Ottawa's Tariff Trilemma: A Retaliation Designed for Domestic Applause May Gut Canadian Manufacturers

Ottawa's retaliation plan against Washington's latest tariffs has hit a roadblock. The government's pledge to match dollar for dollar means imposing 50% tariffs on approximately $28 billion CAD worth of American imports, reminiscent of levels seen in the late 1970s.

Hub contributor Trevor Tombe has analyzed the numbers and found that Ottawa is facing a trilemma: it can design tariffs targeting swing states, those that genuinely hurt American producers, or limit damage to Canadians. However, it cannot achieve all three objectives simultaneously.

The arithmetic is stark. If the government restricts its tariff list to items where the seven swing states account for a majority of U.S. exports to Canada, the package would shrink to less than half the required size. On the other hand, if it focuses on food and consumer goods that spare Canadian industry, the package would cover barely one-fifth of the promised amount.

A compromise that satisfies all three objectives would total less than one-tenth of what the government has promised. Even a looser package of nearly 680 items, where swing states account for 45% of exports, includes many goods for which the U.S. supplies over 90% of Canada's imports.

The constraint is structural, not a failure of imagination. The American economy stands at $23.8 trillion USD in 2024, and two-thirds of Canadians live within 100 kilometers of the border.