The Potential Impact of Canada Placing High Export Tariffs on Energy Sales to the USA
While the possibility of Canada potentially setting high export tariffs on energy sales to the USA seems unlikely in the immediate future due to the ongoing North American Free Trade Agreement (NAFTA), it is worth exploring the implications of such a move absent NAFTA. Should the U.S. break or nullify NAFTA, Canada could indeed implement tariffs, potentially leading to significant economic consequences for both nations.
Current NAFTA Context and Energy Dependence
Canada currently supplies over 30 percent of the US imported oil per day, highlighting the importance of NAFTA's provisions that allow for the free flow of energy resources between the two countries. This dependence makes the concept of a tariff a serious concern for maintaining economic stability and mutual prosperity.
Impact on the US Economy
If Canada were to implement a high export tariff on energy sales to the USA, it would likely induce a ripple effect through the U.S. economy. The increased cost of energy could lead to higher production costs for manufacturers, influencing overall inflation and the cost of living for American consumers. This could potentially push the U.S. economy into a recession, especially given the interconnected nature of the North American economies as set out in NAFTA.
The Rivalrous Nature of Energy Markets
It is important to note that the energy market is not controlled by a single player, and OPEC's influence is limited by the availability of alternative sources. The market is highly competitive, with multiple suppliers constantly adjusting their production to meet global demand. As a result, a group of Canadian suppliers acting unilaterally to increase prices would face significant pushback. They would be accused of 'price fixing' and potentially face legal and economic repercussions, thereby proving ineffective in establishing higher prices.
Strategic Value of U.S. Dollars
Energy sales to the USA serve as a crucial source of USD for Canadian entities. By maintaining these sales, Canadian companies benefit from the purchasing power of the USD, which is essential for acquiring American goods and services. Imposing tariffs to collect Canadian dollars would not only be counterproductive but also detrimental to the economic relationship between the two countries. Reducing the supply of American dollars by decreasing sales volumes would only compromise the reciprocal benefits that both nations derive from their energy trade.
Conclusion
While the potential for a high export tariff on energy sales to the USA is chilling under NAFTA, it underscores the deep economic integration of North America. Should NAFTA be broken or nullified, the strategic importance of maintaining this energy trade cannot be overstated. Both nations must work towards strengthening, rather than undermining, the interconnectedness of their economies to ensure mutual prosperity and stability.