Could a Full-Blown U.S.-Canada Energy Trade War Erupt?

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Written by John Egan for IIR News Intelligence (Sugar Land, Texas)

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Summary

The U.S.-Canada trade and tariff conflict is either an elaborate game of signaling, the beginning of the end of mutually beneficial trade between the two countries that started before the Revolutionary War or something in between. Cross-border energy trade might be dragged into the spat. Only time will tell.

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Energy's Role in U.S.-Canadian Trade

Canada is the United States' second-largest trading partner. Last year, about US$880 billion in combined goods and services crossed the border, with the U.S. importing about US$454 billion from Canada last year and exporting approximately US$426 billion of goods and services, according to the Bureau of Economic Analysis (BEA), a branch of the U.S. Department of Commerce.

Tariffs announced last week by President Donald Trump, and this week by Canadian Premier Mark Carney, could, unless reversed, be applied to about 5% of that value, roughly US$40 billion, evenly split between goods each country imports from the other. Services were exempted from the latest round of tariffs. For more on that, see August 27, 2026, article -- Energy Spared in U.S.-Canadian Trade War.

There is a significant energy trade between the U.S. and Canada.

U.S.-Canadian energy trade has been widely discussed in Canada in recent days, though so far it is not on the table. Instead, food, hockey sticks, liquor, metals & minerals, cars and automobile parts have been the focus of new tariffs announced by Trump and Carney.

In a market snapshot from May, the Canada Energy Regulator (CER) noted a network of dozens of pipelines transport crude oil, natural gas, natural gas liquids (NGLs), and refined petroleum products (RPPs) between Canada and the U.S. along with fleets of rail, marine, and freight vehicles. Additionally, 86 international power lines move electricity between provinces and U.S. states.

At the current exchange rate (1 Canadian dollar equals about 72 U.S. cents), CER said Canada exported about C$157 billion of crude oil, refined petroleum products, natural gas and NGLs to the U.S. in 2025, or approximately 6.9 million barrels of oil equivalent per day (BOE/d). That works out to about US$113 billion. Most of that, about US$90 billion, is crude oil, according to data from the U.S. Energy Information Administration (EIA).

In return, CER said Canada imported about US$25 billion of crude oil, refined petroleum products, natural gas and LNG last year. That works out to approximately 1.3 million BOE/d the agency estimated.

Electricity cross-border trade also is significant, though less than hydrocarbon trade. Canadian electricity exports to the U.S. totaled about C$3.3 billion last year, or about US$4.6 billion. Canadian power sales to the U.S. was roughly 32.7 terawatt-hours (TWh) in 2025. Canada imported about 22.1 TWh of electricity from the U.S. in 2025, worth about US$1.9 billion.

But unlike Canada's hydrocarbon exports, which are refined and used across the U.S., Canada's electricity exports were concentrated in a few states, namely New York, Michigan, Minnesota, Vermont and Maine.

By the Numbers

• US$40 billion: The value of the current tariffs that the U.S. and Canada have announced on the other county's imported goods. Energy trade flows are not part of this sum
• 6.9: Million barrels per day of oil equivalent per day (BOE/d) of crude oil, refined petroleum products, natural gas and natural gas liquids that Canada sold to the U.S. in 2025
• US$113 billion: Value of Canadian crude oil imported by the U.S. in 2025
• US$13 billion: Value of U.S. refined petroleum exports sold to Canada in 2025
• US$6.5 billion: Value of U.S.-Canadian electricity trade in 2025. Slightly over two-thirds of that sum reflects U.S. imports of Canadian electricity

The Road Ahead

At this point, it seems there are three basic options for predicting how the current U.S.-Canada trade and tariff wars could unfold:

• The countries could agree to call off the dispute and resume bilateral trade and tariff negotiations with no preconditions.
• The countries could continue to proportionally increase tariffs or trade restrictions, until one surrenders.
• One country, or both, could push the proverbial "nuclear" button and dramatically escalate the dispute by putting cross-border energy trade and tariffs on the table. Then, unless an off-ramp is created, a truly destructive, no-holds-barred trade war will erupt.

In the days after Trump announced his newest round of tariffs on Canada August 21, Ottawa's Premier Douglas Ford signaled a desire to put Canadian energy exports to the U.S. on the table. Then, both leaders traded insults across the border, pouring metaphorical gasoline on a fire. Predicting whether a full-blown energy trade war will erupt is dicey, owning to a number of factors. But if the Cold War is any guide, pressure is growing for cooler heads to prevail.

Key Takeaways

• Although cross-border energy tariffs and trade restrictions have not been part of the current tit-for-tat dispute between the U.S. and Canada, there is no guarantee that it will remain off the table.
• On a dollar basis, the U.S. imports more energy from Canada than Canada imports from the U.S., suggesting that the U.S. has more to lose if Canada enacts energy tariffs and trade restrictions.

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