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Should Canada use energy as leverage in a trade scrap with the United States over Trump’s tariffs?
All but one of Canada’s premiers agreed Wednesday to consider using “any and all tools” to respond to U.S. tariffs that are expected to wallop Canadian imports after Donald Trump becomes president — including measures affecting energy trade.
Alberta Premier Danielle Smith didn’t sign on with a joint statement issued by Ottawa and other premiers, following a meeting to discuss Trump’s threat of imposing 25 per cent levies on all Canadian products entering the United States.
And the disagreement puts the issue of Canada restricting energy to the United States — or adding an export levy to oil, gas and electricity — squarely in the spotlight.
“Federal government officials continue to publicly and privately float the idea of cutting off energy supply to the U.S., and imposing export tariffs on Alberta energy and other products to the United States,” Smith said in statement.
“Until these threats cease, Alberta will not be able to fully support the federal government’s plan in dealing with the threatened tariffs.”
The dispute has been percolating for weeks, after Trump began musing about imposing the tariffs on both Canada and Mexico.
After Wednesday’s meeting, Prime Minister Justin Trudeau told reporters that Canada will use “any and all tools” to see potential tariffs lifted.
“The incoming American president specifically and has explicitly targeted one industry in Canada, one sector of the economy, and it’s not the Alberta oil industry. It’s the Ontario auto sector,” Trudeau said.
“We’ll make sure that it’s fair across the country, but nothing can be off the table if the U.S. continues to choose to move forward with these punishing tariffs.”Canada and the U.S. are the largest foreign suppliers of energy to each other, and the systems remain highly integrated.
Energy trade between the two countries was worth US$152 billion in 2023, according to the U.S. Energy Information Administration, weighing heavily in Canada’s favour.
International trade analysts and energy experts say Canada would be playing a risky game if it imposes export taxes or restricts the flow of oil, natural gas or electricity to try to gain leverage as part of a broader trade dispute.
“Using the hockey analogy, why score a set of goals on your own team? It is, quite frankly, the dumbest thing I’ve ever heard,” Fen Hampson, an international affairs professor at Carleton University and co-chair of the Expert Group on Canada-U.S. Relations, said Tuesday.
“If Trump puts the tariff on it, American refiners and consumers are going to scream because they’re going to see it in the pocketbook. Let them do the yelling for us.
“Making the situation worse by sending a message that we’re ready to jeopardize security of supply — that would be totally the wrong message to send.”
Canadian oil exports to the U.S. are climbing, reaching a record 4.42 million barrels per day last week, making up 69 per cent of all imports to the U.S., Reuters reported.
Some analysts anticipate energy will ultimately be exempted from tariffs because it would cause American fuel costs to rise, but after meeting with Trump last weekend,
That leads to the question of how Canada should best respond.
Trudeau said any retaliatory action by Canada must be fair across the country. The premiers’ joint statement said Canada will work on a full range of measures to respond to possible tariffs, along with providing supports for affected sectors, workers and businesses.
Ontario Premier Doug Ford, who has previously spoken about cutting off electricity exports to the U.S., argued for “keeping every tool in our tool box.”
But energy economist Peter Tertzakian noted Canada lacks full energy independence, marked by the inability to easily ship Canadian oil and natural gas to all regions of the country.
Western Canadian oil headed east flows via pipeline through the U.S. and then back into Ontario, while natural gas also moves in both directions, although much more heads south.
“Do we have energy independence in Canada? Well, no,” Tertzakian said in an interview Tuesday.
“We don’t have an east-west pipeline of any consequence, so the oil that we send to Central Canada transits through the United States. The majority of oil that Central Canada gets is from the United States . . . We don’t want to get into an energy tit-for-tat, because they have a lot more levers to pull than we do.”
The U.S. sent 355,000 barrels of oil per day into Canada in 2023, with light crude imported into Eastern Canada refineries, according to the Canada Energy Regulator.
“Talking about putting an embargo on Canadian oil going to the United States doesn’t make any sense,” said Canada West Foundation CEO Gary Mar, Alberta’s former representative to the U.S.
“We can’t just shut down the oilsands, because we don’t have any place to store it.”
And key questions about U.S. tariffs still need to be answered to determine the effect on energy trade.
This includes how large the levy is and if it is applied to Canadian oil and gas being re-exported out of the U.S. to other countries, said James Coleman, a law professor who specializes in North American energy infrastructure at the University of Minnesota.
Also unclear is the appetite of the administration to negotiate a deal with Canada, or if it simply will use tariffs as a tool to raise revenue against a largely captive seller, said Coleman, a former University of Calgary professor.
However, suggestions to cut off oil exports would be self-defeating, as western Canadian oil moves through Enbridge’s Line 5 to Ontario, via Michigan, and interrupting those energy flows would also squeeze Canadian consumers, he said.
“It makes zero sense,” Coleman said.
“It’s not to say that an ugly energy fight wouldn’t be terrible for the U.S. economy as well. It would be but, ultimately, the U.S. has escalation dominance. Ultimately, that trade ends up worse for Canada, however unfair that may be.”
Instead of threatening to cut off energy, Hampson believes the federal government should look at retaliatory tariffs on discretionary consumable items Canadians buy from the U.S., such as on digital streaming services.
It could also put on a travel tax to discourage Canadians from vacationing in states such as Florida or Nevada.
“We’re the smaller party, they’re the bigger party,” said Hampson.
“If we want to retaliate, we shouldn’t do tit-for-tat because that’s just plain dumb, certainly when it comes to energy. And there are other levers we could pull.”
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