Trump's Canada tariff threat may be deterred by inflation risks, say oil watchers.

• If President-elect Trump imposes tariffs on Canada, there is a possibility of higher fuel prices, according to industry experts.
• Goldman Sachs stated that U.S. refiners who heavily depend on Canadian oil barrels may experience lower profit margins, which could ultimately lead to higher prices for consumers.
• If Canadian producers are unable to reroute their barrels that would have gone to the U.S., they may experience revenue losses.

If President-elect Donald Trump implements his tariff threats on Canada, higher fuel prices could result, according to industry experts who are uncertain about the new levies.

On Monday, Trump announced that he would implement additional tariffs on China, Canada, and Mexico on the first day of his presidency, as stated on his Truth Social platform. He also revealed that he would sign an executive order on January 20th, imposing a 25% tariff on all imports from Canada and Mexico, which may violate the terms of a regional free trade agreement.

According to Daan Struyven, Co-Head of Global Commodities Research at Goldman Sachs, a 25% levy on Canadian crude exports to the U.S. could result in significant consequences for three groups.

If U.S. refiners can't get Canadian oil barrels, they may have lower profit margins, and consumers may pay more. Additionally, Canadian producers may lose revenue if they can't redirect their barrels that were meant for the U.S.

In July 2024, the United States recorded a new high in its imports of Canadian crude oil, with 4.3 million barrels per day being transported through the Trans Mountain pipeline, as per recent data from the U.S. Energy Information Administration.

If Canadian imports of heavy sour crude are interrupted, refiners in the Midwest, which are better suited to process this type of crude rather than the low sulfur sweet crude produced domestically, may encounter difficulties in switching.

The imposition of a 25% tariff on Canadian energy exports could have significant consequences on trade flows, according to Struyven.

Citigroup noted in a report that Mexico and Canada have "notable tightly integrated linkages" with the U.S. in the oil, natural gas, and auto industries, following Trump's announcements this week.

According to Energy Strategist Eric Lee, the absence of carve-outs would result in increased costs for both U.S. refiners and consumers.

According to Goldman, it is unlikely that the tariffs will be implemented as announced because the Trump administration is focused on reducing energy costs.

Viktor Shvets, global strategist at Macquarie Capital, stated that Trump must prevent inflation from spiraling out of control in the 15 months leading up to the midterm election season. Shvets believes that tariffs are used as a bargaining chip to achieve specific objectives, such as strengthening borders.

Shvets stated that he does not believe there will be a significant increase in overall tariffs as it would be a tax on U.S. domestic manufacturers and exporters.

Canada's trade bodies have shared their concerns, too.

Lisa Baiton, CEO of the Canadian Association of Petroleum Producers, reportedly stated that Canadians must remain vigilant about the President-elect's pledge for blanket tariffs.

Alberta's premier, Danielle Smith, who oversees the largest crude production in Canada, stated that the Trump administration has legitimate concerns about illegal activities at our shared border. She urged the federal government to address these issues promptly to prevent any "unnecessary tariffs" on Canadian exports.