Tariff Impact...?

Starting March 4th, the U.S. imposed a 25% tariff on all imports from Canada and Mexico that do not satisfy the U.S.-Mexico-Canada Agreement (USMCA) rules of origin, except Canadian energy products, which were subject to a lower 10% tariff. The U.S. is Canada’s biggest importer of crude oil and natural gas. In 2023, Canada exported over 80% of its total oil supply and roughly 45% of its natural gas supply to the U.S. As oil and natural gas are extracted and produced in Canada, they qualify for USMCA rules of origin. However, exporters must actively claim USMCA preference to benefit from preferential tariff treatment.

Photo credit: The Logic 

North American Grid Connection 

Besides oil and natural gas pipelines, the U.S. and Canada have been trading electricity through power lines for over a century. Instead of one region overbuilding to meet peak demand year-round, both countries could coordinate to use surplus power when not in use. For example, Canadians use more electricity in winter for heating, while U.S. demand peaks in summer for cooling. By balancing demand, both regions can avoid unnecessary overbuilding. While cross-border electricity accounts for less than 1% of total power generation, it is crucial for meeting consumer demand. Moreover, a larger system is more resilient against disruptions and power outages.

Under USMCA, the electricity flow between the U.S. and Canada is exempt from Tariff. However, in response to President Trump's tariffs on Canadian goods, Ontario Premier Doug Ford imposed a 25% surcharge on electricity exports to U.S. border states like New York, Michigan, and Minnesota. He later canceled the surcharge after Washington threatened to double tariffs on Canadian steel and aluminum.

As long as Canadian oil, natural gas, and electricity meet the USMCA rules of origin, these key energy exports will continue to flow tariff-free to the U.S.