Trump Tariffs Include 10% Carve-Out for Canadian Gas, Power, Minerals
Feburary 3, 2025 - US President Donald Trump on Feb. 1 followed through on a threat to hit the nation's three largest trading partners with steep tariffs. Energy imports from Canada — including oil, natural gas, electricity, coal, uranium, and critical minerals — were singled out, however, to be taxed at a lower rate of 10%.
Outside of the energy exclusions, Trump's executive orders imposed 25% across-the-board tariffs on imports from Canada and Mexico and a 10% tariff on imports from China. No energy-related exemptions were identified for Mexico or China.
The new tariffs will take effect on Feb. 4.
Canadian Prime Minister Justin Trudeau said Feb. 1 that the country would impose 25% tariffs on C$155 billion worth of US goods in response. Trudeau said the tariffs would go into effect on C$30 billion of US goods starting Feb. 4, and the tariffs applying to the other C$125 billion worth will go live in 21 days to allow Canadian companies to find alternative supply chains.
In a clause addressing potential retaliation against the US, Trump noted that he "may increase or expand in scope the duties" to ensure their efficacy.
Trump asserted that the tariffs are necessary to address crisis-level flows of undocumented immigrants and illegal drugs such as fentanyl into the US. Two different federal statutes authorize the US president to implement economic tariffs to address national emergencies.
Executive orders for Mexico and China were not immediately available at press time.
Cross-border natural gas flows
The Pacific Northwest consistently imports gas from Western Canada, whereas the Northeast and Midwest tend to alternate between net imports and exports, depending on demand and pricing.
Imports from Canada accounted for 89% of supply to the Pacific Northwest in 2024, and 185% of total consumption, with most of the excess gas flowing to Northern California, S&P Global Commodity Insights data showed.
Canadian imports are also important for premium markets like New England's Algonquin city-gates and Iroquois Zone 2, which are prone to price spikes during winter because of limited pipeline connectivity, as happened in January 20254 with prices regularly in double-digits per MMBtu.
January 2025 was a bumper month for Canada-US gas flows. Net flows averaged about 7.6 Bcf/d during the month, the highest monthly net export level since 2008, Commodity Insights data showed early Jan. 31. This accounted for about 7% of total Lower-48 supply, the data showed.
Exceptionally cold weather drove strong heating demand and took some production offline in the United States during January. Meanwhile, Canadian production has remained strong this winter despite record storage inventories, which have generally been pressuring Canadian gas prices.
And the anticipation of tariffs may have already been having an impact on the Canadian gas market.
"The Canadian dollar has depreciated this winter, impacted by various economic challenges facing Canada, including the potential Trump tariffs," Ian Archer, a natural gas analyst at Commodity Insights wrote Jan 29. At the Western Canadian AECO hub, "the January 2025 average spot price ... is nearly identical to that of January 2019, while the equivalent U.S. price is 10 cents lower when converted to American currency."
Gas flows with Mexico are less complicated in that the US consistently exports. US-Mexico flows averaged 6.4 Bcf/d in 2024, accounting for 73% of total consumption in Mexico, Commodity Insights data showed. Even if Mexico opts for retaliatory tariffs, it would have limited alternative supply options to US imports.
US demand for Canadian power imports
Canada is generally a net electricity exporter to the US — except for a period in early 2024 when severe drought impacted hydropower generation. Hydropower makes up most of Canada's electricity generation and power exports to the US, said Hilary Bao, senior analyst at Commodity Insights, in a report Jan. 28.
"In a favorable hydro year like 2022, the US imported a net total of 51.6 TWh of electricity from Canada, a bit more than 1% of total US demand," Bao said. Hydropower should rebound in 2025, she said.
The 25% tariff could decrease demand for the Canadian power, Bao said.
The total value of Canadian electricity exported in 2024 was about CAD$2.7 billion ($1.9 billion), or 30 TWh, according to the Canada Energy Regulator. The country imported about 20 TWh valued about CAD$1.2 billion.
New York state saw the most power imported from Canada in 2024 at 7.7 TWh, according to data from the regulator. The New York Independent System Operator said it is in "close and regular contact" with Quebec and Ontario to ensure a reliable grid and stable electricity flows.
ISO New England said the integration of the US and Canadian power systems "benefits residents and businesses in both countries." ISO-NE states are some of the largest Canadian power importers, with Vermont importing 3.9 TWh and Maine importing 2.3 TWh in 2024.
Leading up to the tariffs, the premiers of two Canadian power-exporting provinces, Doug Ford of Ontario and David Eby of British Columbia, threatened to cut exports to the US if the tariffs were imposed. These provinces, alongside Quebec deliver most of the electricity exported to the US, according to the Energy Information Administration.
Heavyweight metals and minerals suppliers
US tariffs on metals and minerals are widely expected to ratchet up costs for US manufacturers that depend on Canada, Mexico and China for materials, trade experts have said.
The three countries are heavyweight suppliers of metals and minerals to the US and accounted for 41% of the total value of US metal and mineral imports in 2023, according to a Commodity Insights analysis of data from the US International Trade Commission.
US imports included unwrought aluminum, base metals, steel and precious metals.
In cases like aluminum and processed lithium, US buyers may have trouble finding alternative sources not covered by tariffs. By value, Canada accounted for more than half of US imports of aluminum products in the past year and a half, according to US Commerce Department data.
"Today, much of that metal comes from North American trading partners, especially Canada," Matt Meenan, vice president of external affairs at The Aluminum Association, said in a Jan. 31 email. "The US industry sources around two thirds of the primary aluminum it uses every year from Canada, since all US-based smelters, even running at full capacity, cannot produce nearly enough metal to meet demand."
Meanwhile, China accounted for the majority of global refined lithium supply in 2023, according to the International Energy Agency.
These potential trade soft spots have not gone unnoticed.
Canada flagged US dependence on Canadian raw materials in the run up to Trump's tariffs, as it prepared countermeasures, which Prime Minister Trudeau has yet to reveal.
"If they don't get them from Canada, they'll get them from China," said Trudeau, whose government has said everything is on the table in terms of countermeasures. "And if they can't get them from Canada or China, they don't get them from anywhere."
Likewise, Mexico President Claudia Sheinbaum has vowed retaliation in response to the tariffs. The country produces many metals and accounted for 20.6% of global production of silver in 2023, according to S&P Global Market Intelligence data. Silver is a key input in solar panels and is also hoarded as a precious metal.
On the eve of possible tariffs, the Mining Association of Canada warned that US consumers would pay a higher price. Setting aside US imports of Canadian oil products, Pierre Gratton, president and CEO of the industry group, said the US runs a trade surplus in other areas with Canada, including manufacturing.
"Canada's resource sector enables that manufacturing surplus," Gratton said in a Jan. 31 interview. "We're the ones that actually make their manufacturing sector strong and competitive because we're a reliable, secure source of minerals and metals. So we need to impress that upon them."
Canada was the top US source of metals and mineral imports in 2023, valued at $46.97 billion. China and Mexico followed, with US imports valued at $28.32 billion and US$28.18 billion, respectively, according to ITC data.
Still, the US steel industry has expressed support for tariffs, including on Canada, saying they would offset "market-distorting behaviors."
The Aluminum Association has said the US should exempt Canadian aluminum but take measures to tackle "unfair" global trade in aluminum.