President-elect Donald Trump’s pledge to slap new tariffs on goods from Canada, Mexico and China could inflate the cost of producing and buying energy in almost all forms, possibly sending gasoline prices surging and the U.S. energy industry into a tailspin.
Trump did not outline any exemptions — including for oil and gas — in his Monday announcement of a planned 25 percent tariff on products from Canada and Mexico. He cited concerns about drugs and crime tied to illegal immigration, which he said those countries must address.
The former president went after China in a separate post on Truth Social, saying he would plan an “additional” 10 percent tariff on goods from that country because it has not stopped the flow of drugs into the United States. While it’s unclear whether the tariffs will actually be imposed or at what percentages, the uncertainty has already raised the hackles of some in the energy industry, according to Patrick De Haan, head of petroleum analysis at GasBuddy.
“The 25 percent tariff on partners like Mexico and Canada, our biggest trading partners aside from China, this has the potential to be a really big challenge for the U.S. economy,” he said.
Among the tariffs’ biggest impacts on energy would be a spike in gasoline prices, said Al Salazar, head of macro oil and gas research with Enverus Intelligence.
While the U.S. is the largest oil producer in the world, U.S. refineries are often unable to process the type of oil produced domestically. Some refineries were built decades ago so they could process the type of oil that comes from Canada, which is thicker and has a higher sulfur content.
About 52 percent of all petroleum imported to the U.S. last year came from Canada, according to the U.S. Energy Information Administration, with Canada sending an average of 4.42 million barrels a day to the United States. About 11 percent of U.S. petroleum imports came from Mexico in 2023.
Salazar said U.S. refiners’ reliance on Canadian oil isn’t likely to change, even if tariffs make it more expensive.
“I don’t think there’s any other significant competition to serve this heavy crude if I’m a U.S. refiner. I mean, I’m only getting it from Canada. I’ve always been getting it from Canada,” Salazar said. “So if I’m them, I’d probably pay that tariff and then pass that 25 percent I paid right to the consumer.”
That could cause gasoline prices to rise by between 35 cents and 75 cents per gallon in some parts of the country, said De Haan. The increases might be the largest in the Midwest and Rocky Mountain regions, where refineries rely on Canadian oil imports to create gasoline. But prices likely would rise across the board, De Haan said.
“A lot of the refineries in the Great Lakes and Rockies and the Midwest are basically completely reliant on Canadian crude oil to refine,” De Haan said. “And slapping a tariff on that is going to have a significant impact to what refineries pay, and thus, it’s going to have a big impact on what consumers pay.”
On Tuesday, AAA reported a national average of about $3.07 for a gallon of regular gasoline. That was down from about $3.25 gallon a year earlier.
Rethinking refining ties
Some Republicans sought to downplay any imminent threat to the U.S. as investors and foreign leaders sought to digest Trump’s plans.
POLITICO reported that Sen. Chuck Grassley (R-Iowa) — a member of the Senate Finance Committee — said the tariff announcement was a “negotiating tool,” while Canadian Prime Minister Justin Trudeau told reporters he had “a good call” with Trump. Mexican President Claudia Sheinbaum wrote that for every tariff the U.S. imposes, “there will be a response in kind.”
Karoline Leavitt, the incoming White House press secretary, praised Trump’s previous use of tariffs. But she did not address potential exemptions to his latest plans when asked for comments Tuesday by POLITICO’s E&E News.
“President Trump will work quickly to fix and restore an economy that puts American workers (first) by re-shoring American jobs, lowering inflation, raising real wages, lowering taxes, cutting regulations, and unshackling American energy,” Leavitt said in a statement.
But the American Fuel & Petrochemical Manufacturers, a trade group for the refining industry, issued a statement urging carve-outs for its industry.
“American refiners depend on crude oil from Canada and Mexico to produce the affordable, reliable fuels consumers count on every day,” said AFPM CEO Chet Thompson in a statement. “Therefore, we would hope any future tariffs would exclude these critical feedstocks and refined products.”
The tariffs may also cause some Canadian producers to rethink their ties and investments with the U.S., De Haan said.
“It’s just like how Apple built more factories outside of China,” he said. “Because China was getting a bit more hostile and unreliable. Will Canadian oil producers or will the Canadian government say, OK, now is the time where we start to diversify our customers and start to pivot away from supplying the U.S. with millions of barrels of oil per day?”
