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Ontario Premier Kathleen Wynne speaks in Toronto on Dec. 12, 2016.

MARK BLINCH/REUTERS

Ontario Premier Kathleen Wynne has put lawmakers in Texas on notice that she could respond to the state's proposed Buy American rules with protectionist measures of her own.

The exchange comes at a time of heightened economic tension between Canada and the United States as President Donald Trump's administration is seeking to renegotiate the North American free-trade agreement.

Texas' proposed law would require nearly all state agencies to buy iron and steel only from U.S. sources, starting Sept. 1. Ontario has been quietly lobbying against the bill in Texas's State Capitol over the past month, but the bill is in the final stage of deliberations and could be passed by the weekend. Queen's Park is worried that the adoption of restrictive trade rules by a large U.S. state could encourage smaller states to pass similar laws.

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Ms. Wynne said on Thursday that her government is continuing to seek an exemption for Ontario from the rules, but she's ready to unleash a policy that would copy Texas's restrictions and apply them to that state if those talks fail.

"Last month, Cabinet decided that the government can move ahead with introducing legislation that would allow Ontario to appropriately respond to discriminatory Buy American policies, should Texas or other states prevent Ontario suppliers from openly bidding on their procurement opportunities," Ms. Wynne said in a statement. The response, she added, could include restricting Ontario's procurement from firms located in Texas.

The Texas bill is a setback for Ontario's lobbying efforts in the United States; it scored a victory in April by getting New York Governor Andrew Cuomo to drop his proposed New York Buy American Act. That bill was more far-reaching than Texas's legislation and would have required state entities to buy all purchases of more than $100,000 (U.S.) from American companies.

In response to Mr. Cuomo's bill, Ontario's cabinet adopted a policy in April that allows the government to retaliate against a state that takes actions that could harm Ontario's economy. That same policy could now be used against Texas.

With Mr. Trump and state legislatures toying with rules aimed at foreign competitors, Ontario is in a difficult position, a provincial official told The Globe and Mail. Most of the rules are not meant to target Canada, but the country becomes collateral damage when the laws exclude any company that isn't American. Ontario is Canada's largest economy and has a number of deep trading relationships with U.S. states – it's either the first- or second-biggest trading partner for 28 of them.

Ontario is not one of Texas's three largest trading partners but did $12-billion worth of business with the state last year. Canada-Texas trade supports 459,700 jobs in the state, according to the Canadian government.

Lawmakers in Illinois are also considering similar Buy American rules. Ontario officials have indicated that they will deploy their lobbying effort there to sway officials to abandon trade restrictions if that bill goes forward.

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