Elbows Up: The Price of Economic Coercion Against Canada

Trade negotiators often speak of tariffs as “leverage.” As tariffs have been utilized by the Trump administration, this is essentially another word for coercion. On July 20, 2026, the Trump administration escalated what has become an 18-month coercion campaign against its northern neighbor, announcing 50 percent tariffs on roughly $20 billion in Canadian imports under Section 338 of the Tariff Act of 1930, a provision dormant since the 1940s. Targeted goods include alcoholic beverages, dairy, and a range of other products. The stated justification: “punishment” for Canada’s retaliatory measures against U.S. motor vehicles, dairy, and alcohol, which include provincial liquor delistings between March 2025 and February 2026.

The announced Section 338 tariffs impose levies on goods that were not touched by previous rounds of tariffs since they were covered by the United States-Mexico-Canada Agreement (USMCA). With negotiations to revise the USMCA set to occur this week, the tariffs appear intended to force Canada to submit to the president’s desired changes. In using duty-free USMCA goods as negotiating leverage, the move revives a broader concern the author has examined before—the cost to U.S. economic statecraft of using tariffs coercively—which a companion CSIS Critical Questions takes up in detail. This piece interrogates this strategy from a different angle: It examines the limits of coercion as a tactic and measures the costs these actions impose on the American people, many of them concentrated in local economies most tied to the United States’ northern neighbor.

Trade analysts have primarily focused on the price effects of tariffs and their pass-through to U.S. manufacturers, grocery shelves, and car lots. That focus is warranted. But it misses where the cost landed first and most directly: the towns along the U.S.-Canada border, where Canadian visitors had long been the economic base.

A working paper the author released this month quantifies that cost. Using U.S. Customs and Border Protection land-crossing data and public employment records, the paper estimates that the drop in Canadian visitors cost U.S. border communities between 10,000 and 30,000 leisure and hospitality jobs, with associated earnings losses of $0.5 to $1 billion per year. To put the tariff arithmetic in perspective: For every dollar collected in tariff revenue on Canadian goods—roughly $9.9 billion over the sample period—U.S. border workers absorbed between five and ten cents in lost wages. The tariff cost is diffuse across the broader economy; employment and wage losses concentrate in a handful of land-border counties that had no voice in the policy, and those same counties are among the most economically integrated with Canada.

Canada sent more visitors to the United States than any other country in 2024—28 percent of roughly 72 million international arrivals—and the majority crossed by land. They concentrate at Niagara Falls, Blaine, Massena, and Calais. The U.S. Travel Association estimated that the Canadian decline cost the U.S. economy $5.7 billion in travel spending in 2025 alone. An independent working paper by André Kurmann, Étienne Lalé, and Julien Martin, using smartphone mobility data and real-time payroll records from more than 150,000 small businesses, reached a compatible range—between 14,000 and 42,000 jobs lost at small retail and leisure establishments—and found that the losses concentrated in fewer than 3 percent of U.S. ZIP codes, with the hardest-hit communities skewing lower-income and Democratic-leaning.

What about the liquor bans specifically? The Liquor Control Board of Ontario and the other provincial monopolies did real damage upstream: Kentucky and Tennessee spirits exporters saw Canada-bound shipments fall roughly 50 percent, and Brown-Forman (the company behind Jack Daniel’s) reported a 62 percent drop in Canadian sales revenue. Yet the aforementioned working paper found no detectable employment effect in U.S. distillery counties. Spirits production is capital-intensive; the shock went to producer revenue, and distillery employment didn’t move. The two Canadian measures worked on different economic margins. The travel boycott hit workers. The magnitude and duration of this boycott require further elucidation.

The boycott did not end when the tariffs came down. For current policy, the more important finding is this: As the Trump administration exempted more and more products, and after the Supreme Court struck down the International Emergency Economic Powers Act (IEEPA) tariffs on February 20, 2026, and the administration replaced them with Section 122 tariffs in the 10–15 percent range, one might have assumed that some of the Canadian visitors would return. They did not. Land crossings into U.S. border communities were still roughly 20 percent below 2024 levels in March and April 2026. The gap between border-exposed metros and less-exposed ones actually widened after the tariff reset, from −0.50 percentage points during the peak boycott period to −0.74 in the months following. May 2026 brought a modest uptick, about 9.5 percent above May 2025, but visitation remained 15 percent below the same month in 2024. A Longwoods International survey fielded in April 2026 found that 57 percent of Canadians said U.S. government trade policies had made them less likely to visit in the following year.

The administration’s theory behind Section 338 appears to be that heightened pressure will produce capitulation. Canada’s liquor delistings, in that framing, represent discrimination, applied to the United States but not to France or Italy. U.S. officials have gone so far as to claim that Canada was one of only two nations, along with China, to retaliate against Trump’s tariffs. Section 338 was designed precisely for beggar-thy-neighbor situations, empowering the president to respond in kind until the discrimination ends.

That calculation runs into a harder problem: The boycotts are not an action by the state but by its people. Once consumers in a democratic society organize around a grievance, state-to-state economic statecraft cannot reliably dictate their behavior. Canada lifted some counter-tariffs as negotiations advanced, and provincial premiers signaled a willingness to revisit the liquor delistings. Neither changed Canadian travel behavior. A new round of 50 percent tariffs, imposed over liquor exports that already fell 81 percent, is unlikely to accelerate a recovery that tariff relief alone failed to produce.

Economists have long understood that coercive, unilateral tariffs invite retaliation, and that the resulting trade diversion and welfare losses fall on both sides, producing a suboptimal and difficult-to-rectify equilibrium. This episode reveals a less-examined cost: The coercer pays too. It pays not only through the game theory of state-to-state action, but through the independent choices of citizens who feel affronted by the great game their statesmen are playing. Evidence shows that the cost falls on border communities that depend on the bilateral relationship, and the trauma persists long after the headline tariffs are adjusted. Credibility, once lost, does not recover on the schedule of trade negotiations. Neither does consumer trust.

Philip Luck is director of the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.