U.S. natural gas prices won’t be as affected by the tariffs, Salazar said, although prices may rise in parts of the West because much of their gas is piped in from Canada. That may be a boon for natural gas producers near and around the Rocky Mountains, who compete with Canada for market share.
Electricity prices, which are partially based on the price of natural gas, could also rise, but not as much as gasoline prices, Salazar said. About 43 percent of U.S. power was generated via natural gas in 2023, according to EIA, but renewables and coal plants could help offset price increases stemming from rising natural gas prices.
But power generation projects, especially those involving steel or solar panels, could also increase in cost.
Steel and solar
The U.S. is the world’s second-largest importer of steel. More than a fifth of the country’s steel was imported last year, according to the American Iron and Steel Institute. A little more than 32 percent of those imports come from Canada and Mexico combined.
The Biden administration has continued — and in some cases increased — Trump tariffs on steel. Trump in 2018 imposed a 25 percent tariff on steel imports. Meanwhile, a U.S. International Trade Commission report from 2023 shows U.S. production of steel and aluminum increased amid recent tariffs.
Nick Iacovella, senior vice president for public affairs and communications for the lobbying group Coalition for a Prosperous America, said “Mexico has not only welcomed increased Chinese investment post-(United States–Mexico–Canada Agreement) but has also blatantly violated the 2019 joint steel and aluminum agreements,” a reference to an agreement that year to cut tariffs.
Philip Bell, president of the Steel Manufacturers Association, said some U.S. imports of steel are made abroad and are “routed through our USMCA partners to evade U.S. trade laws, duties, and restrictions.”
“American steelmakers can compete with anyone in the world if trade is both free and fair. President-elect Trump has strongly supported the domestic steel industry using tariffs,” Bell said in a statement. “We hope his announcement will bring parties to the table to find reasonable solutions to systemic trade issues and stop the market-distorting behaviors at the root of these problems.”
Solar panels could also be hit with higher prices.
The proposed 10 percent tariffs on Chinese goods would come on top of existing restrictions on solar panels from China. The Biden administration in September finalized tariffs of up 50 percent on photovoltaic solar cells and 25 percent on lithium-ion batteries, building on ones already established under Trump.
Those moves were designed to help boost domestic production of clean energy technology, but drew pushback from some in the industry for raising costs for the installation of solar energy.
In an analysis published in October before the election, Wood Mackenzie’s head of global solar, Michelle Davis, wrote that additional tariffs on imports from China would “undoubtedly increase domestic manufacturing activity to meet market needs, but this would result in a more expensive market for domestic buyers.”
Davis’ analysis found that more protectionist measures could raise solar cell manufacturing by 53 percent by 2027. In the meantime, however, prices could rise and some solar projects could be jeopardized.
The Solar Energy Industries Association, which has raised concerns about tariffs in the past, did not respond to a request for comment.
Tim Brightbill, lead attorney for the American Alliance for Solar Manufacturing Trade Committee, said in a statement that the incoming administration “has had more time to prepare than it had eight years ago, so there is greater awareness of the President’s tariff powers.”
“The President-elect ran on this platform, and so companies and industries should expect that he will implement it quickly, and plan accordingly,” added Brightbill, whose group had previously petitioned the Biden administration to investigate whether Chinese companies were circumventing tariff policies.
Eyes on EVs
Analysts said Trump’s tariffs on Canada and Mexico also would have a chilling effect on domestic automakers’ attempts to make affordable electric vehicles.
A roster of the traditional auto industry’s new, more affordable EVs, from the Chevrolet Equinox to Ford’s Mustang Mach-E to Honda’s Prologue, are assembled at factories in Mexico.
Other EVs available to Americans, including Chrysler’s Pacifica plug-in hybrid, Chevy’s line of electric BrightDrop delivery vans and Dodge’s upcoming electric Charger, are made in Canada.
However, experts had a hard time teasing out the effects on EVs because the tariffs would cause the entire American auto industry to suffer from rising prices.
Under the proposed tariff regimen, “vehicle volumes go down, manufacturers lose scale, and that impacts their ability to lower prices long-term,” said Michael Robinet, head consultant at S&P Global Mobility, which studies auto trends.
“It’s not going to be good for any transition,” he added.
Trump’s threatened tariff would be a “double hit” if the future president also moved to water down or eliminate the Biden-era $7,500 tax credit that Americans get for buying an EV, said Alan Baum, an independent auto analyst in Detroit.
“You take that away, and then you put a tariff on, obviously you are going to decimate those sales,” Baum said.
