Why Energy is Canada’s Trump Card in the Trade War
Earlier this month, John Cena turned heel in Toronto with a brutal attack on Cody Rhodes. It was one of the most shocking betrayals in recent pro wrestling history—something nobody saw coming. That’s exactly how it felt when the U.S. turned on Canada. For decades, the two countries have been close economic partners, deepening ties and removing barriers. Then, almost out of nowhere, Trump’s tariffs threw everything into chaos.
As an economist specializing in international trade, I’ve long championed its benefits: greater efficiency, lower prices and stronger growth for everyone involved. Conventional wisdom holds that energy trade, in particular, is mutually beneficial for the U.S. and Canada. There have been occasional disagreements and regulatory hurdles, but, overall, we have trended toward more economic integration. By 2023, Canada supplied 60 per cent of the crude oil and nearly 100 per cent of the natural gas imported by the U.S. Exports of oil and natural gas to the U.S. alone amounted to $163 billion in 2023, representing 21 per cent of Canada’s total goods exported globally. Canada was also the source of 85 per cent of the electrical energy imported south of the border. Then, with America’s sudden heel-turn, energy switched from a cornerstone of co-operation into a bargaining chip in an escalating dispute.
Canada’s response was, of course, far from unified. Alberta Premier Danielle Smith tried appeasement, opposing an oil and gas export ban and assuming political alignment with Trump would work in her favour. Ontario’s Doug Ford, meanwhile, took a hardline stance. He initially proposed cutting off electricity to the U.S., targeting states like Michigan, Minnesota, Wisconsin and much of the Northeast, which rely heavily on Canadian hydro. He even floated the idea of timing the blackout for the Super Bowl in February. Ford’s logic? If the U.S. wanted to test how much they needed Canada, we’d show them—by plunging them into darkness.
The Super Bowl came and went without incident, but the power-down idea persists. Earlier this week, Ford announced—then quickly walked back—a 25 per cent surcharge on all of Ontario’s electricity exports to the U.S., a move that would affect 1.5 million homes and businesses in several states. It was a reckless notion: there’s no scenario where an export tax helps Ontario, let alone Canada. The government would collect some extra revenue, but the hit to our electricity producers would outweigh those gains. Today, Ford is set to meet with Howard Lutnick, the U.S. Secretary of Commerce, in Washington. Let’s hope it goes well: Canada rolling back its energy exports wouldn’t just be an inconvenience for Americans; it would be an economic and logistical nightmare for us all. That’s precisely why energy is Canada’s trade-war trump card.
Let’s start with what would happen if we pulled the plug on America’s current electricity supply. While this wouldn’t trigger a nationwide blackout, it would lead to rolling outages and severe power restrictions that would affect tens of millions of Americans. Municipalities would likely impose rationing measures, similar to water restrictions during droughts: limiting electricity use during peak hours, shutting off power in certain neighbourhoods at night or restricting energy-intensive appliances. The impact would also vary by region. For example, Dearborn, Michigan, with its heavy manufacturing base, might keep most of its factories running, while nearby Ann Arbor could have major residential blackouts.
If Ontario halts its electricity exports, that excess energy also can’t be rerouted. Our hydro plants would have to ramp down production, potentially leaving Ontario consumers with higher electricity costs. Power grids are interconnected, so reducing supply to the U.S. could also disrupt distribution up here, making local shortages a real risk. What about exporting that hydro to other countries to replace U.S. demand? It’s not possible, geographically speaking. You can’t push hydroelectricity through a pipeline. Every Canadian household already has power, so there’s no alternative domestic market to absorb the surplus. If the U.S. isn’t buying, that electricity simply goes to waste. And, even if Ford reversed course, power plants can’t be turned off and on like a light switch. Restarting operations requires extensive safety checks and weeks to return to full capacity. The province would pay the price long after the dispute was over.
Then, there’s the larger issue of taxing oil and gas exports—or the nuclear option of banning them altogether. Trump seems eager to call Canada’s bluff, claiming that the U.S. can simply fall back on its own supply. Could it? In theory, yes. There are vast reserves in Alaska, Oklahoma, Pennsylvania and Texas, plus offshore deposits in the Gulf of Mexico. (Or, as Trump calls it, the Gulf of America.) But tapping into these sources isn’t so simple.
