The Supreme Court ordered almost $200 billion of collected tariffs refunded. The companies get the money back. The shoppers who already paid the higher prices do not.
The usual reading of a lost case is that the policy stops. What happened instead was a search through the statute books for another clause that would authorize the same tariffs — ending at a section of the 1930 law that is best remembered for deepening the Great Depression.
"So what one of the ironies here is even though Trump lost the tariff battle, even though refunds are being made, some of the economic harm is now permanent."
Phillip W. Magness is a senior research fellow at the Independent Institute. He told this show in May that there was a strong constitutional case against the IEEPA tariffs, and on 20 February the Supreme Court agreed.
I listened to the full interview so you can skip it. 37 minutes of audio, 15 minutes of reading.
Here are the 13 takeaways that matter.
👤 Guest: Phillip W. Magness, senior research fellow at the Independent Institute, who argued against the legality of the IEEPA tariffs on this show before the Supreme Court struck them down
🎙️ Host: David Lin, who runs The David Lin Report, a markets and policy interview channel
📰 Published: 31 August 2026 on YouTube
🔴 YouTube | ⏱️ 37 min | ✅ Time saved: 22 min
Key Takeaways
The tariff refunds go to the importers, and the shoppers who paid the higher prices get nothing
Nothing in law requires a company that has been refunded to pass it back
After losing at the Supreme Court, the administration went statute shopping rather than stopping
Section 122, then 301, then a section of the 1930 Smoot-Hawley Act
Canada is the test case for whether the 1930 clause works at all
Carney's retaliation gave the administration the discriminatory act the clause requires
The clause is triggered by another country discriminating against US commerce, which Canada had not been doing
Most of the trade deals the president describes have no published text
A trade deficit is not a loss, and the tariff is not paid by the exporting country
US exporters are among the hardest hit, because they are price takers abroad and cannot pass the cost on
There is no Great Depression because the policy was cut back twice before it could do that damage
The market and bond reaction forced the rates down within a week, and then the courts invalidated them
The damage that did land is at the checkout, and it is what the electorate is angry about
The steel tariffs largely missed China, which barely ships steel to the United States
The policy meant to isolate China has pushed allies toward it
On the trade-barrier indices the United States was already one of the worst offenders in the developed world
The Venezuela oil deal was struck with Maduro's own deputy
The administration is split on whether it wants a strong dollar, with the vice president on the other side from the president
1. Section 338 Is Plan B
The interview opened on the latest escalation: 50% US tariffs on roughly $20 billion of Canadian imports, matched dollar for dollar by Ottawa the following week, after trade talks collapsed.
Magness read the whole thing as a legal experiment run on the smallest willing target. After the courts blocked the emergency-powers route in February, the administration went looking for another authority
"And he's found this old clause called section 338 of the Smoot-Hawley Act of 1930."
The clause originally let a president impose tariffs of up to 50% on countries that discriminate against US commerce
He does not think it is good law. Later legislation added definitions and stricter regulation around what discrimination means, and the clause has been superseded
"So, Trump is basically reaching deep into history to try to resuscitate what was essentially a dead letter or a superseded clause."
Canada is the trial run for using it elsewhere. The point of testing it on one partner is to find out what survives a court challenge before applying it broadly
2. Carney Handed Him a Pretext
Asked whether this escalates further or fades before the midterms, Magness said both governments are playing politics, and that the Canadian side has made a legal mistake.
Canada's targeting is electoral. It has aimed its retaliation at goods from border states, and he named Michigan and its contested Senate race, on the calculation that a Democratic majority would be friendlier on trade
The mistake is that section 338 needs a discriminatory act, and retaliation supplies one. Before this round, he said, US-Canada trade was relatively open and free even with the earlier tariffs in place
"Well, by upping the ante in putting retaliatory tariffs in place, you know, Carney has essentially become a self-fulfilling prophet, he's enabled the Trump administration by giving them exactly the type of pretext that they previously didn't have"
The argument in court then writes itself: Canada is discriminating against the United States, whoever started it
"So I think Carney is making a mistake on the legal front here."
3. Deals With No Text
The host put a claim from the vice president to him as a fact check: that Canada and China are the only countries to have retaliated.
Not entirely true, he said, though those two have been the most strident. Other countries have changed their behavior and their trade patterns, and some have come to the table
What they have not signed is anything resembling a trade agreement. "Often times the deals that Trump claims he has struck on trade with other countries, they seem to exist only in his head."
"You know, you can search the White House website, there is no text copy of them anywhere."
The reason he thinks other countries are waiting rather than retaliating is legal uncertainty. These read as executive-order arrangements with little binding standing beyond this presidency, which leaves an open question about where any of it stands after the term ends in 2028
4. The Deficit Is Not a Loss
The host played a clip of the president on Canada and then asked what the argument actually was: that the United States is losing tens of billions a year on trade with Canada, so tariffs have to rise.
Magness said the premise is a category error. "He views trade deficits as a loss, like a net loss for the United States, doesn't realize that we are getting goods in return for things that we purchased."
"I mean, I do I have a trade deficit when I go to the grocery store and pay them money and come home with groceries."
