Here are Canada’s biggest points of leverage in tariff and trade talks with the U.S.

Canada US trade: Ottawa wields energy exports and raw materials as Trump tariff talks loom

Muhammad Asghar | GlobalBeat

Canada enters potential tariff negotiations with the United States holding $145 billion in annual energy exports and dominance in 13 minerals deemed critical by Washington.

Prime Minister Justin Trudeau’s government listed those resources plus agricultural quotas as negotiating leverage during closed-door briefings with provincial premiers last week.

The inventory emerged after US President-elect Donald Trump threatened 25 percent tariffs on Canadian and Mexican goods unless both nations curb fentanyl trafficking. Canada exports $411 billion in goods to the United States each year, accounting for 76 percent of its global merchandise sales.

Energy shipments represent 35 percent of that flow. Canada sends 3.8 million barrels of oil south daily through pipelines including Keystone and Line 5, according to the Canada Energy Regulator. Ontario Premier Doug Ford told reporters that any US tariff would prompt immediate retaliation against American electricity sold into his province. Ontario imports 1.4 gigawatts from Michigan and New York during peak summer demand.

Federal officials also cited potash, uranium and aluminum as pressure points. Canada supplies 28 percent of US uranium demand for nuclear plants, Natural Resources Canada data show. Nutrien operates the world’s largest potash mine in Saskatchewan; the fertilizer feeds American corn and soybean crops worth $120 billion annually.

Ottawa
Quebec Premier Francois Legault said his province controls 10 percent of global aluminum output. The metal underpins US auto and aerospace sectors. Legault warned journalists that aluminum tariffs would raise costs for Detroit carmakers already facing labor strikes.

Manitoba supplies 60 percent of US nickel imports used in electric-vehicle batteries. British Columbia ships 20 percent of American lumber demand for home construction. Deputy Prime Minister Chrystia Freeland told the House of Commons that these raw materials give Canada “economic veto power” over key US industries.

Trade lawyers note formal retaliation rules limit Canada to matching tariff dollar-for-dollar rather than targeting specific sectors. A 25 percent duty on $411 billion in Canadian goods would collect roughly $103 billion. Ottawa could impose equivalent duties on US agricultural imports worth $28 billion annually, plus energy and manufactured goods.

Saskatchewan Premier Scott Moe said his province exports $17 billion in fertilizer, wheat and oil to the United States each year. Moe told local radio that interrupting those flows would spike US food inflation already running at 3.2 percent. The US Department of Agriculture forecasts grocery prices will rise 5 percent next year without supply disruptions.

Alberta Energy Minister Brian Jean said the province could divert 400,000 barrels of daily oil exports to Asian markets via the Trans Mountain pipeline expansion starting mid-2024. That capacity equals 11 percent of current US imports. Jean warned reporters that Gulf Coast refiners built cracking units tailored to Alberta’s heavy crude and cannot easily replace supplies.

US refiners process 1.8 million barrels of Canadian heavy oil daily, according to the Energy Information Administration. Replacement barrels from Mexico and Venezuela face declining output and sanctions respectively. ExxonMobil’s Baton Rouge refinery depends on Canadian crude for 60 percent of feedstock. Company spokesman Todd Spitler declined to comment on potential supply risks.

Ontario factories ship $190 billion in vehicles and auto parts across the Ambassador Bridge each year. Ford of Canada operates engine plants in Windsor that employ 1,700 workers. Company CEO Beata Surma told reporters that tariffs would add $2,000 to the cost of every vehicle assembled in Canada for US sale. Canada builds 12 percent of North American light vehicles.

Bank of Canada Governor Tiff Macklem warned legislators that reciprocal tariffs could shave 1 percent off Canadian GDP within 12 months. Macklem said the central bank modeled scenarios where loonie depreciation cushions some losses but interest rates would rise to combat import-price inflation.

US Chamber of Commerce Executive Vice President Myron Brilliant told a Toronto conference that American businesses oppose tariffs on integrated supply chains. Brilliant said 47 US states count Canada as their top export customer. Cross-border trade supports 2.9 million American jobs, according to the US Trade Representative office.

Trump’s transition team has not specified whether tariffs would apply to re-exported US components. Canada assembles iPhones and automobiles using American semiconductors and engines. Apple declined to comment on potential duties affecting its Oakville, Ontario distribution hub that handles $5 billion in iPhone sales annually.

Background

Canada and the United States traded $918 billion in goods and services during 2023, making the partnership the world’s largest bilateral commercial relationship. The two nations eliminated most tariffs through the 1988 Canada-US Free Trade Agreement, precursor to the 1994 North American Free Trade Agreement. Disputes periodically erupted over softwood lumber, dairy and aircraft subsidies. Trump imposed 25 percent steel and 10 percent aluminum tariffs on national security grounds in 2018. Ottawa retaliated with duties on US bourbon, motorcycles and orange juice until Washington lifted metals tariffs in 2019.

The United States-Mexico-Canada Agreement replaced NAFTA in 2020 after Trump demanded stricter automotive content rules and dairy market access. Canadian officials accepted a quota system that caps exports of 14 dairy product categories. The pact includes a six-year review clause enabling renegotiation starting 2026. Trump criticized USMCA during his campaign, calling it “one of the worst trade deals” without specifying desired changes.

What’s Next

Trudeau scheduled a White House meeting with President Joe Biden on December 18 to discuss continental cooperation before Trump’s January 20 inauguration. Canadian provincial leaders demanded federal compensation if tariffs hit their exports. Freeland told Commons committee that Ottawa would announce targeted retaliation lists within 30 days of any US duty announcement. Trump’s transition spokesman Steven Cheung declined to confirm whether the 25 percent tariff threat remains active.

Congressional Republicans from farm states warned Trump that agricultural tariffs risk midterm backlash. Senators Joni Ernst and Chuck Grassley of Canada-dependent Iowa said they urged the president-elect to negotiate separate security agreements rather than impose blanket duties. Canadian ambassador Kirsten Hillman plans Capitol Hill briefings next month highlighting integrated supply chains in defense and energy sectors.