Canada needs to "take the fight" over tariffs directly to U.S. consumers and businesses and forget about "hopelessly trying to appease” U.S. President Donald Trump and his administration, Scotiabank’s head of capital markets economics says.

In a note to investors on Friday, Scotia economist Derek Holt terms Trump’s rationale for the tariffs “malleable,” arguing that even U.S. data do not support his justifications.

“The ideology guiding this U.S. administration will not be swayed by facts, by jumping through hoops on the alleged reasons for tariffs,” Holt wrote.

“Canada, Mexico, China, Europe, and whomever else have to make it clear to Americans what the costs to this approach will be.”

Trump declared Thursday that tariffs on Canadian imports would go ahead on Saturday, though the extent of those tariffs remains unclear. Economists say the impact of a trade war on the Canadian economy would be severe, with Bank of Canada scenarios suggesting a potential recession. A note on Friday from Jefferies Financial Group analyst John Aiken says a worst-case scenario would put the valuation of the S&P TSX index at risk, with a current “disconnect between the valuation of Canadian equities and the loonie.”

The Canadian dollar, already down more than four per cent since the U.S. election, could drop further, Holt writes. The loonie "instantly depreciated by almost a cent" following Trump's remarks on Thursday, he says, and the currency’s valuation against the U.S. dollar has been otherwise “sleepwalking since mid-December around the 1.44 zone in the hope that tariffs can be avoided.” Neither the loonie nor the Mexican peso "is close to fully incorporating tariff effects including retaliation," Holt says.

Canada has a "purposeful, forceful but reasonable immediate" response to any tariffs imposed by the U.S., Prime Minister Justin Trudeau said Friday. Holt writes that retaliation should be expected — with various polls showing Canadians and Canadian businesses highly supportive — and that the currently fractious and fragile political environment in Canada will nonetheless “not cripple the ability to respond.” The government is also likely “ready to hit ‘send’” on various measures to cushion the fallout from a trade war, Holt writes.

“The dark positive of the pandemic, if you can call it that, is that it made Canada ready for a future shock like this,” he said. “The experience of rolling out whatever it takes — from job and income supports, to targeted stimulus to households and businesses, to supporting facilities — is still fresh on the minds of the politicians and bureaucrats who enacted it all.”