The oilpatch is reacting to Donald Trump’s threats to impose a 25 per cent tariff on Canadian goods with a mix of concern and skepticism.
On Monday evening, the U.S. president-elect threatened on his Truth Social platform that on his first day in office, he’ll impose a 25 per cent tariff on all goods entering the U.S. from Canada and Mexico.
This would be until the countries stopped what he claimed was an inflow of drugs and undocumented migrants. (Canada represents a fraction of this total.)
Canada’s No. 1 export to the United States is energy. Total Canadian crude oil exports were valued at $124 billion last year, according to the Canada Energy Regulator, with 97 per cent of that oil destined for the U.S. last year.
“The tariffs, if they went ahead, would lead to contraction, unemployment, recession,” said Dennis McConaghy, a former executive with TC Energy in Calgary.
“The impact to Canada is so severe that it really just can’t be allowed to happen.”
Negotiating tactic?
Industry experts are weighing how seriously to take the remarks, given Trump’s past behaviour. During his previous term in office, he threatened plenty of trade sanctions. Some materialized, while others didn’t, or were short-lived.
Former energy manager Rafi Tahmazian believes the tariffs are, at this point, a negotiating tactic. He noted that Trump has chosen advisers who come from the world of business, not government, and the tenor of their conversation is different than what people typically expect from elected officials.
“Politicians tend to speak with intention and purpose. A businessperson is going to speak with the idea of using it as strategy for the ultimate manoeuvre,” said Tahmazian. “That makes it more difficult to predict what is coming and in what form.”
He thinks it’s good news that immigration and drug policy were behind his reasoning for the tariffs, rather than a more nebulous concern about the U.S. getting a bad trade deal, like he had with the North American Free Trade Agreement.
That, he said, Canada can work with.
“We can fix immigration issues and we can help them with the drug issues, because those are things we support,” he said.
Tariff would hit U.S. customers
Another reason for skepticism: If Trump were to proceed with a tariff on Canadian energy products, it would run counter to his campaign promise of lowering the cost of living for American consumers.
Canada is the largest single source of petroleum and crude oil imports to the U.S., according to the United States Energy Information Administration.
“We’re very dependent upon each other, and there are few alternatives to Canada,” said Richard Masson, an executive fellow at the University of Calgary’s School of Public Policy.
“If you put a tariff on it, you’re not increasing domestic production, you’re not bringing in other countries’ oil, you’re really just imposing a cost on both producers and the consumers that probably results in higher gasoline, diesel and jet prices in the U.S.”
Still, some experts warn that whatever Trump’s intention, it’s worth taking the threat seriously, given how consequential the tariffs would be to the Canadian economy.
Reuters has also reported that it’s not expected the tariffs will exempt crude oil, according to two sources familiar with the plan.
In the near term, Deborah Yedlin, president and CEO of the Calgary Chamber of Commerce, said the threat will have companies thinking twice about reinvesting money into their operations.
“We don’t need that — we already have a productivity problem, we don’t need to deal with a tariff,” Yedlin told CBC’s Calgary Eyeopener.
McConaghy, the former TC Energy executive, predicts that whatever Trump’s intentions, the Canadian government will certainly take his words seriously.
While Trump has previously mused about a 10 per cent tariff on all goods coming into the U.S., this is the first time in years he’s targeted Canada specifically, and has threatened such a large tariff on all goods.
“I expect Justin Trudeau and some ministers to catch a plane to Mar-a-Lago,” McConaghy said.
“This is not a threat that Canada can afford.”
