Canada First: Democrats Aim The Opening Shot Of Their Tariff Rollback At Trump’s Smoot-Hawley Levies… But Veto Math Says Good Luck

Three days after a blue tsunami swept both chambers, Democrats have picked their first trade fight, and it’s the one they have already won three times.

According to the WSJ, Democrats are eyeing President Trump’s trade war with Canada as the first target in a campaign to roll back the administration’s tariff agenda, according to Senate Finance’s top Democrat (and soon its chairman), Oregon’s Ron Wyden.

“There is overwhelming support for repealing the tariffs on products from Canada,” Wyden told the Journal, adding that he is already talking with colleagues about legislation once he takes the committee gavel in January, and that “Congress must take away the president’s ability to unilaterally and arbitrarily impose tariffs.”

Overwhelming, maybe. Veto-proof? Not even close, and as we show below, the timing is even worse: the next (and biggest) round of Canada tariffs takes effect on January 1, two days before the new Congress is sworn in.

Why Canada? Because That’s Where Republicans Already Cracked

The logic of going after Canada first is simple: it’s the tariff fight where Republicans have most reliably crossed the aisle. Wyden’s camp told the WSJ that the Canada levies are the best opportunity to flip Republicans against Trump and possibly build enough support to avert a veto, or even override one. The plan is to bolt sweeteners onto the repeal to win GOP votes, and to keep forcing floor votes on the least popular parts of the trade agenda in hopes of more defections.

There is precedent. The Senate voted 51-48 to terminate the emergency behind Trump’s original 25% “fentanyl” tariffs on Canada in April 2025 (with Collins, McConnell, Murkowski and Paul voting yes), did it again 50-46 in October 2025, and in February the House followed with a 219-211 vote as six Republicans broke ranks. Every single vote passed. None came anywhere near the two-thirds needed to override a veto.

And Canada is just the opening act: Democrats are also eyeing legislation to rein in the novel legal authorities Trump has used to justify his tariffs, starting with Section 338 of the Tariff Act of 1930, which underpins the Canada levies and which no president had ever used before, as well as Section 122 of the Trade Act of 1974, which Trump first invoked earlier this year for temporary global tariffs. As we noted in “Is The Gridlock Trade Dead Under Trump 2.0?” (Aug 3), Wyden already introduced the Congressional Trade Powers Reform Act of 2026 back in July, which would repeal Sections 122 and 338 outright, while Schumer’s September bill would repeal the Canada tariffs and require refunds.

The rest of the Democratic bench is just as eager. House Democratic Leader Hakeem Jeffries said on Wednesday that Democrats would pass a bill to stop Trump’s tariffs and end the Iran war, while Rep. Jamie Raskin went further, saying “we’re going to put an end to these tariffs” and that he hopes to see movement on Canada “within the first 100 days.” Which, considering the first 100 days start January 3, is a long time in Trump tariff years.

Smoot-Hawley’s Little Brother

Regular readers know we have been tracking this particular trade war since November 2024, when then president-elect Trump first floated a 25% tariff on Canada and Goldman’s Rich Privorotsky flagged that the bigger surprise in the proposal was Canada. It only got uglier from there, and the timeline below shows how the US went from an emergency “fentanyl” tariff to a 96-year-old Depression-era statute in under 18 months (with zero congressional votes in support along the way).

After the Supreme Court ruled in February that IEEPA does not authorize tariffs, the administration went shopping for new authority and in July landed on Section 338 of the Tariff Act of 1930 (better known as Smoot-Hawley), slapping 50% duties on everything from “wine to hockey sticks to cement” (Jul 20), USMCA-compliant goods included. Goldman’s FX team (Stuart Jenkins, Michael Cahill et al.) called the move “a clear escalation in these trade tensions,” reiterating that the US’s trade talks with Canada “will likely prove to be more challenging than those with Mexico.”

Then came a month of whiplash: Trump paused the tariffs at the 11th hour (Aug 19) declaring “we have a DEAL!”, only for the deal to collapse three days later as Carney suspended talks:

Trump’s answer came two days later, when he announced that tariffs on Canadian cars, trucks, auto parts and steel would rise to 50% on January 1, 2027:

Ottawa retaliated on September 8 with counter-tariffs on roughly C$28BN of US goods, a list that, as Industry Minister Mélanie Joly openly admitted, was designed to target specific US states (Sep 7) and apply political pressure ahead of the midterms. Well, the midterms happened, and Michigan, Maine and Ohio all went blue.

Not that Canada has much to celebrate. As University of Calgary economist Trevor Tombe told MPs last month, Ottawa’s retaliation is costing Canadian consumers some $100 million a week while “there’s no evidence that the retaliation we’ve enacted has changed U.S. behavior,” and Rabobank’s Benjamin Picton pointed out that Canada shed 68,300 jobs in September after losing 41,700 in August. Diplomacy at its finest.

