Energy Spared in U.S.-Canadian Trade War

Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

Summary

The Canadian government left energy off the table in its response to U.S. tariff threats. But an integrated supply chain has caused concern among labor unions fretting over whether or not the escalation in tensions is even justified.

'Canada Was Never the Problem'

To the concern of the labor unions, Canada responded to 50% tariffs imposed last week by the U.S. government with its own dollar-for-dollar, tit-for-tat measures that would largely impact aluminum and steel.

Up to US$40 billion of trade between the two countries could be affected. Energy, potash fertilizer and electricity were spared in what's become an all-out trade war between neighbors that previously shared one of the friendliest borders in the world. The collapse last week of trade talks sparked a round of personal insults between U.S. President Donald Trump and Ontario Premier Doug Ford.

Ontario is a major supplier of electricity to the United States. Ford in May had announced a 25% surcharge on electricity that he said would impact 1.5 million homes and businesses in Michigan, Minnesota and New York, to the tune of $400,000 per day.

While energy was left off the table, the connectivity of midstream oil and gas networks exposes the degree to which both economies are integrated. North American pipeline routes mean Canadian oil runs through U.S. Great Lakes states before entering Ontario.

Industrial Info Resources is monitoring four refineries in Ontario, with the bulk of those situated in the city of Sarnia on Lake Huron. Imperial Oil's refinery in Sarnia can process 120,000 barrels per day (bpd). The Industrial Info Resources Global Market Intelligence (GMI) Petroleum Refinery Database offers a detailed plant profile.

Fish and dairy products were on a lengthy list of sanctioned U.S. items published by the Canadian government. But Canadian tariffs largely targeted steel and aluminum imports from the United States, which could have a deep impact on a North American supply chain where vehicles cross borders several times before winding up on the showroom floor.

On Tuesday, the international arm of the United Steelworkers and Association of Machinists and Aerospace Workers sent a letter to U.S. Trade Representative Jamieson Greer calling for reconsideration of the latest tariffs on Canada. Brian Bryant, the head of the international machinists union, said unfair trade should be addressed, but Canada was never the problem.

"Canada is one of our closest economic partners, and we urge the administration to work with the Canadian government to preserve the integrated manufacturing relationship that supports workers on both sides of the border," he said.

For just steel, the United States is heavily dependent on Canada. Data from the U.S. Department of Commerce show U.S. imports of Canadian flat steel was 6.7 million metric tons through June, compared to the second-largest supplier, South Korea, which delivered barely half of that.

For aluminum, Industrial Info Resources data show much of the operations in the United States are centered in Canadian border states Michigan and Ohio. Auto giant General Motors runs an aluminum foundry in Saginaw, near Michigan's western shore, that can churn out around 59,600 tons per year.

The United Auto Workers labor union also expressed frustration with the trade disputes.

"If we're going to increase tariffs anywhere, it should be on countries where automakers continue to offshore jobs because they can pay workers $3 an hour, force them to work in unsafe conditions, and crack down on independent unions," it said.

Already, some small businesses are forced to ask customers to reconsider their orders in the face of the new surcharges, based on various interviews in the Canadian press.

Lots of Bluster from Two Former Friends

Trump enacted a 50% tariff on a variety of goods, threatening even more pressure come January. Canadian tariffs won't go into effect until September 8.

The Canadian and U.S. economies are highly connected. While spared from tariffs, U.S. refiners are largely tooled to run a heavier slate of crude, leaving them highly dependent on Canada for supplies. Canadian oil accounts for about 60% of total U.S. imports, showcasing the deep integration.

To that end, Canadian Prime Minister Mark Carney has set his sights on not only curbing U.S. trade, but also establishing Canada as an energy superpower. Both coasts are primed for expansion, with the Pacific Coast market already tapping Asian economies by way of liquefied natural gas.

For a look at the U.S.-Canada cross-border trade in energy, and what could happen if energy joins hockey sticks, cars, steel and aluminum in an all-out trade brawl, see the Thursday, August 27, article - Could a Full-Blown U.S.-Canada Energy Trade War Erupt?

Carney's strategy may be paying off. Industrial Info Resources data show the largest oil-production project in Canada by investment value is the US$12 billion Bay du Nord program off the coast of Newfoundland and Labrador, led by Norwegian energy company Equinor. First oil is expected in 2031.

From the Pacific Coast, a bilateral agreement between the federal government and Alberta outlined plans for a new crude oil pipeline that would carry as much as 1 million bpd.

Federally-owned Trans Mountain will take the lead on the project, alongside Pembina Pipeline Corporation. The artery is expected to follow the existing Trans Mountain pipeline from Alberta to British Columbia, the only network that can currently deliver Canadian oil outside of North America.

By the Numbers

• 6.7 million: Metric tons of Canadian steel imported into the U.S. market through June
• 1.5 million: U.S. homes and businesses impacted by Ontario tariffs earlier this year

Key Takeaways

• Fish, cars, steel, aluminum ... Canada has a list of 800+ targeted entities.
• Labor unions have been sounding the alarm for much of the year.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).