Counter-tariffs: The federal government is undermining U.S. legal challenges to Section 338

MONTREAL, Oct. 08, 2026 (GLOBE NEWSWIRE) -- By responding with counter-tariffs, the Canadian government risks weakening U.S. legal challenges to the most recent round of tariffs imposed by President Donald Trump, argues the MEI in an Economic Note published this morning.

“The imposition of counter-tariffs by the government of Canada is counterproductive,” says Phillip W. Magness, economic historian and Senior Fellow at the MEI. “Canada has numerous allies in the United States who understand that free trade is mutually beneficial for our countries.

“Many are ready to defend this point before the courts; we should avoid making their job harder.”

Trump “statute shopping” to impose tariffs

In February 2026, the highest court in the land invalidated the “Liberation Day” tariffs imposed under the International Emergency Economic Powers Act. The Supreme Court’s conclusion was clear: the law does not allow the U.S. president to impose tariffs under this section, and the tariff power remains the prerogative of Congress.

This decision resulted in refund orders for US$180 billion to American importers for tariffs collected illegally.

Rather than renounce its tariff policy, the Trump administration sought to find another legal text to justify it, explains Magness. It found Section 338 of the 1930 Smoot-Hawley Tariff Act, a law known today for having exacerbated the effects of the Great Depression.

The section would allow the president to impose tariffs of up to 50 per cent on goods from a country whose trade practices discriminate against U.S. goods.

“The Trump administration is confounding a trade deficit with a loss of money, and it’s an error that is unlikely to stand up in court,” says Dr. Magness. “U.S. courts have already shown a number of times that Trump’s tariff arguments are unfounded, and we’re probably in the same movie right now.”

This section has never been invoked before, meaning that a lawsuit would be a first test for this legal tool. The researcher notes, however, that this section has likely already been superseded by other trade law adopted in the 1960s and 1970s.

In the Trade Expansion Act of 1962, for example, Congress clarified what would count as a discriminatory trade practice for U.S. goods. Subsequently, Section 301 of the 1974 Trade Act prescribed a detailed investigatory process for determining an appropriate retaliatory measure against any foreign measure that is “unreasonable or discriminatory” and that “burdens or restricts United States commerce.”

Two arguments against Trump’s tariffs

The researcher explains that one of the two main arguments available to U.S. groups trying to bring down the tariffs is therefore to say that Section 338 of the Smoot-Hawley Tariff Act has been superseded by subsequent laws, and that invoking it is an attempt to circumvent the necessary legal process for imposing tariffs under the 1974 Trade Act. This invoking of Section 338 would therefore be illegal.

The other main argument would be to attack the idea that Canada is “discriminating” against U.S. trade—the condition required to apply Section 338, as well as the investigatory conditions required by the subsequent 1974 law.

By imposing dollar-for-dollar counter-tariffs, the Carney government could therefore undermine this second argument, as these tariffs necessarily do discriminate against U.S. trade, explains the researcher.

Highly unpopular tariffs

Public opinion in the United States favours the Canadian position.

According to an Ipsos poll conducted in September, 57 per cent of Americans oppose tariffs against Canada, versus just 20 per cent who support them. Another Economist/YouGov poll in August arrived at a similar conclusion, with 58 per cent of respondents opposed to the new tariffs versus 26 per cent in favour.

Companies, trade associations, and even U.S. state governments have already contested other Trump tariffs before the courts. The coalition that opposes these measures is large and powerful, points out the researcher.

“Canada has a rare opportunity to stand beside Americans who oppose these tariffs instead of shooting itself in the foot,” says Dr. Magness. “The advantage of a court victory is that it removes a tariff tool from the hands of this president, and of all those who will come after him.”

You can read the MEI Economic Note here: https://www.iedm.org/wp-content/uploads/2026/10/economic-note-212026.pdf

The MEI is an independent public policy think tank with offices in Montreal, Ottawa, and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.

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The most recent tariffs imposed on Canada by the Trump administration stand on weak legal foundations, namely Section 338 of the Smoot-Hawley Tariff Act of 1930, and they are very likely to be invalidated by U.S. courts.