Which American goods should Carney tariff? Breaking down Canada’s retaliation trilemma

Which American goods should Carney tariff? Breaking down Canada’s retaliation trilemma ANALYSIS 24 AUGUST 2026 i ARTICLE SUMMARY KEY STATS A full-blown trade war with the United States is now underway. Last weekend, the U.S. levied 50 percent tariffs on roughly 5 percent of Canada’s exports. Prime Minister Mark Carney has committed to respond in kind, dollar for dollar. Whether we should retaliate at all is a separate debate. Many, myself included, think it is potentially unwise. Retaliation adds to the costs on Canada’s economy, and it may not change American behaviour. But public opinion is behind it, and the government has made its choice. The open question is then which American goods do we tariff? That is harder than it looks. And, as I’ll try to argue below, Canada faces a difficult trilemma. Tariff levels not seen in decades Matching the U.S. tariffs “dollar for dollar” means 50 percent tariffs on roughly $28 billion of Canadian imports ($20 billion USD). That is a lot. By my estimate, it would be one of the largest single tariff increases in Canadian history. Based on data on the effective tariff rate that Canada has applied to U.S. goods since Confederation, I estimate a package this size would push that rate to levels last seen in the late 1970s. 1 Graphic credit: Janice Nelson What effect these tariffs will have on Canada and the United States depends on what we choose to levy them on. Three objectives There are three things we might want a retaliatory package to do. First, and most importantly, change U.S. behaviour. If not that, then what is the point? And since only a handful of states decide who becomes president, targeting swing states may be a reasonable objective. That means Wisconsin, Michigan, Pennsylvania, Georgia, Nevada, North Carolina, and Arizona, all of which went narrowly for President Trump in 2024. Second, cause economic damage that U.S. producers will actually feel. Canada is small, so this is a hard one. If we account for only a small share of U.S. sales, tariffs put little pressure on anyone south of the border, swing state or not. But for some items, Canada might be an important destination, so we could narrow our retaliation to those. View reader comments (1) Third, and finally, limit the damage at home. Tariffs raise prices for Canadians and disrupt businesses that rely on imported parts, materials, and machinery. That damage is smallest, though, when other countries could supply the same goods, since…