Canada sends lumber and steel; the United States pays for it. That is an exchange, not a loss
Who actually pays is the second error. "It's actually American consumers, American importers, American producers of that have raw materials coming from abroad."
The part he called an irony is that US exporters are among the worst affected. They absorb the cost of the tariff on their inputs and cannot pass it on, because they are price takers on the world market and cannot charge Britain or the European Union for a US tax
So a policy sold as deficit reduction works in the opposite direction
The record after more than a year is that the deficit has not moved. It is broadly unchanged from before the tariffs and in some months higher
The host read out a further claim from the president's own post, that energy accounts for more than the entire $48.3 billion goods deficit with Canada last year
5. Statute Shopping
The host's question was blunt: if the Supreme Court has already ruled, does the ruling mean nothing?
He gave the tactic a name and a precedent. "It's called statute shopping." He compared it directly to the student loan forgiveness fight, where an administration that lost on one broad statute went back for another
The sequence so far runs through four authorities. IEEPA, argued and lost at the Supreme Court; section 122 of the Trade Act of 1974, the balance-of-payments clause allowing a temporary 150-day tariff, which lost its first round in the lower court and is in the appellate system; then sections 301 and 338
His view is that each move makes the legal position weaker. "And you know the further he moves away from that original case the more strained his interpretations of law become"
If section 122 follows the same path, the refunds follow too, which puts the government back where it started with another round of money to hand back
6. Why No Great Depression
The host raised the obvious objection: Smoot-Hawley was invoked everywhere in 2025, and there is no depression.
The first answer is that the announced policy was never the policy that ran. The original schedule carried rates as high as 50% across large parts of the world economy
"The stock market crashed and the bond market went haywire."
Within about a week the average came down to roughly 10 to 15%
The second is that the courts then invalidated what was left, with the refund effect on top
The third is scale. "What this means is that we can absorb some of the harms of a tariff more than most other countries can." A large, multi-dimensional internal economy takes the hit better than a smaller one would
The damage that did land is concentrated in retail prices. "It's the price you're paying at the checkout line in Walmart or at the grocery store."
He said the evidence is clear and immediate: prices rose sharply almost at the moment the tariffs took effect, both on the taxed goods and on their domestic competitors
That, he said, is why affordability is the issue in front of the electorate
On the Canadian side he cited University of Calgary research suggesting the 50% tariffs could still hurt the Canadian jobs market, even though the affected goods are only a small share of cross-border trade, and stressed the projection is speculative
7. Tariffs Land on US Buyers
The mechanism running from a tariff to a US price is short. Tax Canadian lumber and building materials cost more, so housing costs more. The same applies to aluminum, steel and vehicles
The automobile industry is where he expects it to show most. A large share of US car production uses parts made in Canada, and Canada has no domestic car manufacturers of its own — its plants build for American companies
As the host put it back to him, that means tariffing Canadian parts made for American companies
His answer to why that would ever make sense was that it does not. Any car has imported content somewhere in it — the screen, the chips, the aluminum and steel in the frame and the engine — so a plant in Detroit or South Carolina is still importing
And the manufacturer does not eat it. "They don't sit there and absorb that tax. They raise the price on the car lot to US consumers."
8. Steel Tariffs Missed China
With the Treasury Secretary heading into the G20 and a Chinese state visit expected, the host asked what is on the agenda.
He described the relationship as complex and deteriorating, with the Treasury also trying to use economic leverage to draw Beijing into the Iran sanctions regime, which he thinks is an uphill fight
The part he called out is that China was the stated justification and largely not the target. "In fact China makes a lot of steel internationally but very little of that comes into the United States."
"I think they rank behind the Netherlands in terms of steel volume that we import in the United States."
The steel tariffs therefore fell on Brazil, Canada and Mexico — the countries that actually ship steel to the United States — rather than on the country named as the reason for them
9. Allies Pushed Toward China
The host noted that the Canadian side blames the collapse of talks partly on US pressure over who Canada may trade with, and that Ottawa struck a deal with Beijing this year to import 49,000 electric vehicles in exchange for concessions including relaxed visas.
Magness said the outcome is the reverse of the stated aim. "The policy that was intended to supposedly isolate China economically for a variety of reasons and grievances for foreign policy relations has actually in turn backfired on us."
"It has alienated our former allies, our friendly trading partners before the Trump administration took office."
His account of the Canadian case is that the provocation came first. Tariffs arrived with minimal cause soon after the inauguration, alongside the "Governor Trudeau" taunts and annexation talk, and Ottawa has since found no room to negotiate
The alternative available to an alienated partner is the country the policy was meant to isolate, which he said is now happening, and the only answer on offer is more tariffs on Canada
10. The Venezuela Oil Deal
The host read out a post claiming the United States will refill the strategic reserve with Venezuelan oil, described as a gift from Venezuela to the American people.
He treated it as the confirmation of a fear rather than a surprise. "Well, this is confirming what I think were our worst fears when Trump toppled the Maduro regime in Venezuela."
