A New Jersey cheese importer asks the U.S. Court of International Trade to void the 50 per cent Section 338 duties on Canadian goods, opening the first direct legal test of a statute that had sat unused since the Depression
NEW YORK, Oct. 21, 2026
A New Jersey food importer has asked a U.S. federal trade court to strike down the 50 per cent tariffs that Washington has levied on roughly US$20 billion in Canadian goods since August, in a case that gives Canadian exporters their first real glimpse of how the legal foundations of the current trade war might be tested.
Gellert Global Group, a privately held importer and distributor with about US$1.7 billion in annual revenue, filed suit against President Donald Trump and senior customs officials in the U.S. Court of International Trade in New York on Tuesday, Oct. 20. The company, which brings Canadian cheese into the American market, says it paid more than US$520,000 in duties on Canadian product between Sept. 16 and Oct. 11 alone, and it is asking the court to declare the tariffs unlawful, halt their collection and order refunds with interest.
The complaint was filed by the Liberty Justice Center, a nonprofit legal organization that has brought several of the major challenges to the administration’s tariff program. The suit seeks class treatment on behalf of other importers paying the same duties, a procedural step that would widen the pool of companies in line for refunds if the court rules against the government.
“No president should have the power to pull a dormant statute off the shelf,” Sara Albrecht, the Liberty Justice Center’s chief executive, said in comments reported by Reuters.
The White House did not respond to requests for comment from several news organizations on Tuesday, according to Reuters and Al Jazeera.
A statute pulled from the archive
The tariffs at issue rest on Section 338 of the Tariff Act of 1930, the Depression-era law better known by the names of its sponsors, Senator Reed Smoot and Representative Willis Hawley. Section 338 allows the president to impose additional duties of up to 50 per cent ad valorem on goods from a country that he finds discriminates against U.S. commerce, or that applies a charge, regulation or limitation to American goods that it does not apply equally to like goods from every other country.
The provision had never been used by any president. Analysts at Wiley Rein, writing shortly after the first proclamations were signed, noted that the authority had not been invoked or even meaningfully threatened for at least 70 years. It sat on the books through the entire post-war construction of the modern trading system, through the Kennedy Round, the Tokyo Round, the Uruguay Round and the creation of the World Trade Organization, and through the negotiation of the Canada-U.S. Free Trade Agreement, NAFTA and the Canada-United States-Mexico Agreement.
The administration changed that on July 20, 2026, when the president signed three proclamations, numbered 11046, 11047 and 11048, finding that Canada discriminates against American exports of alcoholic beverages, dairy products and motor vehicles respectively. Each proclamation imposed an additional 50 per cent duty on a schedule of Canadian goods said to offset the burden on U.S. commerce.
Section 338 requires a 30-day gap between proclamation and effect, which set the original start date at Aug. 19. A further proclamation, 11056, suspended that date for 72 hours while negotiators worked. When talks collapsed, the duties took effect at 12:01 a.m. Eastern time on Aug. 22, 2026, applying to goods entered for consumption or withdrawn from warehouse on or after that moment.
The scope is far wider than the three named sectors suggest. More than 550 subheadings of the U.S. tariff schedule are covered, reaching electronics, cement, wood and paper products, textiles, furniture, sporting goods and, in a detail that has been noted repeatedly in Canadian coverage, ice and field hockey equipment. The Office of the U.S. Trade Representative has estimated the affected trade at close to US$20 billion a year, equal to roughly 5 per cent of Canada’s total merchandise exports to the United States.
Critically for Canadian exporters, CUSMA origin provides no shelter. A good that qualifies for duty-free treatment under the agreement is still subject to the Section 338 duty if its classification appears on the annexes. That single feature has done more than any other to unsettle supply chains that were built on the assumption that CUSMA compliance was the key that unlocked the American market.
What the complaint argues
The Gellert complaint advances several lines of attack, and trade counsel on both sides of the border will be reading them closely.
The first is constitutional and structural. The suit argues that the power to lay duties belongs to Congress, and that the executive may exercise it only within the limits Congress has set. The administration, it contends, has repeatedly pushed past those limits across successive tariff programs, and Section 338 is the furthest reach yet.
The second is a question of statutory displacement. The complaint argues that Section 338 has been superseded by the trade statutes Congress enacted after 1930, in particular Section 301 of the Trade Act of 1974. Those later laws give the president tools to respond to discriminatory foreign practices, but they condition the power on process: a formal investigation, a public comment period, consultations with the trading partner and defined timelines. Section 338, by contrast, contains almost none of that architecture, because it predates it. The plaintiff’s position is that Congress, having built a detailed modern system for responding to foreign discrimination, did not leave an unregulated 1930 shortcut sitting alongside it for a president to use when the modern route proves inconvenient.
