Tensions stemming from Trump’s proposed 25% tariff on Canadian goods have cooled. But don’t believe this issue is over for a second.
Trump has granted Canada a one-month ‘armistice’ to tighten its borders for immigration and drug control.
But as tensions calm and the issue fades from the headlines, I think it’s time to start thinking about ‘round II’ of this conflict and what it might mean for investors.
What do I mean?
As you might know, Canada has minerals critical for US national security: uranium, oil, copper, coal, and potash.
That means this northern neighbour is crucial in fuelling the mighty US economy with its energy, critical minerals, and farming products (like fertiliser).
With that, Trump wants Canada to be his own, proposing to absorb it as the 51st state of the USA.
While you might dismiss that as a typical Trump blaster, Canada’s Prime Minister, Justin Trudeau, doesn’t think so…
After being caught on a ‘hot mic’ earlier this month, Trudeau disclosed the very real threat being made by Trump. There’s still a lot at stake here.
So, what happens next?
Some Canadian leaders, like Premier Doug Ford, are pushing to leverage the country’s resource advantage and limit critical commodity exports to the US.
A form of retaliation against Trump’s comments and trade hostilities.
So, how much pull does Canada actually yield over the US?
First, about 85% of US potash fertiliser imports came from Canada. Canada’s potash is critical for feeding America!
Another critical aspect is energy.
Around one-fifth of all energy in the US is generated by nuclear power.
In 2023, 27% of uranium purchased by the United States came from Canada, making it the most significant foreign supplier of uranium to the US.
But that’s all small chips compared to this…
Canada’s #1 powerplay: crude
You might know that the US is a major crude oil producer. It produces about as much oil as it consumes. So why does it desperately need Canadian crude?
Well, not all oils are the same.
You see, Canada is the world’s largest producer of a form of crude known as ‘heavy sour’.
Before Canada, the US held this title. Yet, decades of extraction have depleted its heavy crude reserves.
Today, US oil production is mainly the ‘light sweet’ form sourced from its prolific Permian shale basins.
But here’s the problem for the US and why it still relies on Canadian imports… Many US refineries were built during a ‘heavy sour’ production age.
That means the country’s active oil refineries can’t process today’s vast reserves of light-sweet oil! Most of that gets exported overseas or blended with Canadian ‘heavies.’
But rather than let its vast network of domestic refineries gather dust, the US has spent billions upgrading these refineries so it could keep using them.
And to do that it must import Canada’s supply of heavy oil!
So, what’s the consequence?
As bizarre as it seems, despite the US being an oil-producing powerhouse larger than Saudi Arabia, it remains heavily dependent on oil imports from Canada.
This is why the US is NOT considered an energy-independent country, despite extracting about as much oil as it consumes.
And that’s why ‘Round II’ of the Canadian and US trade dispute offers plenty of uncertainty in the months ahead.
Countries with the ‘commodity advantage’ yield the power
As you can see, Canada holds several aces up its sleeve.
Restricting heavy crude exports to the US would have a major impact on gasoline prices and the American economy more broadly.
Who knows, this might even have the potential to rival the 1973 Arab oil embargo… A temporary ban on oil exports from Arab oil-producing countries to the United States.
But this time around, being led by the US’s closest ally… Canada!
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| Source: NPR |
It’s another example of how the world’s largest economy can’t isolate itself from global trade.
Since America lacks secure supply chains of raw materials and energy, Trump’s ‘America First’ agenda will require serious compromises.
And that will give resource-rich countries a much more powerful hand at the negotiation table. Without Canadian oil, the US will be left with a graveyard of useless oil refineries.
Commodities remain the frontline battleground
As you can see, there’s so much happening across the resource sector right now, and much of it is tied up in geopolitics and other major global events.
And that’s precisely what we’d expect at this stage in the commodity cycle.
A phase that is turning increasingly bullish.
I’ll do as much as possible to cover these important developments throughout the year.
But if you are looking for specific stock recommendations and other tangible opportunities to capitalise on these trends, you could look at becoming a paid member of my Diggers & Drillers service.
Here, readers receive buy and sell recommendations across different resource stocks leveraged to these global trends.
You can learn more here.
Regards,
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James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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