As discussions intensify surrounding the potential for tariffs in response to threats from former President Trump, both Canada and the U.S. find themselves in a complex geopolitical landscape. The looming threat of imposing tariffs on crude oil could lead to significant repercussions on both sides of the border.
Canada’s Strategic Response
In navigating these turbulent economic waters, Canada has several strategies at its disposal. One of the most potent options is the decision to withhold, decrease, or introduce export tariffs on its energy resources.
This tactic has already sparked debate within the country, notably causing a rift between Alberta’s provincial government and the federal government, as well as the other provinces. While tariffs on imports from the U.S. may inflict some pain in specific sectors, Prime Minister Justin Trudeau has observed that the impact of Canada’s import tariffs would likely be diminished by the sheer size of the U.S. economy.
Conversely, manipulating Canadian resource exports could inflict notable economic discomfort in the U.S., albeit at a considerable cost to Canada itself. Sanjay Jeram, a senior lecturer of political science at Simon Fraser University, noted, “The hope is that the mere threat of these actions will prompt negotiations.”
He emphasized that the Canadian government holds constitutional powers that allow for such measures, signaling that the imposition of export tariffs on oil and gas remains a viable option.
Internal Divisions and Their Implications
However, internal divisions in Canada, particularly highlighted by Alberta Premier Danielle Smith’s stance, may undermine the country’s bargaining power. Jeram raised concerns that this fragmentation could lead Trump to perceive a lack of unity within Canada, which might embolden him to opt for a more aggressive stance in negotiations.
“The demonstration of discord within Canada could weaken our position significantly,” Jeram observed.
Canada’s Leverage Points
Despite the internal challenges, there are indications that Canada’s most formidable leverage in a trade conflict lies not in what it chooses to import from the U.S., but rather in what it might restrict from export.
As stated by Lawrence Herman, an international trade expert and former diplomat, oil stands as Canada’s most impactful bargaining chip. While focusing solely on the oil sector, Herman reminded us that Canada possesses other resources—such as critical minerals and steel—that could also exert pressure.
He suggested that the government consider cutting off electricity exports, particularly those that Northern U.S. states heavily depend on, as an immediate source of leverage.
The Political Ramifications of Gas Prices
Even as Canada weighs its options, U.S. political dynamics play a crucial role. Historical analyses have shown that fluctuations in gas prices significantly influence presidential approval ratings. A Stanford University study notes that for every 10-cent increase in gas prices, a U.S. president tends to lose 0.6% in approval ratings.
With gas prices already a focal point in political discourse, Canada could potentially capitalize on this issue. The challenge lies in determining whether Canada could exert enough financial pressure to impact U.S. consumers, prompting them to voice their concerns to their representatives.
The Complexity of U.S. Oil Refining Needs
An essential aspect to consider is the U.S. refining industry’s dependency on Canadian crude. Although the U.S. produces more oil than it consumes, the “mismatch” between its production capabilities and refining infrastructure presents a vulnerability.
Many U.S. refineries, numbering around 130, are configured to process the specific types of crude oil that Canada supplies, which limits the ability to substitute these imports quickly.
Conclusion
As tensions escalate over potential tariffs and trade strategies, the implications for both Canada and the United States are significant. Each side’s approach could reshape economic landscapes, not just in their bilateral relationship, but also impacting domestic politics in the face of critical upcoming elections.
Understanding this interplay is vital for stakeholders and policymakers as they navigate these challenging waters.