Majority, Yes. Veto-Proof, No

Which brings us to the math. As the WSJ notes, any stand-alone bill would likely need 60 votes to clear a Senate filibuster, and a Trump veto (and there will be a veto) takes two-thirds of both chambers to override: 67 senators and 290 House members with full attendance. Per Goldman’s tally, Democrats have flipped seven GOP Senate seats for at least 54, and get to 56 only if Alaska and Mississippi also flip; in the House, the bank sees a majority of around 255 seats.

Now add the Republicans who have voted to repeal the Canada tariffs before. Of the four GOP senators who did so in 2025, Susan Collins just lost her seat in Maine and Mitch McConnell is retiring, which leaves Rand Paul and Lisa Murkowski. Even in the best case that’s 58, or nine short of an override. In the House, even if all six Republicans who broke ranks in February return, Democrats would still be roughly 29 votes short of 290. Translation: the Canada repeal will probably pass, and Trump will probably veto it, and it’s not clear Democrats can find the votes to override, as even the WSJ concedes.

That’s also why Goldman’s chief political economist Alec Phillips was underwhelmed even before the votes were counted. In his midterm preview (available to pro subs), Phillips wrote:

Democrats have indicated they would seek to reverse some of President Trump’s tariffs, but we expect this to have a limited effect since the reversals would likely be focused on a few countries (e.g., Canada) or products. We expect President Trump to announce new tariff increases after the election that would more than offset those reductions, likely resulting in a rise in the US effective tariff rate of a little under 2pp.

We flagged that very passage on election night, so the WSJ story is only half the picture: Democrats are about to fight over the tariffs on the way out while the White House is lining up new ones on the way in.

The real Democratic leverage probably lies elsewhere. In the bank’s post-election take, “USA: Democrats Win a House and Senate Majority with Gains Well Above Expectations“, Goldman expects Democrats “to use fiscal deadlines to seek to limit the war with Iran, roll back selected tariffs, and reverse spending cuts enacted last year.” The first deadline is December 11, when spending authority expires, though Goldman sees a short-term extension to February or March as most likely; the bigger one is the debt limit next fall. In other words, the more realistic path to tariff relief probably runs through a shutdown fight.

Markets Already Placed Their Bet

Traders didn’t wait for Wyden. On Wednesday, JPMorgan’s Delta-One thematics desk noted that its Tariff Sensitive basket beat the market by 2.5 sigma, while “Trump Policy themes are experiencing aggressive unraveling amid the red reversal playing out” (available to pro subs), part of the same blue-wave rotation we described in “Texas Turns Blue, Futures Turn Green” and “Crude Crashes As Blue-nami Sparks Market Chaos,” where hopes of a tariff rollback were one of the reasons stocks ripped on Wednesday (before giving it all back and then some on Thursday).

Ottawa, meanwhile, is playing it cool. Carney said talks have intensified since a November 1 call with Trump and that Washington is now “asking less” and “offering more,” having dropped some earlier demands, including limits on Canada’s ability to strike trade deals with other countries. At the same time, his government says the Democratic sweep won’t change its approach, and Canada’s trade surplus just widened to the highest in more than four years in September (Reuters), which tells you Ottawa isn’t exactly in a hurry.

And there is a reason for the newfound flexibility in Washington: a Canada deal struck by Trump before January takes the issue away from Democrats. Those close to Trump told the WSJ they see little sign that the electoral rebuke will slow his trade agenda, and the Journal warns that the Canada dispute threatens to intensify in the coming months, before the new lawmakers are sworn in.

Two Days Before The Cavalry

Which brings us back to the calendar. On January 1, tariffs on Canadian cars, trucks, parts and steel are scheduled to jump to 50%; on January 3, the new Democratic Congress takes its seats. Even with a perfect start, Wyden’s bill would then need to clear Finance, the floor, the House and a veto, and as the charts above show, the last step is where every Canada repeal has died so far.

So what happens? Two paths: either Democrats find nine more Republican senators and 29 more House Republicans willing to override a sitting president on trade, or Trump does what he does best, cuts his own Canada deal in December, declares victory and keeps the tariff machine pointed at everyone else. We’d bet heavily on the second, which also happens to be Goldman’s base case: fewer tariffs on a few countries like Canada, more tariffs on everyone else, and an effective tariff rate that ends up higher after the “anti-tariff” blue wave than before it.

Then again, after twenty months, three statutes and zero congressional votes in favor, the one thing everyone in Washington now agrees on is that Congress should have a say on tariffs. Whether it gets one is a different question.

Much more in the full Goldman “US Economics Analyst: Previewing the Midterm Elections” and the “USA: Democrats Win a House and Senate Majority with Gains Well Above Expectations” notes, both available to pro subs.