Canada knows Trump would win a trade fight. It is preparing to retaliate anyway.

Summary
The country’s leaders are trying to persuade the new administration to hold off while also seeking ways to inflict pain in a tariff spat.The leader of Canada’s energy-rich province of Alberta, Danielle Smith, met with President-elect Donald Trump and his team at Mar-a-Lago, Fla., this past weekend to try to convince them that a trade war would be bad for both countries. She came home resigned to a fight.
A Trump trade war is coming, she warned, and Canada could suffer more.
“We are the ones who [will be] really harmed if we try to get into any kind of prolonged trade and tariff war," she told reporters Monday.
Canadian officials are increasingly convinced that Trump will follow through on his recent promises to quickly impose 25% across-the-board tariffs on imports from Canada and Mexico soon after he takes office on Jan. 20., and are looking for ways to retaliate with their own tariffs.
The prospect of a trade war has alarmed the political and economic leaders of trade-dependent Canada, which sends almost 80% of all its exports to the U.S., accounting for more than a fifth of Canada’s gross domestic product.
Canadian government officials and cabinet ministers have said they are preparing a comprehensive list of imports that Canada would target, including products like orange juice from Florida, bourbon from Kentucky and steel from Pennsylvania.
Canadian Prime Minister Justin Trudeau, appearing on MSNBC Sunday, promised a “robust response" to Trump tariffs, while his foreign minister, Melanie Joly, on Friday warned the U.S. not to squeeze its second-largest trading partner, behind Mexico.
“We need to show the American people and folks and people around Trump that there will be real consequences," said Joly. “Canada has a deep affection for the U.S., and is its closest ally, but also we have leverage."
Retaliatory tariffs would also hurt Canadians by driving up the cost of imports from the U.S., and weakening the Canadian dollar, say economists, compounding the pain for a struggling Canadian economy that is roughly one-thirteenth the size of the U.S.
“The problem is that Trump likely understands that, in a bilateral tariff war, this is gonna hurt us more than it hurts him," said Avery Shenfeld, the chief economist with Toronto-based CIBC Capital Markets. He noted that the U.S. economy is much less dependent on exports than most of its trading partners, and could weather a trade war for much longer than Canada.
Complicating things for Canada, Trudeau said last week he would resign as soon as his party picks a new leader on March 9. A federal election will likely follow soon after, which has effectively left a leadership vacuum at the top that is making it more difficult for Canada to coordinate a response, said Smith.
Economists say a 25% tariff on all U.S.-bound Canadian exports would throw the Canadian economy into a recession, squeezing GDP by as much as 3%. Last month, Bank of Canada Gov. Tiff Macklem warned the Trump tariff threat has likely damped business confidence and paused investment plans. A tariff would trigger widespread disruption in the Canadian economy, Macklem said.
Trump said in late November he would impose tariffs on goods from Canada and Mexico until the countries fortified their border-security efforts to limit the flow of migrants and illegal drugs into the U.S. To that end, Canada has pledged nearly $1 billion to add more border agents, and acquire helicopters and drones to help patrol activity.
Trump has cited other factors for targeting Canada with a 25% tariff, such as the trade deficit the U.S. runs with Canada, which economists say is mostly due to the sale of Canadian energy products to the U.S. Last week, Trump said he would use “economic force" to coerce Canada in becoming the 51st state, and called the U.S.-Canada border “an artificially drawn line."
Canada said its own tariffs would hurt the 36 U.S. states and the many large and small U.S. businesses that count Canada as their biggest trade partner. Canada is also the largest foreign supplier of oil and gas to the U.S., has an auto sector that is tightly integrated with its U.S. counterpart and supplies electricity to large markets in U.S. border states.
Doug Ford, the leader of Ontario, Canada’s most populous province, last month said he would cut off supplies of electricity that power 1.5 million homes in New York, Minnesota and Michigan if Trump imposed tariffs on Canada’s auto-parts sector.
Smith, Alberta’s leader, said Canada could also try to mollify Trump by agreeing to let in more U.S. products, opening the door to larger imports of dairy products or electronics.
Andreas Schotter, an international business professor at Western University’s Ivey Business School in London, Ontario, said industries reliant on cross-border supply chains would sustain the biggest hit from a 25% tariff. Canada’s automotive sector imports about 20% of its inputs for manufacturing from the U.S., he said. Other sectors that would face upheaval include energy, chemicals and plastics, and forestry products.
Canadian officials have also said they are considering slapping export taxes on critical items that Trump may exempt from tariffs, such as energy or critical minerals. That prospect doesn’t sit well with the premiers of the affected provinces.
Scott Moe, premier of the province of Saskatchewan, a major exporter of energy, fertilizer and uranium, said an export tax would be wrongheaded and divisive. Under Canada’s federal system, provinces have authority over energy and natural resources within their own boundaries, but the federal government controls trade terms across borders.
Some argue, however, that Canada has no choice but to punch back, if only to avoid more pain later. “If you don’t stand up now, you’ll get your lunch stolen from you each and every single day," said Derek Holt, an economist with Scotiabank.
Write to Vipal Monga at vipal.monga@wsj.com and Paul Vieira at Paul.Vieira@wsj.com