When President Donald Trump said yesterday afternoon that 25% tariffs on Canada and Mexico would take effect today — and furthermore that there was no room left for last-hour compromise with either country — stocks tumbled immediately. The drop erased all of the market’s gains since Trump won November’s election.
The tariffs were initially announced over a month ago, though both Canada and Mexico negotiated month-long delays. And while 10% tariffs on China took effect last month, an additional 10% levy took effect today, worsening the mounting trade war between the two countries. Canada, China, and Mexico are the United States’ most important trade partners — and all supply materials or equipment key to the energy sector.
Canadian energy resources, including electricity flowing cross-border, are subject to a lower, 10% rate. In response, the premier of Ontario initially said the province will cut off electricity exports to the U.S. entirely; he has since softened that to a 25% export tax. The Ontario grid connects to every grid in the U.S., other than ERCOT — and relies on much cleaner energy than the U.S. grids do. New York, Michigan, and Minnesota are particularly big customers.
Ontario Premier Doug Ford told reporters on Monday that the province will match the U.S. tariff for tariff. “We’re going to stand shoulder-to-shoulder no matter who’s in the federal government,” he said, according to reporting from the Toronto Sun. “I [didn’t] start this tariff war, but we’re going to win this tariff war.”
Meanwhile, Canadian energy minister Jonathan Wilkinson told CNBC this week that U.S. consumers will face higher gasoline and electricity prices as a result of the tariffs.
The escalation of trade tensions is at odds with the needs of the energy transition. The United States has countries in East Asia, and especially China, to thank for major improvements to solar and storage technologies. And as the U.S. has increasingly manufactured cleantech components at home, Canada and Mexico have provided crucial parts.
American Clean Power Association CEO Jason Grumet said in a statement when the tariffs were initially announced that the trade association “is concerned that increasing the costs of energy production inputs will put upward pressure on consumer energy costs and diminish our capacity to unleash energy abundance.”
Costa Samaras, director of Carnegie Mellon’s Scott Institute for Energy Innovation, warned against looking at these tariffs in a vacuum; the escalating trade war is taking place against a backdrop of other Trump administration actions to reduce the competitiveness of clean energy.
“You have tariffs, plus the potential repeal of portions of the IRA, or potential other actions that make specific clean energy technologies less competitive,” he told Latitude Media. “These are compounding risks to an important and emerging industry in the United States.
Both the U.S. fossil fuel and auto industries are especially vulnerable to the tariffs, giving their heavy reliance on the country’s neighbors to the North and South. But it’s the supply chains for key equipment and commodities — including for steel, which is subject to its own specific tariffs that took effect last month — that are likely to cause most problems for clean energy.
For instance, the United States is a major importer of electrical transformers, which are currently weathering a shortage. Mexico is among the country’s main exporters of the grid equipment — so these tariffs will have an immediate impact on the prices of one of the most important elements of getting electricity flowing during a moment of unanticipated load growth.
