Monday Market Minute | May 11, 2026

A court calls Section 122 unlawful — yet the duty keeps getting collected, and Canadian jobs slip

What Moved

Two developments defined last week, and both pointed in the same uncomfortable direction. On May 7, the US Court of International Trade struck down the Section 122 tariff in a 2–1 ruling, holding that the administration exceeded its statutory authority by leaning on trade-deficit metrics rather than the balance-of-payments measures the 1974 statute actually contemplates. The catch: relief ran only to the three named plaintiffs — the State of Washington, Burlap and Barrel Inc., and Basic Fun Inc. Every other importer still owed the 10% surcharge (a rate that carries a 15% statutory ceiling but was never formally raised). The government appealed the following day, May 8, to the Federal Circuit. The practical result is a tariff a court has declared unlawful that remains in force and collected for essentially everyone.

The next day, Statistics Canada reported that April employment fell 18,000 (-0.1%), the unemployment rate rose to 6.9%, and youth unemployment reached 14.3%. After March's roughly flat print, the labour market appears to have rolled over rather than merely stalled.

Why It Matters

For cross-border private market exposure, an "unlawful but still collected" tariff is close to the worst configuration. A clean strike-down would let underwriters price a horizon; a clean loss would let them price the cost. Instead, sponsors and lenders face legal limbo — a duty that could vanish on appeal or persist to its July statutory sunset, with no way to know which. That is precisely the uncertainty that keeps cross-border exits and refinancings frozen. Canada's USMCA-compliant goods remain exempt from the surcharge regardless, but the broader legal fog still colours deal timing and counterparty risk on both sides of the border.

The jobs data sharpens a second concern. A softening labour market deepens the growth scare that has hung over the year, and for private credit it is a direct signal: rising unemployment is the leading edge of borrower stress. Managers holding consumer- or residential-adjacent exposure should read a 6.9% print as a reason to tighten borrower-stress monitoring, not loosen it.

Signal to Watch

Three things over the coming weeks. First, whether the Federal Circuit grants a stay — and whether it leaves the surcharge in effect while the appeal proceeds. Second, whether any relief broadens beyond the three winning plaintiffs to importers generally; so far it has not. Third, the Q1 GDP release on May 29, which will tell us whether the labour softness is being confirmed by the broader growth picture or offset by it. Watch the basis carefully: a flat quarterly figure and a slightly negative annualized one describe the same economy, not two different ones.