Boosting oil exports central to Canada's charm offensive on Trump

In an attempt to avoid U.S. tariffs, Energy and Natural Resources Minister Jonathan Wilkinson is pitching U.S. lawmakers on an energy and minerals alliance that could see oil exports ramp up — and threaten both countries’ need to decarbonize.

Wilkinson’s charm-offensive meetings with U.S. Senators John Hickenlooper of Colorado, Kevin Cramer of North Dakota, and Ted Cruz of Texas, among others, come as incoming President Donald Trump threatens sweeping 25 per cent tariffs. If those tariffs are imposed, economic analysts predict Canada will suffer a six per cent hit to its GDP — triggering the largest recession in decades outside of the onset of the Covid-19 pandemic.

Speaking at the Wilson Center, a Washington DC headquartered non-partisan foreign policy think tank, Wilkinson emphasized Canada and the United States enjoy a strong trade relationship and wrapped Canada’s contribution to the American economy in stars and stripes. 

The two countries are close partners on border security, military cooperation, energy and natural resources, all of which help the United States counter their adversaries, from Russia to China to Venezuela, Wilkinson said. On energy, Canadian electricity that flows across the border powers the equivalent of 6 million homes, Canadian uranium powers another 20 million homes, and every day, four million barrels of oil flow to U.S. refineries designed to handle the heavy crude. Mid-western U.S. refineries have no economically viable alternatives to Canadian oil, while Gulf Coast refineries’ only alternative is to purchase crude from Venezuela — “hardly a friendly or stable partner,” Wilkinson said. 

Wilkinson reminded his American audience of their own country’s vulnerabilities. After all, Canada can’t sit idly by if tariffs are slapped on goods, he said.

“As a sovereign democratic nation that must protect its own national interests, the unwarranted imposition of tariffs on Canada will necessarily require a response — and it is ultimately the people of our countries who will pay the costs,” he said. An alliance to increase energy and mineral trade is a more preferable alternative to trade war, he suggested. 

“We can enhance the flow of Canadian crude oil from Alberta to assist with the Trump Administration’s goal of energy dominance, by working together on projects such as enhancing the capacity of the Enbridge Mainline and others,” Wilkinson said, suggesting Enbridge’s Line 5 (which Michigan has been trying to decommission) could be another option.

Premiers divided

If oil and gas exports are leverage for the federal government to use in negotiations, Alberta Premier Danielle Smith is clear she doesn’t want Ottawa to use it. 

“Federal government officials continue to publicly and privately float the idea of cutting off energy supply to the U.S. and imposing export tariffs on Alberta energy and other products to the United States,” Smith said in a statement, published after the country’s premiers met with Prime Minister Justin Trudeau Wednesday. “Until these threats cease, Alberta will not be able to fully support the federal government’s plan in dealing with the threatened tariffs.”

Alberta did not join other provinces and the federal government in a joint statement agreeing on next steps. Trudeau is not ruling out cutting oil and gas exports to the United States if Trump makes good on his tariff threat. 

Oil is clearly a pressure point in this dispute, and the showdown between Smith and the country’s other premiers only underscores that, said Asa McKercher, research chair of Canada-U.S. Relations at St. Francis Xavier University, in an interview with Canada’s National Observer. 

“When Trump talks about the trade deficit it is because of the price of oil, because it is our biggest export, so it's not surprising in that sense,” he said. But, “Danielle Smith is just giving the middle finger, basically, to the rest of Canada.”

Hadrian Mertins-Kirkwood, senior researcher with the Canadian Centre for Policy Alternatives, told Canada’s National Observer that any talk of increasing oil and gas production is bad news for the climate. Climate science is clear: burning fossil fuels must be phased out to avoid catastrophic warming. The longer the energy transition is delayed, the steeper the costs will be. 

However, he said while Canadian and U.S. officials squabble over who will supply oil to markets, the more important long-term question is who will buy it. The International Energy Agency expects global oil demand to peak within the next 10 years, while North American oil demand may have already peaked and is now in decline, he said. 

For that reason, “I'm not sure we're going to see a big boom in fossil fuel production either in the U.S. or Canada no matter what they agree to in this proposed energy partnership,” he said. “In the long term the world is decarbonizing. It's happening slower than we need to, but faster than a lot of people think it is.”

If Trump tariffs are imposed, one scenario worth considering is the “crisis-opportunity” presented, Mertins-Kirkwood said. When Russia invaded Ukraine, European countries initially scrambled to secure new gas to replace Russian gas. But, ultimately they decided the smarter decision was to accelerate the energy transition to be less dependent on fossil fuels. Canada could soon face a similar choice. 

“The crisis is not good, but if you imagine over the next 12 months our energy sector is devastated by American tariffs, we have an opportunity,” he said. If “we've already lost half the jobs, we’ve already lost half the investment in this sector, do we really want to build that back up or should we take this opportunity to pivot while we're down? 

“That's going to be an important strategic conversation if the worst comes to pass.”

Waves of protectionism

The tariff crisis today echoes a problem as old as Canada itself. Since the 1860s, various waves of U.S. protectionism have threatened Canadian industries, and what to do about it has historically been a public debate in Canada. 

The Canadian economy being “subservient” to the U.S. economy is a longstanding problem, and the path away from dependency on the U.S. is economic diversification, Mertins-Kirkwood said. That could entail Canada increasingly trading with other countries to lessen its dependence on the U.S., or Canada changing its economic strategy to do more value-added processing of raw materials domestically. Today, Canada tends to export raw materials to the U.S. which processes them and sells manufactured goods for more internationally, including back to Canadians. 

Both are viable forms of economic diversification that don’t seem to be in the public conversation today, he said. Rather we’re seeing the opposite, where Canadian officials are trying to entrench oil and gas further in the Canada-U.S. trade relationship. 

“Trade diversification, industrial diversification, preparing for a global decarbonized economy that's not tied to the U.S. and U.S. fossil fuels … It's maybe the harder choice, but it's ultimately the conversation we need to be having,” he said.

McKercher said economic diversification could very well be on the table. By purchasing the Trans Mountain pipeline expansion project and supporting West Coast LNG development, the Trudeau government has attempted to help Canadian fossil fuel companies reach new markets in Asia. And many in the Conservative Party want to ramp LNG exports up, with Conservative Leader Pierre Poilievre telling far-right influencer Jordan Peterson earlier this month in an interview, as well as supporters in Powell River this week, that Canada should export gas to India as the world’s most populated country plots its coal phase out. 

“So it'll be interesting to see how much these oil companies and energy companies follow the kind of guidance of governments, in terms of not investing all their eggs in the American basket,” McKercher said. 

Even if there are ideas floating around on how Canada could diversify its economy, McKercher said much of Canadian foreign policy is about preserving market access with the United States and often driven by immediate needs at the expense of big-picture thinking. 

“Our relationship with the United States is so massive and takes up so much time to the exclusion of so much else,” he said. 

“We should ramp up our trade and investment in Africa, Latin America, Caribbean and Asia, and we've kind of paid lip service to the idea, but then never really put a lot of effort behind it.”