Canada Can’t Afford to Play Trade Chicken with the U.S.

Calls for Canada to respond aggressively to U.S. trade threats ignore the economic realities of such a move. Consider Quebec and Alberta energy. The stakes for Alberta and Quebec in this morbidly anticipated trade-war gamble are profoundly asymmetric, with Alberta standing to lose far more in absolute terms and per capita. The arguments to engage in such conflict are reckless and fail to recognize the magnitude of our economic integration with the U.S.

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Canada and the United States share one of the world’s most extensive and intertwined trading relationships. In 2022, bilateral trade in goods and services exceeded $900 billion annually. Canada exported 75% of its goods to the U.S. Beyond trade, bilateral investment is immense, with over $1 trillion in two-way direct investment (All CDN figures).

A trade war would jeopardize trade and these capital flows, which are critical for businesses and public finances. Retaliatory tariffs or export restrictions would destabilize relationships and harm key industries across Canada. During the 2018 NAFTA renegotiations, even the spectre of a trade breakdown cost Canadian industries millions in lost revenue and opportunities. A full-blown trade war would magnify these damages exponentially.

Alberta’s oil and gas sector is the backbone of its economy and vital to Canada’s prosperity. In 2023, Alberta exported $127 billion worth of oil and gas to the U.S., representing 82% of its energy exports. This sector accounts for 27% of Alberta’s GDP and contributes approximately $28,863 per capita to the provincial economy.

Halting these exports would be harmful to a weakened economy. Alberta’s energy industry supports tens of thousands of jobs and generates substantial government revenues that fund social programs and infrastructure. Alberta is also a net contributor to federal equalization payments, providing billions annually to support less prosperous provinces, including Quebec.

The suggestion that Alberta should stop exporting oil and gas to “do its part” for Canada is economically nonsensical. Shutting off the tap to America would devastate Alberta and weaken Canada.

In contrast, Quebec’s hydroelectric sector, though significant, plays a smaller role in its economy than oil and gas do in Alberta. In 2022, Hydro-Québec exported $3 billion worth of electricity to the U.S., representing about 12% of its total electricity production and 2.9% of its GDP. With a population of 8.6 million, these exports amount to $349 per capita.

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