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 hurt would both 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 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.