The third argument goes to the findings themselves. The suit contends that the Canadian measures cited in the proclamations do not meet the statutory definition of discrimination. Two of the three, it says, were themselves responses to American tariffs rather than independent acts of discrimination against U.S. commerce. The third concerns Canada’s dairy regime, which is governed by the terms of CUSMA, an agreement with its own dispute settlement machinery that the United States has used before on precisely this question.
The fourth is procedural, and it is the narrowest and perhaps the most dangerous for the government. Section 338 requires 30 days between proclamation and collection. The complaint alleges that when the administration added products to the covered lists in September, it did not observe that interval. For cheese, according to the suit, it waited seven days. A court inclined to avoid the larger constitutional questions could resolve the case on that ground alone, at least for the goods added in the September round.
The complaint also raises a question of fit that is easy to state and hard to answer. Gellert imports cheese. The discrimination findings that generated the duty on its products concern, variously, Canadian treatment of American alcohol and American motor vehicles. The suit asks why a cheese importer should pay for a dispute about whisky and cars.
Fourth challenge in a crowded docket
This is the fourth major legal challenge to the administration’s tariff program, and it arrives with a mixed precedent behind it.
In February 2026, the U.S. Supreme Court ruled against most of the tariffs imposed in 2025 under emergency economic powers. The administration responded with a temporary 10 per cent global tariff, which the Court of International Trade subsequently struck down. A third program, framed as a response to forced labour in international supply chains and built on the Trade Act, remains under review at the same court. Canadian goods carry a 10 per cent duty under that program, which can stack on top of the Section 338 duty for goods not already caught by Section 232 metals tariffs.
That record cuts both ways for Canadian exporters hoping for relief. The courts have shown themselves willing to rule against tariff programs that outrun their statutory basis, which is encouraging. But the administration has shown equal willingness to rebuild the same tariff wall on a different legal foundation each time one is knocked down, which means a win in this case may buy a reprieve rather than an end.
There is also the matter of time. Cases at the Court of International Trade are not quick. Briefing, argument and decision typically run many months, and any ruling of consequence will be appealed to the Federal Circuit and, in all likelihood, sought at the Supreme Court. Canadian businesses planning on the assumption that litigation will clear the duties before the end of the fiscal year are planning on hope.
Ottawa’s position and the diplomatic freeze
The lawsuit lands in a bilateral relationship that has been largely static since late August.
Prime Minister Mark Carney suspended negotiations with Washington on Aug. 22, after describing the American side’s late demands as unreasonable, and called the new tariffs a miscalculation. Finance Minister François-Philippe Champagne, announcing Canada’s response, said that “when the United States asked too much and offered too little, we chose to stand up for Canadians.”
Canada’s countermeasures took effect Sept. 8. Ottawa matched the American structure rate for rate at 15, 25 and 50 per cent across a list covering $27.6 billion in U.S. imports, drawn from the same categories Washington had targeted under Sections 232 and 338. Steel and aluminum products moved to 50 per cent from 25, and furniture, clothing and apparel were added at the same rate. Appliances, cheese and certain steel and aluminum derivatives came in at 25 per cent. Existing counter-tariffs on American vehicles remained in place.
Washington escalated again in September. Five further proclamations signed Sept. 8 modified the duty lists, removing rock salt and cement and adding all-terrain vehicles and additional dairy products as of Sept. 15. More consequentially, three of the proclamations converted duties into outright import prohibitions for a defined set of goods, effective Sept. 29. The banned categories cover a long list of alcoholic beverages in consumer packaging, specified whey and molasses products, non-alcoholic beer, and motorcycles with engines above 800 cubic centimetres. Goods imported before that date but not yet entered remain dutiable rather than prohibited.
Notably, the administration took no action against Bombardier at that point, despite a presidential threat the same month to bar the Canadian aircraft manufacturer from the U.S. market.
Trade Minister Dominic LeBlanc has said the two governments remain in contact, but CBC News reported on Oct. 20, citing sources, that Canadian officials have told industry groups no substantial negotiations are under way and that no agreement is expected before the U.S. midterm elections on Nov. 3. A threatened 50 per cent tariff on autos and auto parts is scheduled to take effect Jan. 1, 2027.
Industry reaction
Canadian business groups have responded to the lawsuit with interest rather than celebration, and the distinction matters.
The Canadian Federation of Independent Business has estimated that 53,112 Canadian small firms are directly affected by American tariffs, Canadian counter-tariffs or both, of which 13,160 are exporters and 45,414 are importers. Corinne Pohlmann, the federation’s executive vice-president for advocacy, has argued that existing federal programs “continue to exclude about half of the small business community” and that “programs that only help a few thousand businesses are unacceptable when tens of thousands need support.”
The organization has pressed for a Small Business Tariff Relief program offering up to $70,000 to affected importers and exporters that can demonstrate they paid or absorbed tariff costs, a dedicated desk to accelerate remission decisions, and broad tax relief including a cut in the small business corporate rate to 6 per cent from 9 per cent retroactive to Jan. 1, 2026.
