The fact that Trump would not hit Canadian oil with a 25 percent tariff speaks volumes about the importance of Canada's most important natural resource
While US President Donald Trump’s 30 day delay on tariffs for Canada and Mexico may be a temporary reprieve, the proposed tariffs themselves tell us a lot about the enduring importance of Canadian oil to the US. Unlike other goods hit with a 25 percent tariff, Canadian oil would have been tariffed at 10 percent – a clear acknowledgement by the White House of its strategic value.
Canada is the US’s biggest supplier of crude oil, with over 4 million barrels per day flowing south. These exports are critical to US refiners, particularly in the Midwest where up to 70 percent of imported oil comes from Canada. Many US refineries are designed to process heavy oil from Alberta’s oil sands, making Canadian oil a preferred and essential source.
Despite Trump’s broader trade agenda which has been aggressive on imports, the decision to cap energy tariffs at 10 percent shows the US economy needs Canadian oil. A 25 percent tariff on other sectors might be politically palatable but 25 percent on energy would have triggered price hikes at the pump and economic pain for American consumers.
The threat of tariffs had already spooked energy markets, with analysts warning that higher costs on Canadian oil would widen the price differential between West Texas Intermediate (WTI) and Western Canada Select (WCS). That would have hurt Alberta’s producers and cost US refiners more.
The White House’s decision to lower the oil tariff reflects a pragmatic understanding of these dynamics. Unlike industries where the US has more domestic capacity to replace imports, crude oil is a commodity with inflexible supply chains. The US can increase production but can’t quickly replace the kind of heavy oil Canada supplies.
Moreover, higher tariffs would have meant higher gasoline prices, a political liability for any administration. The Midwest, a key electoral battlefield, is particularly sensitive to fuel price changes. If Trump had gone ahead with the full 25 percent tariff on oil, Midwestern consumers would have taken the hit – and the White House surely wanted to avoid that.
What’s the Lesson for Canada?
For Canada, the past few weeks have reinforced a harsh reality: its energy sector is still too dependent on the US market. While the expansion of the Trans Mountain pipeline has opened up new export opportunities to Asia, most of Canadian crude still flows south. That makes the country vulnerable to US policy whims.
Alberta Premier Danielle Smith has already called for accelerating market diversification efforts, new energy infrastructure to the West and East Coasts. Trump’s tariff strategy is a harsh reminder that Canada must prioritize energy security by securing more trade partners beyond the US.
The 30 day delay is a temporary reprieve but the underlying issues remain. Trump’s trade policies are unpredictable and the risk of tariffs is real. The cost of Canadian crude could still go up and the energy product exemption could be retracted at any time.
In the long term, Canada needs to strengthen its position by advocating for policies that recognize its role as a reliable energy supplier. The US refining sector needs Canadian crude and any disruption to this relationship would hurt both sides. That oil was tariffed at 10 percent and not 25 percent is proof of its importance – something Canadian politicians should be using in future negotiations.
For now, the delay gives us a breather but it’s also a wake up call. The US may be Canada’s biggest customer but it’s not always a reliable one.