pause, not a settlement.

The one-year truce struck at the Busan (APEC) summit on October 30, 2025 has held through 2026. It cut the U.S. average tariff on Chinese goods to roughly 47%, including halving the fentanyl-linked tariff to 10%, and suspended the threatened 100% escalation.

China suspended the sweeping rare-earth and critical-mineral export controls (including gallium, germanium, antimony, and graphite) it announced last October, and resumed streamlined "general licenses" — easing a chokepoint for defense, semiconductor, auto, and AI supply chains. Beijing also restored U.S. soybean purchases, committing to roughly 12 MMT this season and at least 25 MMT annually through 2028.

Reporting continues to frame this as leverage-driven: China's rare-earth dominance (roughly 90% of global refining) forced U.S. tariff concessions, and analysts broadly read the deal as buying time rather than resolving the underlying competition. Some purchase and implementation details were confirmed asymmetrically — fuller in U.S. fact sheets than in China's official notices.

Commercial implication: Near-term relief for rare-earth-dependent manufacturers and for ag exporters, but the reprieve is dated. Clients exposed to critical minerals should treat this as a window, not a fix, and keep diversification and inventory plans intact.

Watch: The truce's core provisions run through late 2026 (rare-earth suspension ~November 2026; reciprocal-tariff suspension keyed to November 10, 2026). Renewal terms, a possible Trump visit to China, and flashpoints like Taiwan and chip controls are the variables that decide whether the floor holds into 2027.

Canada: 50% Section 338 tariff averted at the deadline

A deal was reached at the wire — escalation is paused, but the terms are still thin.

On July 20, 2026, the President announced additional 50% tariffs on roughly $16–20 billion of Canadian goods — agriculture and dairy, furniture, alcoholic beverages, and other categories — under Section 338, set to take effect August 19.

Late on August 19, the two governments reached a last-minute agreement to delay the tariffs, less than two hours before they were to hit. Expectations going in had been low, so the delay is a real de-escalation, but the terms and duration have not been fully detailed publicly.

This sits on top of an already-heavy metals stack: existing Section 232 duties on Canadian steel, aluminum, and copper run 15–50%, and Canada retains a 25% counter-tariff on U.S. steel, aluminum, and autos while having removed its USMCA-covered retaliation.

Commercial implication: Importers of Canadian ag, building materials, and consumer goods get breathing room, but the Section 338 threat is now a standing negotiating lever. Anyone with cross-border supply chains should treat the pause as conditional and watch for the terms.

Watch: The specifics and shelf-life of the August 19 delay; whether Section 338 survives the legal challenge it is likely to draw; and the broader USMCA review cadence.

Bottom line

The tariff wall built in 2025 is being rebuilt on narrower legal foundations — Sections 232 and 301 — after the courts took away the emergency-powers shortcut. That means the durable duties are the sectoral ones, not the headline "reciprocal" rates. The dominant near-term catalysts are the fall China truce expirations (rare earths and reciprocal tariffs, late October–November) and the still-undefined terms of the Canada pause. Refund claims on already-paid IEEPA/122 duties are a live, time-sensitive opportunity for exposed clients.

This briefing reflects fast-moving developments and is provided for informational purposes. Several items were incompletely disclosed at the time of writing, and figures should be reverified against primary sources before any reliance.