Donald Trump’s plan to impose hefty tariffs on imports from Canada is raising alarms among oil producers. They warn that the proposed tariffs could lead to higher prices for American drivers.
Late on Monday, Trump suggested a 25 percent tariff on all imports from Canada and Mexico, claiming that these neighboring countries are not doing enough to combat illegal immigration and drug trafficking.
The oil industry in Canada, which supplies over half of the crude oil consumed in the US, could face significant challenges if these tariffs are implemented. Industry leaders indicate that US consumers will feel the impact, with potential increases in fuel prices.
Lisa Baiton, the head of the Canadian Association of Petroleum Producers, stated, “A 25 percent tariff on oil and natural gas would lead to lower production in Canada and higher gasoline costs for American consumers, jeopardizing energy security in North America.”
These tariffs could be enacted using executive powers, potentially bypassing the US-Mexico-Canada Agreement (USMCA), which Trump previously endorsed during his presidency. The economic relationship between the three countries has been closely intertwined for three decades, and introducing tariffs could disrupt this balance.
Following Trump’s announcement, Canadian Prime Minister Justin Trudeau reached out to him to discuss the implications. Mexico’s President, Claudia Sheinbaum, expressed concerns that these measures might provoke a retaliatory trade war.
On Tuesday morning, the Mexican peso dropped by 2.3 percent against the US dollar, compounding a sharp decline observed earlier this year, while the Canadian dollar hit a four-year low.
Additionally, Trump hinted at an added 10 percent tariff on Chinese goods, a move that China criticized as “irresponsible.” China’s vice-president Han Zheng emphasized that economic globalization is an irreversible trend.
The international oil benchmark, Brent crude, rose nearly 1 percent, although shares of major Canadian oil companies saw declines of up to 2 percent. Alberta’s premier, Danielle Smith, acknowledged Trump’s concerns about illegal activities at the border, urging for cooperation with the new administration.
Despite being the world’s largest oil producer, the US continues to rely on significant amounts of crude oil imports, particularly from Canada, where the oil is denser than the shale oil primarily produced in Texas. Analysts suggest that US refiners would face difficulties compensating for lost Canadian oil supplies if tariffs are put in place.
Rory Johnston, an energy consultant, noted, “If tariffs are applied to oil imports, the immediate effect will be higher gasoline prices in the US, with US refining margins also under pressure.”
US imports of Canadian crude reached a record 4.3 million barrels per day in July, following the expansion of the Trans Mountain pipeline, which transports crude from Alberta to the west coast of Canada. This has increased the demand for Canadian oil from US refiners on the west coast, making it challenging to switch to domestic supplies should Canadian oil imports be interrupted due to tariffs.
Despite the tensions, some in the Canadian oil industry hope this issue will highlight the US’s ongoing dependency on Canadian crude. Heather Exner-Pirot from the Macdonald-Laurier Institute remarked, “The silver lining in this situation is that everyone is becoming more aware of how crucial Canadian oil is to the American economy.”