For an administration prioritizing U.S. energy production and security, tariffs on Mexican and Canadian goods would be a terrible start.
Donald Trump’s promises of tariffs against Canada and Mexico would be harmful to the U.S. economy, upending numerous cross-border business relationships. Tariffs would violate the terms of the United States–Mexico–Canada Agreement (USMCA) that Trump’s first administration negotiated and that Trump said was “the most important trade deal we’ve ever made by far.” And, unlike at any point in the past, they would affect U.S. energy markets.
Tariffs on our North American allies, if they truly will be on all products as Trump has promised, would affect about 70 percent of U.S. crude oil imports. Danielle Smith, the premier of Alberta (Canada’s top oil-producing province), met with Trump and said she is not expecting any exemptions for the 25 percent tax on Canadian imports.
U.S. energy independence has increased greatly with the advent of fracking. The U.S. is a net exporter of crude oil and other petroleum products. But energy independence is not energy autarky. The U.S. is a major importer of crude oil, with net imports of about 2 million barrels per day. U.S. refineries purchase that oil and turn it into gasoline, diesel, jet fuel, and countless other petroleum products, some of which are exported.
Unlike in the past, when many U.S. energy imports came from the Middle East, the No. 1 source of imported crude oil today is Canada. By far. Almost 60 percent of U.S. crude oil imports in 2023 came from our northern neighbor.
Almost 70 percent of that Canadian oil goes to the Midwest, where it is processed in world-class refineries that employ thousands of Americans. The oil from the tar sands of Alberta is very difficult to refine because of its chemical makeup, and many U.S. refineries in the Midwest are specially built to handle it. Refining is one of America’s key energy strengths, and the sector is integrated with the global marketplace for oil and petroleum products. Refined products are shipped from the Midwest to the Gulf Coast for export.
The second-largest source of U.S. crude oil imports in 2023 wasn’t a member of OPEC. It was Mexico, which accounted for 11 percent of total imports. In 2023, the U.S. imported more than twice as many barrels of crude oil from Mexico as it did from Saudi Arabia.
The influence of Saudi oil on American decision-making is weaker than it has been in decades. “Over the last two years or so, the three largest refining US companies — Marathon Petroleum Corp., Valero Energy Corp. and Exxon Mobil Corp. — have all stopped importing Saudi crude,” Javier Blas writes for Bloomberg. This would have been unthinkable 20 years ago but has now become reality.
“For incoming President Donald Trump, it presents a white canvas to redo foreign policy in the Middle East in ways that his predecessors could only dream of,” Blas writes. That is possible in part because the U.S. has replaced imported oil from the Middle East with imported oil from North America, alongside higher domestic production, which remains at record highs.
On the export side of the ledger, the No. 1 destination for U.S. oil and petroleum products in 2023 was Mexico. Canada was the third-largest buyer of U.S. energy exports. Likely retaliation to U.S. tariffs from Mexico and Canada will cost U.S. energy exporters at a time when Trump says he wants the U.S. to boost exports.
Aside from violating the USMCA, which Trump claims was one of his biggest accomplishments, 25 percent tariffs on all goods from Mexico and Canada would blow up years of progress toward an integrated North American energy market and invite retaliation by the No. 1 buyer of U.S. energy exports. It would not be a good start for an administration prioritizing U.S. energy production and security.