U.S. oil infrastructure is built around Alberta’s heavy crude, while oil deposits in states like Texas are much lighter. If the U.S. switched to Texas crude overnight, they’d need to spend hundreds of billions of dollars retrofitting refineries and pipelines, a process that could take decades. Then there’s transportation. Alaska’s Prudhoe Bay oil field, the largest in North America, requires a pipeline to move oil south to the rest of the U.S.—but that pipeline would have to cross Canada. If we blocked it in retaliation, the U.S. would struggle to access its own supply. That’s one reason, some believe, that Trump has toyed with the idea of making Canada the 51st state.
If there’s one lesson to be learned from this whole affair, it’s that the U.S. won’t always be a reliable trading partner. We might think that if we just wait another 1,400 days, Trump will be gone and things will return to normal. But who’s to say another president—Republican or Democrat—won’t use the same playbook? If energy was the pressure point this time, what stops the U.S. from going after another resource in the future? For example, as climate change worsens and droughts spread across the American West, the U.S. could turn its attention to Canada’s freshwater reserves.
If we want to reduce our American dependence, broader free-trade agreements with other countries are a start. Japan and South Korea would be top targets in Asia, as both are heavily reliant on energy imports and likely to favour reducing their dependence on volatile regions like the Middle East. In Europe, countries seeking alternatives to Russian pipelines could benefit from Canadian oil and gas exports. The U.K., with its historical ties to Canada and limited domestic resources, could see our energy as a strategic hedge against its own declining North Sea production or its increasing reliance on the continent.
Still, boosting energy trade with new partners won’t solve the problem without substantial infrastructure development. Exporting energy to Europe or Asia requires east-west pipelines to transport it to Atlantic and Pacific ports for shipment. However, for decades, attempts to build them have been held back by interprovincial disputes, as well as concerns revolving around Indigenous land rights and the environment. As a result, proposed pipelines often face legal battles, costly reroutes and delays that make once-profitable projects financially unviable.
If Canada somehow settled those issues, energy exports still face logistical barriers. Oil can be shipped, but natural gas must first be liquefied, which requires expensive liquefied natural gas, or LNG, terminals, and those take a decade or longer to build. We have to remember: it’s not a Trumpian reality where you can snap your fingers and make these things happen overnight. Even with full interprovincial co-operation, Canada would be at least five to 10 years away from meaningfully reducing its reliance on the U.S. market. But, if we don’t start now, we’ll be just as vulnerable the next time America decides to turn the screws.
This trade war is, more than anything, the perfect opportunity to rethink the future of energy in Canada—specifically, how we approach renewable sources. Our oil and gas won’t last forever, yet there’s no clear national plan for what comes next. A critical step forward is properly pricing energy, not just the cost of exploration and extraction, but also the environmental damage caused by fossil fuels. Historically, these downstream costs have been ignored, making dirty energy artificially cheap and turning the market against clean alternatives.
This is where carbon pricing should come in. The Trudeau government had the right idea but failed to sell it. This wasn’t a new tax, but rather the removal of a decades-long implicit subsidy that gave fossil fuels an unfair advantage. Instead of scrapping it, as Pierre Poilievre—and now even newly minted Liberal leader Mark Carney—suggest, it should have been expanded. Without proper pricing, Canada tilts the playing field back toward oil and gas, prioritizing short-term political gain over long-term economic and environmental stability.
Western premiers like Danielle Smith and Scott Moe also need to stop treating Alberta and Saskatchewan as solely oil and gas provinces and start recognizing them as energy provinces. Instead of doubling down on fossil fuels, they should be investing in wind, solar and geothermal while providing tax credits and subsidies for companies making the switch. Alberta has already experimented with carbon capture and storage, but real impact requires a broader commitment, including large-scale tree planting and other carbon-absorbing initiatives.
Politics moves in short election cycles—and now, thanks to Trump, it’s a playing field that can change at a moment’s notice. Energy transformation, on the other hand, takes decades. Even so, Canada can’t afford to be complacent. This isn’t just a trade dispute—it’s a reminder that we need a long-term energy plan that doesn’t hinge on the stability of our closest neighbour. Eventually, they might reach a point where they don’t need us after all.
Moshe Lander is a senior lecturer in economics at Concordia University in Montreal and a former senior economist with the Government of Alberta.
