March 2, 2018 / 10:40 PM / 21 days ago

Canada retaliation in U.S. tariff row 'like grabbing your own throat'

MEXICO CITY/OTTAWA (Reuters) - Canadian officials are bombarding U.S. counterparts with calls to secure an exemption on potential steel and aluminum tariffs and threatening retaliation, but Ottawa has limited leverage to counter the plan, industry insiders and analysts said on Friday.

Simultaneously mulling retaliatory targets and insisting the tariffs may never happen, trade officials are working the phones but will not identify potential sanctions to avoid “painting oneself into a corner”, according to one well-placed Canadian source.

A second Canadian source familiar with the issue said officials are making the point that the steel and aluminum industries are so integrated that an exemption for Canada, the largest supplier of both steel and aluminum to the United States, is obvious but admitted leveraging person-to-person contacts may not matter in the end.

“As we have all seen in this particular context with this particular administration, there is one guy who is going to decide at the end,” said the second source, who spoke on the condition of anonymity, referring to U.S. President Donald Trump.

Liberal Prime Minister Justin Trudeau said on Friday that tariffs would be “absolutely unacceptable” and would cause significant and serious disruption to the market on both side of the border.

Retaliatory options all risk hurting Canada as much as they do the United States, which has an economy 10 times the size of its northern neighbor.

“Retaliation is equivalent to grabbing yourself by the throat, putting the gun to your head and saying, ‘Stop it or the dummy buys it’,” said trade lawyer Milos Barutciski at law firm Bennett Jones.

    Crops, meat and energy trade in both directions across the Canada-U.S. border, making it difficult to retaliate against U.S. products in those industries.

    Canada imports U.S. soymeal, for example, to feed pigs, and then trucks some of the herds to the United States for fattening and slaughter.

    “The risk for agriculture in Canada and throughout North America, is if we get caught up in a trade war we compromise the competitiveness of the whole industry,” said Brian Innes, president of Canadian Agri-Food Trade Alliance, whose members include meat, grain and oilseed growers and companies.

Threatening to retaliate through energy products is also fraught. Canadian heavy oil producers depend on U.S. refineries to buy much of their output.

Further hampering Canada’s ability to hit back, the provision of national security cited by Trump in announcing the tariff means Canada does not automatically get the retaliatory right under WTO rules, Avery Shenfeld, chief economist at CIBC Economics, said in a research note.

The last time Canada prepared for a trade war with the United States, in 2013 over contentious meat labeling rules, it targeted dozens of seemingly random American exports, from cherries and chocolate, to wine and office chairs.

The goods had been chosen to hit where key U.S. legislators live, rather than inflict broader economic pain. U.S. industry groups and voters pressed elected officials to avoid retaliation that would have especially hurt their own districts.

“They tried the charm offensive, it didn’t do the trick,” said Gerry Ritz, who was Canadian agriculture minister in the Conservative government of the time. “They’ve spent a lot of time and money wandering around down there but haven’t hit the right people.

“You can’t do a shotgun approach, you need more of a one-on-one sniper approach.”

Additional reporting by Rod Nickel in Winnipeg; Writing by Andrea Hopkins; Editing by Amran Abocar and Daniel Wallis

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