On January 31, local time, White House Press Secretary Caroline Levitt confirmed at a news conference that the U.S. government will impose a 25% tariff on goods from Canada and Mexico starting February 1. A day earlier, President Trump stated that he was considering including oil in the tariff range and would make a final decision on the night of January 30.
Tariff Measures May Impact Energy and Raw Materials Market
Although the White House has yet to announce specific details of the tariff implementation, the market is generally concerned about its potential impact on commodities. According to Oxford Economics, imposing tariffs on imports from Canada could affect key industries such as crude oil, aluminum, steel, and lumber, raise end-user prices in the U.S. market, and squeeze Canadian exporters' profit margins.
In terms of crude oil, the U.S. is Canada's largest oil importer, with about 97% of Canadian crude oil exports flowing to the U.S., accounting for a quarter of U.S. refinery feedstock. Due to Canada's high market share, if the tariff policy is implemented, U.S. refinery operating costs may rise, pushing up fuel prices. Additionally, depending on global market supply and demand, the tariff policy could cause Brent and WTI crude oil prices to drop by about 2-3% before 2026. However, due to the low substitutability of Canadian crude, the market generally believes the likelihood of additional tariffs on this category is relatively small.
The aluminum market faces similar challenges. Canada is the largest aluminum supplier to the U.S., accounting for about two-thirds of U.S. demand. With only four smelters in the U.S., it is difficult to replace Canadian supply. If the tariff policy is enacted, aluminum premiums in the U.S. market will further rise, affecting related manufacturing costs and potentially dragging global primary aluminum prices down by around 3%.
Regarding steel, Canada accounts for a quarter of U.S. steel import demand. Although this ratio is lower than the reliance on aluminum, tariffs may still affect supply chains in some industries. However, given the size of the U.S. domestic steel industry, overall price fluctuations are expected to be relatively limited.
Additionally, lumber prices are expected to rise. The U.S. has long relied on lumber imports from Canada for construction and home industries. If the additional tariffs increase costs, they could eventually affect the U.S. real estate market.
Canada and Mexico Prepare Countermeasures
In response to U.S. tariff policies, Canada and Mexico have prepared retaliatory tariffs. Canadian Prime Minister Trudeau stated on January 31 that Canada has developed "strong but reasonable response measures" and warned of heightened trade tensions in the coming weeks.
There is still uncertainty in the market as to whether the Trump administration can implement the policy as scheduled on February 1. Analysts point out that implementing tariffs usually requires congressional approval. However, if Trump chooses to invoke the International Emergency Economic Powers Act (IEEPA), he could unilaterally impose tariffs under emergency conditions. Until now, this law has not been officially activated.
Meanwhile, Wall Street and U.S. industries generally worry that the tariff policy could disrupt supply chains and raise prices of some consumer goods. Therefore, some U.S. business leaders hope the government can delay tariff implementation to provide Canada and Mexico more time to negotiate or opt for a gradual tax increase to reduce short-term market impacts.
With February 1 approaching, the market is closely watching the Trump administration's final decision and Canada's and Mexico's response strategies.
