President-elect Donald Trump will not be inaugurated until January 20, but he has already started sending strong messages via social media on potential trade actions.

On Monday, Trump threatened via his platform Truth Social that all products exported from Canada and Mexico will be subject to 25% tariffs in retaliation for what he alleges are “open borders,” leading to “an invasion” of crime and drugs into the U.S. via Canada and Mexico.

This isn’t the first time Trump has threatened action and it remains to be seen whether this is part of a negotiating strategy or if it will lead to official policy. That said, this is a strong statement that should be taken seriously.

Our previous analysis questioned whether Canadian oil and gas would face tariffs. A tariff on Canadian energy would undermine Trump's efforts to lower costs and hurt North American energy security.  As Trump’s former U.S. Commerce Secretary Wilbur Ross recently said: “I can’t imagine that [he] would want to tax [Canadian energy] because all it would do would be to raise our costs and not help anything with more American jobs.” That said, Reuters recently reported that oil and gas would not be spared, according to two sources.

The distinction is important. Exempting oil and gas would make Alberta one of the least exposed provinces to tariffs. Energy is by far the largest single export to the U.S., and for Alberta it represents over 80% of the $156 billion in U.S.-bound shipments last year (see the chart below). Canadian crude accounted for 24% of the oil refined in the U.S.

A tariff on Alberta’s oil and gas would raise the cost for U.S. refineries, which would in turn pass those costs on in the form of higher fuel prices for American consumers. Producers would also take a hit, and the light-heavy differential would likely widen as demand for Canadian heavy oil decreases. The ultimate impacts would depend on the duration of the tariffs. The North American energy supply complex is highly integrated, with pipelines sending crude to U.S. refineries equipped to handle specific grades of crude, including heavy oil from Alberta. The longer tariffs are in play, the more likely production is impacted.

Tariffs are not the only oil and gas policy consideration under a Trump Presidency. There is also the possibility that pipeline access could improve with a recent article by Politico noting that Trump may revive the Keystone XL pipeline project “on his first day back in the White House.” The additional egress would provide a major benefit to the Canadian industry, enabling further production gains. However, a major hurdle would be private sector interest in restarting the project given changing market conditions and the need for new permit approvals.

Outside the energy sector, other major exports include food (5.6% of Alberta’s exports to the U.S. last year), chemicals (5.6%), machinery (1.9%), and wood products (1.3%), as shown in the chart below. All these industries would face weaker demand for their products. 

At the macro level, a tariff of this magnitude will raise prices, slowing the pace of, or delaying, U.S. Federal Reserve interest rate cuts and offsetting the boost from fiscal stimulus measures. A weaker Canadian dollar and the possibility of countervailing tariffs would add to inflationary pressures in Canada. Previous modeling suggests a drag of 0.9% on Canadian GDP by 2029, but that was under the assumption of a 10% tariff.  

As we update our forecast later next month, our task is to figure out how much of these threats to incorporate into our base case. Our previous working assumption—that a 10% tariff would apply to all products except oil and gas—now takes on a lower probability and the latest developments introduce a new downside risk. If imposed, this would be a major setback for both the Canadian and Alberta economy. The uncertainty itself around potential trade actions is a headwind to business investment. Our low case scenario from October was intended to capture the risks of an escalating trade war, slowing Alberta’s real GDP growth to only 1.2% in 2025 compared to our base case of 2.8%. But if Trump ultimately proceeds with a 25% tariff, that low case now looks too optimistic.

The implication is clear. Canada will need to move quickly to preserve its trading relationship with the U.S. and prevent full implementation of broad-based tariffs. While expanding trade with other countries is also important, keep in mind the starting point.  Last year, 90% of Alberta’s merchandise exports were sent to the U.S.

Answer to the previous trivia question: For avid trivia readers, you know that we missed the answer to Monday’s question: what is the largest stock exchange in the world by market capitalization? The answer is: the New York Stock Exchange. The answer to Tuesday’s question is: There are 41,505 farms in Alberta (as of the 2021 Census of Agriculture).

Today’s trivia question: In what year did President Johnson and Prime Minister Pearson sign the Canada-US Auto Pact?