PARIS - Slap tariffs on Kentucky bourbon? Halt distribution of Hollywood movies? Block U.S. companies from bidding on foreign government contracts?
These are the kind of measures being suggested in Europe and Canada as they face the prospect of substantial tariffs on their steel and aluminum industries proposed last week by President Donald Trump.
But trade experts say that retaliation is a fine art, where the goal is to inflict as much economic and political damage on your opponent while not doing your economy too much harm. In economies as well-integrated as the United States and Europe or the United States and Canada, it’s likely to prove a challenge.
"It’s increasingly difficult to find areas of U.S. imports that we can do without or where we can provide a domestically manufactured substitute," said Royce Mendes, a senior economist at CIBC Capital Markets in Toronto.
Jean-Claude Juncker, the president of the European Commission, said that if Trump goes ahead with the proposed tariffs of 25 percent on U.S. imports of steel and 10 percent on aluminum, the European Union will respond by imposing tariffs on American products such as Harley-Davidson motorcycles, Kentucky bourbon and Levi’s blue jeans.
"We can also do stupid," Juncker said, speaking on German television.
His list hit both prime examples of classic Americana and products manufactured in the home states of key Republican leaders, such as Senate Majority Leader Mitch McConnell, Ky., and House Speaker Paul Ryan, Wis.
"Those were just examples," said a European official, speaking on the condition of anonymity to discuss ongoing negotiations. "The list has been in preparation for some time, and of course more products are potentially to be targeted. Basically, it’s more or less one-third agricultural products, one-third steel- and aluminum-related products, and one-third other products."
Economists said those particular products nevertheless serve a politically expedient purpose.
"It’s clear that what the EU at this stage wants to do is to hit politically sensitive areas and districts in the U.S. in the hopes that those districts, which have an interest in trading with the EU, would then weigh on the decision in Washington," said André Sapir, a trade expert and former adviser to the EU’s directorate general for economic and financial affairs.
"It’s to try and change the course of the decision, which has not yet been taken."
While Canadian companies and governments argue for exemptions from the levies, there’s increasing recognition that Canada will not escape the tariffs even if its industries are the primary, if unintended, targets of Trump’s protectionism.
Canadian Prime Minister Justin Trudeau has already called the proposed tariffs "completely unacceptable," and Canada’s foreign minister Chrystia Freeland has warned that Canada "will take responsive measures to defend itself."
The problem for the Canadian government is to find ways to retaliate "that will hit American interests the most and Canadian interests the least," said Gordon Ritchie, who helped Canada negotiate its original free trade agreement with the United States in the late 1980s and was involved in North American Free Trade Agreement talks as well. Even though there could be costs to Canadian consumers, the government has no choice politically but to hit back "very fast and very hard."
Ritchie compares the process to facing down a newly arrived schoolyard bully. You don’t want the bully to think you’re an easy target and repeatedly take advantage of you, he said.
Ritchie said that going after California wine, Kentucky bourbon or Harley-Davidson motorcycles are good options because "they’re high-profile and they’re iconic." And at the same time, Canadian consumers still have a plethora of choices for alcohol or motorcycles. He also suggested blocking distribution of U.S.-made films in Canada, but he acknowledged the risk of provoking a domestic backlash.
Matthew Kronby, a Toronto trade lawyer and former government negotiator, doubts California wine would be a good target because it’s from a blue state. He thinks Ottawa is looking to penalize "goods from red states that supported Trump, that are going to cause economic pain to people who are close politically to Trump." Kronby suggested agricultural products as a likely target.
Kronby also said that Canadian officials may have to impose "safeguard" measures to protect their country’s steel and aluminum industries from being flooded with products originally intended for the United States but diverted to Canada. Those measures could include temporary tariffs and quotas.
Another alternative would be to ban U.S. companies from bidding on Canadian defense and infrastructure contracts, Mendes, the economist, said. The advantage to that approach would be that Canadian consumers wouldn’t feel the impact in their wallets.
When Boeing launched a complaint against Bombardier, claiming the Canadian company had benefited from unfair government subsidies in the production of its C Series jet, the Canadian government retaliated by saying it wouldn’t consider buying fighter jets from Boeing.
That dispute was effectively settled in January, when the U.S. International Trade Commission voted that Boeing was not harmed by Bombardier.