Executive Summary

• Among President Trump’s broad-based tariffs on imports from Canada and Mexico – enacted March 4, 2025, then paused and delayed until April 2, 2025 – are 10-percent tariffs on Canadian crude oil and natural gas products and 25-percent tariffs on Mexican crude oil and natural gas products.
• The cost of the energy tariffs on oil and gas imports from Canada and Mexico would be approximately $6.5 billion in the first year, with tariffs on Canadian products making up most of the cost.
• These energy tariffs will likely raise prices for U.S. consumers, negatively impact U.S. businesses’ capabilities to plan and invest, and harm U.S. exporters since the appreciated dollar as a result of the tariffs will increase the prices of U.S. exports.

Introduction

On March 4, 2025, the Trump Administration enacted tariffs on oil and gas imports from Canada (10 percent) and Mexico (25 percent). On March 6, President Trump announced he would pause the tariffs until April 2, 2025.

Canada and Mexico are important U.S. energy trading partners, as they accounted for 70% of the United States’ crude oil imports in 2022. This research estimates that the cost of the energy tariffs on oil and gas imports from Canada and Mexico would be approximately $6.5 billion ($5.2 billion from tariffs on Canada and $1.3 billion from those on Mexico) in the first year.

The energy tariffs will likely raise prices for U.S. consumers, create significant policy uncertainty for U.S. businesses, and harm U.S. exporters as the appreciated dollar will increase the prices of U.S. exports.

Tariffs Burden of the Energy Tariffs on Canada and Mexico

Canada and Mexico are important energy trading partners for the United States, as they accounted for 70 percent of the United States’ crude oil imports in 2022, with Canada taking up most of the share. In 2022, about 99 percent of the natural gas the United States imported was from Canada – almost all by pipeline.

Although the United States is the world’s largest oil producer, it still imports a significant amount of crude oil from Canada. This is because more than 70 percent of U.S. refining capacity is designed to process heavier imported crude efficiently whereas most U.S. crude oil is lighter. Canada is also a top country of origin for U.S. imports of natural gas.

This research finds that – considering the rates of the incoming tariffs, the value of U.S. oil and gas imports from Canada and Mexico, likely behavioral responses, and the effects of the tariffs on income and payroll tax revenue – the cost of these energy tariffs on imports would be approximately $6.5 billion ($5.2 billion on imports from Canada and $1.3 billion on imports from Mexico).

To calculate the effective tax rate of the tariffs, one can divide the gross tariffs cost by the total oil and gas imports from a country. The 10-percent statutory tariff rate on Canada is equivalent to an effective tax rate of 7.1 percent. The 25-percent statutory tariff rate on Mexico is equivalent to an effective tax rate of 14.1 percent.

Potential Tariffs Costs of U.S. Energy Tariffs on Canada and Mexico in the First Year

Source: Author’s calculation, Energy Information Administration, Christoph Boehm et al. 2023, “The Long and Short (Run) of Trade Elasticities. American Economic Review, 113(4): 861-905”; Alberta Economics Dashboard.

Potential Impact on the United States

Levying tariffs on oil and gas imports from Canada and Mexico will likely raise prices for U.S. consumers across petroleum products such as gasoline, diesel fuel, and heating oil, as well as a wide range of consumer goods that are made of petrochemicals derived from the imported oil and natural gas.

Tariffs on crude oil imports will increase costs for refiners, which will be passed on to downstream businesses and consumers in the form of higher prices. One of the products that would be affected is gasoline, the most-consumed petroleum product in the United States. Tariffs on crude oil imports from Canada and Mexico will likely lead to higher gasoline prices in the United States. Some experts estimate that the tariffs could add an average of between 20–30 cents per gallon of gasoline in the short run.

Additionally, manufacturers of petroleum products that rely on imported crude oil from Canada and Mexico will also incur higher costs that will eventually be passed on to consumers.

Aside from the direct impact from the tariffs on crude oil and natural gas, tariffs on other imports that are used in the oil and gas industry may also have indirect and negative impacts on U.S. oil and gas markets and increase costs. For example, the Trump Administration threatened to levy 25-percent tariffs on all steel imports into the United States starting March 12. According to BloombergNEF, 25-percent tariffs on all steel imports into the United States would likely result in a 3.25-percent overall increase in the costs of building and maintaining U.S. oil wells, since U.S. shale oil and gas wells require substantial imported steel for drilling equipment.

The tariffs will also likely harm U.S. exporters. The United States, Canada, and Mexico are closely integrated in the energy market. Not only does the United States import a large amount of oil and gas products from Canada and Mexico; it exports many petroleum products to these countries. President Trump’s tariffs will result in appreciation in the U.S. dollar, which will raise the prices of U.S. exports. Potential retaliatory tariffs from foreign countries on U.S. energy exports will also harm U.S. exporters. Indeed, Canada already has announced retaliatory tariffs on U.S. exports, including the province of Ontario, which has enacted a 25-percent tariff on electricity exports to Minnesota, Michigan, and New York.

Conclusion

President Trump’ oil and gas tariffs on Canada and Mexico will likely have a marked impact on U.S. businesses and consumers. The degree of this impact will depend on a variety of factors, such as how soon and how long the tariffs will be in place, how quickly U.S. refiners can change their operations to account for new costs, and geopolitical events.

In any event, the tariffs will create significant policy uncertainty for businesses, hindering their capacity to plan and invest, and harm U.S. consumers as businesses pass on their increased costs to them.