Since U.S. President Trump took office last month, he has been consistently enacting policies that emphasize tariffs, threatening numerous countries worldwide, particularly with measures targeting import tariffs on energy and commodities, causing global market unrest. On February 1st, the Trump administration introduced a series of tariff orders, including a 10% tariff on Canadian energy products and a 25% tariff on all Mexican goods.
A report by Goldman Sachs analysts, including Callum Bruce, pointed out that these tariff measures will impose a significant economic burden on U.S. consumers. Specifically, U.S. consumers will incur an additional $22 billion in expenses, equivalent to an increase of about $170 in living costs per household, mainly affected by rising prices of commodities like oil.
Tariff measures have little effect on domestic oil production
Despite Trump's repeated claims that tariffs will stimulate U.S. domestic industries, particularly increasing domestic oil production, Goldman Sachs analysts indicate that these oil tariffs have virtually no practical effect on U.S. crude oil production. Since most U.S. refineries are located in the Gulf of Mexico and eastern regions, processing mainly imported medium and heavy crude oil, and since U.S.-produced shale oil is mostly light crude, there remains a reliance on heavy crude for blending. Therefore, even with tariffs on oil imports, U.S. refiners still need to import heavy crude, rendering the tariff measures largely ineffective in stimulating U.S. domestic oil production.
Goldman Sachs noted in the report: "A 10% tariff on crude oil by the U.S. would not significantly increase domestic oil production, as U.S.-produced light crude does not match with the heavy crude demanded by many U.S. refineries."
Oil tariffs could increase consumer costs
Goldman Sachs also predicts that if the U.S. imposes a 10% tariff on oil imports, the U.S. retail gasoline price could rise by 7 cents per gallon, directly increasing the consumer burden.
According to data from the U.S. Energy Information Administration (EIA), from January to November 2024, the U.S. imported 4.05 million barrels per day of crude oil from Canada and 470,000 barrels per day from Mexico, with exports from these two countries accounting for 70% of the total U.S. crude oil imports (6.59 million barrels per day). Additionally, the U.S. imported 570,000 barrels per day of refined oil products from Canada and 170,000 barrels per day from Mexico, making up 40% of the total U.S. refined oil imports (1.84 million barrels per day). If tariffs of 10% and 25% are imposed on Canadian and Mexican crude respectively, the cost of oil exports from these countries to the U.S. is expected to increase by roughly $8 per barrel and $20 per barrel respectively.
Refiners seek alternative resources
Faced with the increased cost pressure from tariffs, major U.S. refiners may seek alternative crude oil sources from regions such as South America, the Middle East, and West Africa, which will change the structure of U.S. oil imports and could have profound effects on the global oil market.
Overall, the Trump administration's tariff policies, particularly those targeting oil imports, will lead to higher energy costs for U.S. consumers, with limited stimulus to domestic oil production. U.S. consumers will face higher living costs, and U.S. refiners will need to adjust their procurement strategies to find new crude oil supply sources.
