by Kevin Killough
President Donald Trump Saturday moved to impose tariffs on Canada and Mexico, hoping to pressure the countries to do more to control drug trafficking and illegal immigration into the U.S. Almost immediately after productive discussions with Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau Monday, Trump agreed to pause the sanctions for one month.
Negotiations are continuing, and Trump hasn’t offered certainties about the future of his proposed tariffs. Should negotiations break down, energy experts say the tariffs could have impacts on American energy, ranging anywhere from minor increases in gasoline and oil prices to serious impacts to American refineries.
‘We have to be treated well’
During a briefing in the Oval Office Monday, Trump said Sheinbaum agreed to send 10,000 soldiers to the Mexican border to help stem the flow of fentanyl and illegal aliens into the U.S. In a post on X, Trudeau said that Canada would also be strengthening security at its border.
“We haven’t agreed on tariffs yet, and maybe we will, maybe we won’t, but we have a very good relationship,” Trump said.
Trump added that he had also spoken to Trudeau and they had a “good talk.” However, Trump commented on the fact that U.S. banks aren’t allowed to do business in Canada.
“Canada is very tough. Canada is very, you know, we’re not treated well by Canada, and we have to be treated well,” Trump said.
Exports vs imports
Trump said that, when it comes to automobile manufacturing, agriculture and timber, the U.S. has the domestic resources to produce them independently of Canada, and that exports to Canada weren’t important to U.S. trade.
However, imports of oil from Canada are vital for U.S. refineries. The last refinery built in the U.S. that has the capacity to produce large amounts of finished petroleum products is Marathon facility in Garyville, Louisiana, which came online in 1977.
This was prior to the development of shale technologies, allowing for oil to be produced from hard, porous rocks deep underground. The technology made it possible for the U.S. to produce record amounts of oil and gas, but the grades are different from those major U.S. refineries use. The U.S. imports 6.4 million barrels of crude oil per day — for comparison, the U.S. produced 13.3 million barrels per day in November — 76% of which comes from Canada, Mexico, Saudi Arabia, Iraq and Brazil. Imports from Canada account for 52% of all crude oil imports.
For this reason, experts are hoping that if Trump enacts tariffs on Canada and Mexico, they don’t impact oil imports.
“Our position is that we don’t think that the President should include energy in with the products that he targets for tariffs,” Tom Pyle, president of the American Energy Alliance, told Just the News.
Noting the importance of Canadian oil imports to the U.S. refining industry, the American Petroleum Institute (API) expressed in a statement a desire to see a resolution to the trade dispute.
“Energy markets are highly integrated, and free and fair trade across our borders is critical for delivering affordable, reliable energy to U.S. consumers. We will continue to work with the Trump administration on full exclusions that protect energy affordability for consumers, expand the nation’s energy advantage and support American jobs,” Mike Sommers, president and CEO of API said.
Canadian versus American burden
Pyle said that Trump has surrounded himself with people knowledgeable about energy, such as Energy Secretary Chris Wright, former CEO of Liberty Energy. Trump is, therefore, likely aware of the impacts tariffs would have on American refineries, Pyle said, which is why his tariff order applied a 25% tariff on all goods, but only a 10% on Canadian energy products.
Higher oil prices can have wide impacts on the economy, as so much of the economy runs on fossil fuels. As with the American Energy Alliance, Robert Rapier, a chemical engineer and editor in chief of Shale Magazine, said he would rather see a resolution than an ongoing or escalating trade war.
“Oil prices are a big driver of inflation, and that’s what you have to worry about. If oil prices start to rise as a result of this [tariffs], then you got a potential inflation issue. But the markets backed off pretty quickly. I hope we come to some kind of agreement, even if it’s a face-saving agreement with Canada, because I don’t like tariffs,” Rapier told Just the News.
Goldman Sachs kept its oil price forecasts for this year and next unchanged after Trump’s tariff announcement. Given limited alternative export markets, Goldman Sachs estimates that Canada would bear much of the burden if Trump does enact tariffs. Canadian oil producers export to America at a discount, and Goldman Sachs said the companies would see a $3 to $4 a barrel wider-than-normal discount, whereas U.S. consumers of refined products seeing a $2 to $3 a barrel burden, Reuters reported.
Patrick De Haan, head of petroleum analysis at GasBuddy, told The Hill that a 10% tariff on Canadian energy products could increase what Americans pay at the pump by 5 to 30 cents per gallon. New England residents, many of whom rely on heating oil to heat their homes, would see a jump in heating costs should the tariffs go into effect.
The U.S. also imports hydroelectric power from Canada, on average, about 3.3 gigawatt hours per month — enough to power roughly 110,000 homes. Massachusetts gets about 5% to 10% of its electricity from Canada, for example. Massachusetts Gov. Maura Healey, a Democrat, estimates tariffs would increase residents’ energy costs by $200 million a year.
Lower tariffs on energy?
Canadian officials had initially been preparing to stand their ground. Prior to Trump’s announcement that he was delaying the tariffs, Ontario Premier Doug Ford threatened to kill a $100 million deal with Tesla CEO Elon Musk’s internet company, Starlink. Quebec Premier François Legault said the Canadian province should build more business opportunities with other provinces and Europe so as to be less reliant on the U.S. for trade.
After Trump decided to pause the tariffs, according to CTV News, Ford said he wouldn’t go through with killing the Starlink deal, but Legault said he was ready to pursue retaliatory measures if Trump enacts tariffs.
“What is clear with Mr. Trump is that there is still this possibility [of tariffs] hanging over our heads, and it’s not good for our economy,” the Quebec premier said.
Rebecca Schultz, the Canadian province of Alberta’s Minister of Environment and Protected Areas, is meeting with industries and trade associations in Japan to discuss Canadian exports to the Asian country, OilPrice reported.
“Given what we’ve seen in the United States, this is reinforcement that we need to diversify our export markets, and Japan, our already existing relationship, is going to be a key area of focus,” Schultz told Reuters.
Canadian economists concur that a trade war with the U.S. would be very detrimental for Canada. Concordia University economic professor Moshe Lander told CTV News that such a war wouldn’t be in the country’s interest. “That would certainly make the U.S. take notice but I have a feeling that they [Canada] would lose the PR battle,” he said.
Pyle, with the American Energy Alliance, said that he understands the goals Trump has in trying to create a more equal trade relationship with its neighbors, but he’s hoping Trump, if he does enact tariffs, will create an exception for energy products.
“He recognizes that in order for Americans in the middle class and the lower classes to prosper, they have to spend less on energy. And so we are hopeful that he continues to recognize and distinguish between energy and other products when it comes to his tariff agenda,” Pyle said.
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Kevin Killough is a reporter for Just the News.
Photo “Donald Trump” by Gage Skidmore. CC BY-SA 2.0. Photo “Claudia Sheinbaum” by Claudia Sheinbaum. Photo “Justin Trudeau” by European Parliament. CC BY 2.0.
