08:44 AM EST, 11/27/2024 (MT Newswires) -- United States President-elect Donald Trump at the start of the week threatened a 25% tariff on exports from Canada and Mexico, noted Scotiabank.

The bank said it fears Canada may retaliate in the end if Trump really does go ahead with tariffs. Canadian Finance Minister Chrystia Freeland -- now deputy prime minister -- said in 2018:

"Canada has no choice but to retaliate with a measured, perfectly reciprocal dollar-for-dollar response."

Canada implemented the moves on July 1, 2018, and they stayed in place until May 17, 2019, so leaning against the optimistic narrative at the time that tariffs would be very short-lived. The tariffs were narrower in scope in response to the narrower US tariffs than what is being proposed now, but they were aimed in a strategic manner right at Trump's base, right down to Kentucky bourbon.

The Canadian government's proven inclination is to retaliate and Scotiabank isn't sure it will be different this time although with far greater stakes.

Now, the flaw in the break-it-first "art of the deal" approach is that it assumes in a game theory sense that others won't match it, stated the bank. That didn't work the first time as countries retaliated and ultimately Trump backed down on most of the NAFTA demands that resulted in very little change to Canada and small changes to Mexico.

Part of Scotiabank's economist hopes retaliation doesn't ensue because the consequences could be quite bad for everyone, but he wouldn't be the least bit surprised to see China, Mexico and Canada punch back.