On the heels of the surprising degree of unity on the need to respond to potential United States tariffs across 13 of Canada's 14 first ministers, the federal cabinet will convene a retreat in Quebec on Monday and Tuesday, said Scotiabank.

It is understood that the prime purpose is to craft a response to potential U.S. tariffs amid reports that a target list of C$150 billion of U.S. imports is in circulation.

Pending the exact timing of any executive order signed by incoming U.S. President Donald Trump that raises tariffs or possibly other restrictions, the Canadian response is likely to quickly follow, stated the bank.

There are also likely to be communications on a support package of measures for the Canadian economy. Individual provinces may also enact their own measures, likely led by Ontario where the industrial base may be the most vulnerable to U.S. protectionism. pointed out Scotiabank.

As for the Bank of Canada's possible reaction, it depends critically upon several assumptions, added Scotiabank. If the U.S. imposes major tariffs in a broadly based fashion for a meaningful period of time and Canada doesn't retaliate, then the BoC will be cutting aggressively.

If those same assumptions hold but Canada does retaliate through its own significant tariffs in a broadly based manner for a meaningful period of time, then the BoC is more likely to be tightening monetary policy, according to the bank.

The inflation impulses from damaged supply chains all over again plus Canadian dollar (CAD or loonie) depreciation and pass-through of tariffs on imports would pose an upside risk to the 2% inflation target. The supply chain experiences of the pandemic plus anyone who is listening carefully to what the BoC is saying on that matter should have markets careful with their positioning, noted Scotiabank.