Counter-tariffs: We have tried this before and we only hurt ourselves, points out the MEI

• Between 1928 and 1933 the average Canadian customs tariff rose by around 20 per cent

Montreal, September 3, 2026 – Canada has imposed counter-tariffs on the United States before, and they had no effect on US trade policy, reminds the MEI in an ViewPoint published this morning.

“In the 1930s, the Canadian government attempted to combat US protectionism by imposing its own tariffs,” explains Vincent Geloso, senior economist at the MEI and author of the publication. “The result was to deepen the Great Depression in Canada, without changing US protectionist policies one iota.”

Counter-tariffs are politically useless

While the US Congress was debating the Smoot-Hawley Act of 1930, the Canadian government warned the Americans repeatedly that passage of the Act could lead to Canada retaliating in kind.

Following Smoot-Hawley’s adoption in 1930, the Canadian government did indeed respond by implementing its largest ever tariff increase, raising duties on goods that accounted for about 30 per cent of Canada’s imports from the United States.

Between 1928 and 1933, the average Canadian customs tariff rose by around 20 per cent.

These retaliatory tariffs did exactly nothing to alter US trade policy, which did not budge until the election in 1932 of a new administration more in tune with the principles of free trade. This led to the adoption of the Reciprocal Trade Agreements Act of 1934, followed by the conclusion in 1935 of a trade agreement with Canada.

Canada’s counter-tariffs did, however, harm the Canadian economy. Economists estimate that the fall in the value of traded goods and the rigidity of domestic wage policies accounted for nearly half of Canada’s economic contraction during the Great Depression.

“By imposing counter-tariffs, the Canadian government was essentially raising taxes at a time when our economy was particularly vulnerable,” explains Mr. Geloso. “This tax drove up prices at a time when families and businesses were seeing their incomes shrink, which just exacerbated the crisis.”

Counter-tariffs limit economic growth

The MEI economist points out that tariffs and counter-tariffs have the same effect, namely that they impose a tax on imports.

He explains that this hinders our economic growth in two different ways.

Firstly, import taxes drive up the price of the imported inputs our businesses depend on, thereby reducing our competitiveness on international markets.

Secondly, protectionist policies – even when enacted in response to protectionism by others – alter the incentives for the companies that do benefit from them. These firms then redirect resources towards maintaining their political protection, rather than investing in increasing their productivity. This leads to a phenomenon known in economics as “rent-seeking.”

“The handful of companies that do benefit from tariff protection all too often end up lobbying to maintain that protection,” explains Mr. Geloso. “The result is that we lose sight of why a counter-tariff was imposed in the first place and end up keeping it in place, making its harmful effects permanent.

“Lowering ourselves to Trump-style protectionism won’t help us protect free trade.”

You can read the MEI’s ViewPoint Note here.

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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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