Trump’s Tariff Threats Could Prompt Canada to Break Free from Oil

While Canada’s fossil fuel lobby and its political allies seize on Donald Trump’s return to tout new pipelines and expand oil and gas production, a chorus of other voices have been spotlighting the flaws in their argument—and pointing to surer ways to secure Canadian sovereignty.

With Trump trash-talking Canada and rumbling on about the country becoming a 51st U.S. state, most recently in a broadcast address to last week’s World Economic Forum in Davos, most Canadian political leaders have put up a non-binding but united front against the threat of a 25% tariff on U.S. imports. Industry Minister François-Philippe Champagne responded to Trump with a social media link to U.S. Census Bureau data identifying the nearly two-thirds of U.S. states that count Canada as their biggest export trading partner—and would therefore be most vulnerable to retaliatory tariffs or export duties if Trump forced Canada to take such action.

The outlier was Alberta Premier Danielle Smith, who rejected a unified response to Trump’s threats, then renewed her call for diplomacy, not retaliation, the day after he took office Jan. 20. In the same virtual news conference, Smith touted Trump’s (likely fatally flawed) vow to “Drill, Baby, Drill” as a moment of opportunity for Canadian oil and gas.

With that moment set to go by “in a flash” as Trump’s four-year term plays out, “the only way they can do that with their significant energy demand needs at home is to have a reliable partner to be able to backfill for them. That’s us,” Smith declared.

“All of the pipeline companies are dusting off proposals,” she added, “and I think there’s a few interesting ones that could be moved on very, very quickly.”

Smith’s position had some commentators taking her to task for abandoning Canada at the worst possible time. Smith “has never hidden her true allegiances. She has always been Alberta first, Canada second,” wrote Globe and Mail columnist Gary Mason. But her decision to opt out of the non-binding declaration “was one of the most objectionable decisions a Canadian premier has taken in decades, especially during a national crisis like the one this country faces.”

Calgary Herald opinion writer Tara Klager said that Smith’s position showed she would protect oil and gas at the expense of every other industry—across Canada, and in Alberta itself.

“Smith is telling oil and gas, I’ve got your back. She’s telling [Alberta oil sands companies] Cenovus, Suncor, Imperial, CNRL, etc., that they’ve got a friend in her,” Klager wrote.

“But what about every other sector in Alberta that will be affected by 25% tariffs? Such as agriculture. A C$55-billion industry—top exports being canola oil, beef, live cattle, processed potatoes, and feed. And it’s not just ag. What about mining? What about tourism? What about softwood lumber or any number of other export-focused industries?”

‘Energy Interdependence’ No More

Smith wasn’t the only one angling to turn Trump’s win into a new oil and gas boom. But multiple analysts also painted a picture of a new reality—where a quarter-century of counting on “continental energy security”, reinforced by a transborder network of pipelines and oil refineries to protect both Canadian and U.S. economic interests, has come to an end.

“The website of the Canadian Association of Petroleum Producers is still littered with references [not currently visible on the CAPP website—Ed.] to the now-obsolete notion that increasing interdependence with the U.S. would make Canada safer,” wrote CBC senior reporter Evan Dyer. “Too late did Canada realize that the threat would come from inside the house—that Americans would elect a president who saw Canada not as a partner, but as a target for extortion and even annexation.”

The news report plays out the geographic factors that would enable both countries to retaliate back and forth by cutting off each other’s pipeline access. “It’s going to be very, very difficult for the United States to replace Canadian heavy oil supply,” Calgary-based energy security analyst Joe Calnan told Dyer. “But there’s a question of whether it’s going too far. We need to be frank here that this would be a very extreme move to actually cut off oil. And we should anticipate a very strong political response from the United States if that ends up being the path we go down.”

“I see energy as Canada’s queen in this game of chess,” Newfoundland and Labrador Premier Andrew Furey told media earlier this month. “We don’t need to expose our queen too early. And the opposition does need to know that the queen exists. But they don’t need to know what we’re going to do with the queen.”

Yet 82% of respondents told the Ipsos polling agency they would support retaliatory tariffs, Global News reported last week. “An overwhelming majority of Canadians think their country should fight fire with fire if Donald Trump carries through on his threat to impose a sweeping 25% tariff on Canadian goods and services sold into the U.S. market,” the TV network wrote.

That indignation took many forms—from Quebec “snowbirds” selling their Florida properties and vowing to migrate back north, to analysis challenging Trump’s ludicrous insistence that the super-sized trading relationship between the two countries means the U.S. is subsidizing Canada.

“Trump’s claim Canada is subsidized by the U.S. is laughable—and Trump’s economic team certainly knows it,” wrote economist Jim Stanford, director of the Centre for Future Work, in mid-January. “Indeed, in at least three ways Canada is clearly subsidizing the U.S., through trade arrangements that diverge from normal international trade or business practices”: including “large shipments of secure, lower-cost energy”, net imports of “weakly regulated, underreported, and largely untaxed” services from the U.S. to Canada, and low-interest loans from Canadian investors that are “fully equivalent to the bilateral trade deficit.”

Stanford added that Canada is the biggest market in the world for U.S. exports, at US$440 billion in 2023, accounts for only 5% of the U.S. merchandise trade deficit, and makes up for it through investment flows and by importing U.S. services that are only reflected in trade statistics.

Breaking Free from Oil

The other line of argument is that this is the moment for Canada to shrink its economic dependence on the United States—and break free from oil—once and for all.

“As Europe did in response to Putin’s invasion of Ukraine, we need to rapidly make ourselves less dependent on oil and gas,” Climate Emergency Unit Team Lead Seth Klein wrote on LinkedIn. “Fossil fuels are a poison, not only to the Earth but to democracy, and the more reliant we are on these products, the more it serves the petro-oligarchs and their political servants like Putin and Trump.”

In its acceptance of Trump’s threats, Klein added, “the oil and gas industry is being revealed as treacherous; after wrapping themselves in the Canadian flag for years, turns out they are ready to roll over and become the 51st state on a dime.”

So “now is the time to redouble on renewables, and to be rid of the fossil fuel industry once and for all. If we are about to spend a bunch of public money on tariff bailouts, then unlike during the financial crisis of 2008/09 and the pandemic, can we finally learn our lesson and ensure we are using these public investments to leverage real change?”

In a blog post last week, Social Capital Partners CEO Matthew Mendelsohn presented a vision of what that change might look like.

“Our playbook so far—some combination of making the case to Americans that they need us and preparing retaliatory trade action—is not enough. It isn’t even for the right game,” he wrote. “We need to start by recognizing that the U.S. is no longer a reliable partner or friend, and begin reorienting our economy accordingly.”

That means embracing a “strategic industrial and economic policy focused on building Canadian wealth, data sovereignty, industrial capacity, scientific and technological excellence, natural resource leadership ,and intellectual property,” he added. “It sucks to be us, but let’s get on with the work of changing the mental maps that shape how we understand our relationship with the U.S.”