Canada Markets closed

Out of ammo: Why Canada doesn't have a fighting chance if Trump wants a trade war

Sands said Trudeau’s stance on trade since Canada introduced counter-tariffs against the U.S. on July 1 has been conciliatory for the most part. Trump, he said, has gone the other direction.. (Photo by Alex Wong/Getty Images)

Canada is out of ammunition to fire back at the United States if NAFTA talks fall apart and the Trump administration ramps up trade aggression, according to experts monitoring the negotiations.

Ottawa’s counter-tariffs on American steel, aluminum and a list of goods ranging from pens to playing cards have put $300 million in government coffers, according to the Canada Border Service Agency. Canada has pledged to keep the measures in place until the U.S. lifts its duties on Canadian steel and aluminum.  

That counter-punch isn’t having a big enough impact on American companies and states that sell goods north of the border, according to Harper-era trade advisor Adam Taylor. He said U.S. officials have not been convinced to go easy on Canada, and Ottawa has little recourse if trade attacks escalate.

“It seems like we sort of emptied our clip,” he told Yahoo Canada Finance. “We have significantly more to lose, and the Americans know it.”

The U.S. and Mexico are pushing Canada to sign a deal by the end of September or face exclusion from the pact. Prime Minister Justin Trudeau has made it clear that Canada will not agree to a deal that does not represent his country’s best interests.

Ottawa and Washington continue to be at odds over issues including the Chapter 19 dispute resolution mechanism, intellectual property rights, and Canada’s supply-managed dairy system.

Meanwhile, U.S. President Donald Trump is looking to use a new three-party agreement as evidence of his deal making prowess as U.S. trade tensions escalate with China, and talks continue with the European Union.

Denying him that may come at a significant cost for Canada.

“If we don’t do a trade deal, the only way to get Canada back to the table is going to be an escalating trade conflict,” said Christopher Sands, director of the Center for Canadian Studies at at Johns Hopkins University. “I have to be somewhat sympathetic to the Canadians.”

Taylor said Canada’s carrot and stick approach to swaying state-level legislators to it’s cause by emphasizing economic ties and targeting regional economies with tariffs has so far proven fruitless.

“The whole point of it was to make it strategic. So if you are a congressman from Kentucky, you would go the the administration and say, ‘Hey, they just slapped tariffs on my whiskey. That’s bad for my constituents,’” he said. “I have not seen anyone stand up and say, ‘Stop this trade war with Canada.’”

What’s worse, Taylor – now the principal and co-founder at the boutique trade firm Export Action Global – found Canadians are paying significantly more for some U.S. goods on Ottawa’s tariff list. The firm has observed price increases of up to $10 on American whiskey, $7 on meat products, and as much as $50 on mattresses.

Sands said Trudeau’s stance on trade since Canada introduced counter-tariffs against the U.S. on July 1 has been conciliatory for the most part. Trump, he said, has gone the other direction.

According to a report in the Wall Street Journal, Trump mused about a naming the yet-to-be-inked trade deal “USMC,” with an “M” for Mexico and a “C” for Canada. He reportedly said he was willing to go ahead with a “USM” deal and drop the “C” if Canada didn’t sign on.

“What Donald Trump has done to change the negotiating dynamic is to say, ‘Either you get rid of those barriers or I do something horrible to you like auto tariffs or steel and aluminum tariffs,” Sands said. “Friendly is what Trudeau has offered in return, and he has got nothing for it. I think Canadians are at the point where the Mr. Nice Guy routine is starting to get old.”

That said, Sands doesn’t think Canada is particularly good at playing hardball with the U.S. He expects Trump will look like the bad guy in the end if he is seen to needlessly attack a smaller long-time U.S. ally.

“That message will be communicated by Canadians across the border to their American friends. It will start moving from customers and suppliers to boardrooms and so on, this feeling that the U.S. has been unjust and unfair to its biggest customer,” Sands said. “The shame of isolating Canada, beating them up, and leaving them without a trade agreement will have its repercussions.”

Download the Yahoo Finance app, available for Apple and Android.