For firms in that position, a lawsuit filed by an American importer is welcome but indirect. Refunds under Section 338, if they ever arrive, flow to the importer of record, which in the overwhelming majority of cases is an American entity. A Canadian exporter that cut its price to keep a U.S. customer will not receive a cheque from the U.S. Treasury. Whether it recovers anything depends entirely on the commercial terms it negotiated with its buyer.
Economic impact
The macroeconomic picture against which the case is being heard deteriorated further this week.
Canada’s Parliamentary Budget Officer, Annette Ryan, released her October economic and fiscal outlook on Oct. 20, the same day the suit was filed. The office now projects real GDP growth of 0.9 per cent in 2026 and 1.5 per cent in 2027, down from 1.1 and 1.6 per cent in June. “Canada faces a more challenging economic and fiscal outlook than we projected in June,” Ryan said.
The budget office reports that the trade-weighted average U.S. tariff rate on Canadian imports has risen to 7.7 per cent from 5.3 per cent since June, while Canada’s equivalent rate on American goods has climbed to 3.0 per cent from 1.6 per cent. If the current measures become permanent, the office estimates Canadian real GDP would be about 1.4 per cent smaller after five years than in a scenario where bilateral trade conditions had remained as they were in 2024, with employment as much as 185,000 lower at the trough, a peak shortfall of 0.9 per cent reached six quarters after the shock.
Statistics Canada reported in September that employment fell by 68,000 and the unemployment rate rose to 6.5 per cent, although a sharp drop in public sector hiring accounted for part of the monthly decline, so the figure cannot be laid at the door of trade policy alone.
Against those numbers, the Gellert case represents a contingent and uncertain upside rather than a plan. A ruling that vacated the Section 338 duties would remove roughly a third of the increase in the effective U.S. tariff rate on Canadian goods since June, assuming the administration did not immediately replace it. The remainder sits in Section 232 metals and auto duties and in the 10 per cent Trade Act measure, neither of which this case touches.
What it means for importers and exporters
For Canadian firms shipping into the United States, the practical lesson of the filing is about documentation rather than litigation.
The first priority is classification discipline. Section 338 coverage is determined at the eight-digit level of the U.S. tariff schedule, and the annexes have been amended twice. A product that was outside the scope in July may be inside it now, and the reverse is also true: rock salt and cement came off the list in September. Exporters should be re-checking every line they ship against the current U.S. Customs and Border Protection guidance rather than relying on a determination made in the summer.
The second is the chain of entry records. If the duties are eventually vacated and refunds ordered, the refund will follow the entry. Canadian exporters that want any part of that money will need their U.S. customers to have preserved complete entry summaries, duty payment records and the commercial documents showing who actually bore the cost. That conversation is easier to have now than after a judgment.
The third is contractual. Incoterms and duty-allocation clauses written before July 2026 generally did not contemplate a 50 per cent duty on CUSMA-originating goods, still less an outright import ban. Firms renegotiating supply agreements this autumn should address not only who pays a tariff but who owns a refund, and should consider whether force majeure and change-in-law provisions reach a prohibition as well as a duty.
The fourth is the remission channel on the Canadian side. Ottawa’s counter-tariff framework retains a remission process under section 115 of the Customs Tariff for exceptional relief, and the federal support package announced in August added $1.5 billion to the Regional Tariff Response Initiative, a $500 million liquidity stream through the Business Development Bank’s Pivot to Grow program with the minimum revenue threshold lowered to $1 million, $2 billion through a new Canada Strong Diversification Fund and $3.5 billion in rapid response supports for workers and employers. Canadian importers paying counter-tariffs on American inputs have a domestic avenue that is available now and does not depend on a New York court.
The fifth is diversification, which has moved from slogan to budget line. Canada has concluded agreements with Indonesia and the United Arab Emirates, opened talks with the Philippines, Thailand and India, and advanced discussions with Mercosur, alongside critical minerals arrangements with Germany and Japan. None of this replaces a market that absorbs roughly three-quarters of Canadian merchandise exports, but the direction of federal policy is now unambiguous, and firms positioning for program support should expect diversification criteria to feature in the assessment.
What to watch
Three dates frame the months ahead. The U.S. midterm elections on Nov. 3 will determine whether the political conditions for a negotiated settlement change. Canada’s federal budget, tabled under the Carney government, will show how much more fiscal room Ottawa is prepared to spend on tariff relief. And Jan. 1, 2027 is the scheduled effective date for the threatened 50 per cent duty on autos and auto parts, a measure that would dwarf Section 338 in its effect on Canadian output.
The Gellert case will not be decided by any of those dates. But it has done something that months of negotiation did not: it has forced the government to defend, in writing and before a judge, the proposition that a 1930 statute nobody had used in a century gives a president the power to put a 50 per cent duty on a wheel of Canadian cheese.