How Canada can hit the U.S. where it hurts in fight against Trump’s tariffs

If Canada seeks to retaliate over U.S. president-elect Donald Trump’s tariff threat, the government should hit the U.S. where it would hurt economically and politically, some trade experts suggest.

The challenge would be to find some iconic U.S. item … that would resonate with Trump’s supporters, or the constituencies he cares about, which if Canada put tariffs on them, it will get a lot of notice in the U.S, said Gary Hufbauer, a non-resident senior fellow at Peterson Institute for International Economics.

Trump has threatened to impose 25 per cent tariffs on Canadian and Mexican goods unless both governments tighten their borders to prevent the flow of drugs like fentanyl and illegal migrants into the U.S. But his threat has raised questions as to whether Canada has any kind of leverage to squeeze the U.S. and prevent such tariff action.

It’s unclear what Canada can do going forward, wrote Derek Holt, vice-president of Scotiabank Economics, in a note to clients.

Ultimately, he said, Canada may feel it doesn’t have any choice left other than to retaliate, and we need to be prepared for such a risk.

Wendy Wagner, an Ottawa based international trade lawyer, says she hopes that instead of retaliating, officials and stakeholders from both countries can make it clear that with such highly complex supply chains, U.S. industries will significantly suffer from Trump’s tariffs.

The auto part that you were sourcing from Ontario, you can’t just turn around and all of a sudden source it from Ohio, she said.

Hopefully, there will be a lot of industries working together to kind of clearly communicate what the impact is and what that will mean on sort of an individual business and contractual relationship level.

But if such concerns fail to have any effect on Trump’s tariff threat, Canada’s leverage with the U.S. may again lie with retaliatory tariffs.

In his first term in 2018, Trump placed tariffs of 25 per cent on Canadian steel and 10 per cent on Canadian aluminum. Canada responded with its own retaliatory tariffs (new window) on a series of U.S. products.

On Tuesday, Finance Minister Chrystia Freeland wouldn’t say whether Canada was considering the same course of retaliatory actions that it took in 2018, but she noted that Canada had a smart response last time and that its retaliation was successful as the tariffs on Canadian products were eventually lifted.

Freeland also acknowledged that the round of tariffs under Trump was a challenging time for Canadians.

A senior government source told CBC News that the main focus right now is maintaining lines of communication with Trump’s inner circle and stakeholders that may have influence. But the source said that at the moment, it doesn’t seem like there’s a silver bullet to end the tariff threat and that it will be a long grind.

Hufbauer, who has written extensively on international trade, echoed that any kind of tit-for-tat tariff war would be more damaging for Canada than the U.S. Still, he says there are areas the government could focus on that might cause Trump to rethink his threat.

WATCH | Loonie falls to lowest point since 2020 after Trump tariff threats:

Canadian dollar falls to lowest point since 2020 after Trump tariff threats

The Canadian dollar was trading at 70.87 cents US early Tuesday, down from 71.53 cents US on Monday, following U.S. president-elect Donald Trump’s pledge to impose a 25 per cent tariff on all Canadian imports. CBC News senior business correspondent Peter Armstrong breaks down the potential effect of Trump’s proposal on the Canadian economy.

Canada could threaten to slap tariffs on U.S. agriculture, such as dairy products and field crops, which is very sensitive from a political standpoint for the U.S, he said.

Hufbauer also said there might be mileage in threatening to impose tariffs on some products connected to those CEOs who have a relationship with Trump.

Placing a tariff on iPhones, for example, might prompt Apple CEO Tim Cook to get in Trump’s ear, he said. Or, Hufbauer suggested, target electric vehicle company Tesla, owned by billionaire Elon Musk who has become a significant Trump ally.

Anything that may be an irritant to those in Trump’s circle could help, Hufbauer said.

Canada has ‘hit lists,’ should focus on ‘counter leverage’

In a social media post on X, trade expert Peter Clark said Canada needs to stay focused on counter leverage and those who have export interests in selling to Canada.

We know who their Senators are and who represents them in the House. We have our own hit lists and our professionals are always ready to respond, he wrote.

Top U.S. imports from Canada in 2023. Photo: U.S. Census Bureau (Graeme Bruce, Wendy Martinez/CBC)

Those hit lists refer to the U.S. products Canada may target for tariffs if Trump does implement tariffs on Canadian exports, Clark said in an interview with CBC News.

We know what the products are. We know who might be concerned enough about being put on a consultation list, that they would raise a fuss with their senator or with their Congress member to help put on some pressure.

Putting such products on official notice as potential targets for tariffs will prompt U.S. suppliers and their lobbyists and lawyers in Washington to go bananas, Clark said.

They basically lobby everybody in order to avoid it. There’s a counter pressure. It may not be enough for Trump to have those pressures, but it’s worked in the past.

Tyler Meredith, former lead economic advisor for Prime Minister Justin Trudeau and Freeland, said that in 2018, the  items the government used (new window) to respond to Trump’s steel and aluminum tariffs were highly targeted in very visible categories, things like bourbon (new window) and playing cards (new window) made in Kentucky and Heinz ketchup (new window).

They happened to come from certain parts of the U.S. that Trump knew and understood, said Meredith. And so, to an extent, we need to do the same thing.

Since that first term, Meredith says some of the players have since changed and that Trump’s attention has gravitated to other states, meaning Canada’s focus would have to shift a bit.

It will be important to map where there are potentially areas that Canada can exact some potential revenge if we do actually have to get into a tariff discussion.

Carrots, not sticks

But Meredith also says that instead of using tariffs as sticks, Canada should be focusing more on carrots.

For example, the federal government owns the Trans Mountain Pipeline, and although the supply contracts for those shippers on the pipeline are destined for Asia, that’s not to say that Canada couldn’t look at striking deals with U.S. refineries, Meredith said.

That would be something that I think Trump would be very interested in, he said. “He has opened the door to say he wants more of our energy.

This is all about a deal. You can see how you start to put these things together and it looks attractive from Trump’s perspective of being able to say, ‘Well, look at look at what we’re getting.’ 

This article is republished from RCI.