"Now the Maduro regime I have no love for." He called it undemocratic, totalitarian and economically ruinous
The objection is what replaced it. Rather than a transition to the opposition figures he says actually won the last election, the deal was struck with Delcy Rodriguez, Maduro's second in command, whose leverage was access to the country's oil
What is being claimed now is ownership. He said the posts amount to the United States taking a stake in Venezuela's state oil industry through that deal
"So again, what was originally said to be a foreign policy move against a problem actor in the Maduro regime has just turned into a corrupt military enforced deal to get access to oil and engage in crony capitalism with a notoriously oppressive and still deeply unfree undemocratic government."
Asked why the same approach does not work on Iran, he pointed to force. Venezuela is cut off and encircled; Iran has its own military presence across the region, weapons and drones it has used on shipping in the Strait of Hormuz, and an entrenched regime rather than a dictator with nominal loyalty behind him
11. The US Was the Offender
The host put the administration's own defense to him: other countries tariff American goods, so this is levelling the field.
He said the data says the opposite, and named where to check it. Multiple indices measure both tariff and non-tariff barriers by country — the Fraser Institute's in Canada, the Heritage Foundation's, and tracking data from the World Bank and the World Trade Organization
"The United States among the developed world was one of the worst offenders even before Trump took office, even before he put tariffs in place."
Canada, the European Union, the United Kingdom and Australia all ranked more liberalized toward the rest of the world than the United States did
"We usually would come in at like rank number 50 or 60 on these lists and somewhere like Australia is in the top 10."
So the premise of retaliation is backwards, and the tariffs worsened a position that was already among the least open in the developed world
12. Refunds Without Relief
The Supreme Court ordered close to $200 billion of collected IEEPA tariffs refunded, and that money does not reach the people who bore it
"So the company gets the refund, but the consumer doesn't because the consumer purchase was made a year ago under this previous tariff regime."
Whether any of it comes back is entirely the company's choice. "And there's really nothing in law that makes them do so."
The same arithmetic waits at the end of the other cases. Section 122 is in the appellate system, and lawsuits against section 301 have already been filed and are expected against section 338, all on the argument that the statutes have been stretched past what Congress intended
If those go the same way, another year of collections has to be handed back to importers while prices at the till stay where they are
His advice to the White House was to stop. "I mean, the first is to cut your losses." The Supreme Court's ruling was an off-ramp that is still available
He blamed Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer for the advice to go looking for other clauses instead
13. The Dollar Fight Inside
Asked what the Treasury or the Federal Reserve might do if the trade war and the Iran conflict both continue, Magness pointed at a disagreement inside the administration rather than at a policy tool.
The president has always argued for a strong dollar, treating reserve-currency status as a point of national pride as well as an economic advantage
The vice president argues the opposite. "So JD Vance is a dollar skeptic." "He's viewed the reserve currency status as what he calls quote a resource curse."
The theory blames reserve status for trade deficits and for the hollowing out of American manufacturing, and pairs protectionism with a deliberately weaker dollar managed through international levers
Magness said it is not based on sound economics, and does not expect the president to go along with it
He also described a self-defeating currency effect from the tariffs themselves. Fewer dollars going abroad makes dollars scarcer and appreciates the currency, which works against exporters and can stall export volumes
His summary of where that leaves the administration: "I think we're in a position of chaos for the administration"
Bonus Insights
The renaming of Lake Ontario to Lake America came up as evidence of something beyond a joke. Magness called it gimmickry and immaturity on social media, and said what struck him was that senior members of the administration picked it up and promoted it themselves
The US Geological Survey is changing the maps
"It doesn't really accomplish anything other than poking Canada in the eye." It runs alongside the section 338 test case, not instead of it
The politics of the tariffs are bad and the host had the number. He put the latest polling at 60 to 65% of Americans opposed, going into midterms
On whether tariffs at least shrink the deficit, the answer was mixed at best. Trade volumes fall, but so do exports, and the deficit has stayed high and stable throughout
On manufacturing, he said the policy has not delivered what was promised. The tariffs were sold as a way to boost it, and he said a simplistic policy applied to a complex international system has backfired
Magness pointed viewers to the Independent Institute's site and to his own account on X
The through-line of the interview is that losing in court has not ended the tariffs, only changed the statute they are claimed under — and that each round leaves importers with a refund, consumers with the price rise, and trading partners a little further inside China's orbit.
Products, Companies & Tools Mentioned
Independent Institute (Magness's employer, and where he directed viewers at the end of the interview)
Fraser Institute, Heritage Foundation, World Bank and the World Trade Organization (The four sources he named for tariff and non-tariff barrier rankings, on which the United States scored among the worst in the developed world before 2025)
Walmart (His example of where the tariff shows up for a voter — the checkout line)
Books & Resources Mentioned
Smoot-Hawley Tariff Act of 1930 (The law whose section 338 is now the authority claimed for the Canadian tariffs — the same act he says exacerbated the Great Depression)
Trade Act of 1974 (Its section 122 balance-of-payments clause allowed the temporary 150-day tariff that has already lost its first court round)
If this was worth your time, send it to someone who has to have a view on this.
Get the latest market chatter as it happens: