Canada Watch: Abruptly Halted Trade Negotiations

The situation in Quebec is especially ironic. Trump’s threats against Canada have not expanded Quebec separatism—in fact, they have driven support for independence down to around 30%, a historic low, and even the Parti Québécois (PQ), which currently leads provincial polls, has pledged not to pursue a referendum on independence during Trump’s term. For today’s Quebec, pressure from Washington has become sufficient—temporarily—to overshadow its long-standing grievances with Ottawa. Alberta remains, of course, the province most reluctant to engage in a full-scale trade war. Danielle Smith expressed today her “deep disappointment” at the breakdown of negotiations. Yet since last year, the Carney government and Alberta have reached a series of compromises on the West Coast pipeline and the Pathways project; in July, both sides jointly advanced a new pipeline to the Pacific with a designed capacity of one million barrels per day. While tensions between Ottawa and Edmonton remain far from resolved, they have clearly moved beyond the open sabotage that characterized relations before last year’s federal election. Thus, a rather rare situation has emerged: facing the U.S., Carney stands—broadly speaking—behind a united Canada; Trump, by contrast, lacks an equally cohesive United States behind him. Trump still controls the White House, the Republican Party still controls Congress, and the Supreme Court remains dominated by conservatives. But these formal advantages do not translate into unlimited political capital. The most immediate constraint stems from energy and inflation. The Iran conflict and uncertainty in the Strait of Hormuz have already pushed oil prices notably higher. A recent Reuters survey shows most economists still expect the Federal Reserve to hold interest rates steady this year—but persistently high energy prices further squeeze room for rate cuts. What American voters will actually feel at the ballot box in November, however, is the price of gasoline, food, and everyday living costs. This explains why Trump’s current Section 338 tariffs deliberately exclude Canadian energy products, potash, and critical minerals. To the White House, Canada’s dependence is leverage—but America’s own dependence is equally real. Canada supplies the vast majority of U.S. imported natural gas, most of its imported electricity, and about 60% of its imported crude oil. Should the trade war truly expand into the energy sector, Trump would confront not the lowering of the Canadian flag—but rising price tags at U.S. gas stations. Even more troublesome is the upcoming midterm election. Currently, Democrats hold a national polling advantage in the House, and the Senate is far less secure for Republicans than they imagine. As of August 20, the Cook Political Report has classified six Senate races as Toss-ups—including Alaska, Maine, Michigan, Ohio, Iowa, and Texas. Maine’s Republican Senator Susan Collins has even publicly opposed Trump’s unilateral tariffs on Canada, warning of their damaging impact on her state’s businesses and consumers. So a 2018-style “blue wave” is no distant fantasy. Trump can absorb a limited trade conflict targeting specific Canadian goods—but he may be unwilling to risk fuel prices, industrial costs, and several pivotal states just to force Ottawa’s capitulation. Finally, there is a frequently underestimated variable: the law.

Extremely Pessimistic and Highly Unstable International Oil Market in 2026

Domestically, on his first day back in office—January 20, 2025—Trump declared a U.S. energy emergency, suspending a series of regulations restricting domestic exploration, production, and consumption of fossil fuels such as oil, natural gas, and coal. He strongly supported expanding domestic fossil fuel development, directed the U.S. oil and gas industry to intensify exploration and production efforts, aimed to lower energy prices, and promised affordable energy for ordinary Americans. On February 14, Trump signed an executive order establishing the “National Energy Dominance Committee,” mandating the use of all available means to ensure U.S. energy dominance. On April 8, he signed another executive order to revive the U.S. coal industry. Under the vigorous support of this second-term Trump administration, domestic production of oil, natural gas, and coal surged, repeatedly setting new records—and became the single largest source of increased output in the global oil market, exerting continuous downward pressure on international oil prices. Internationally, Trump adopted a dual-track approach toward major oil-producing countries like Saudi Arabia—combining pressure with conciliation—to compel them to increase output and lower global oil prices. On January 23, 2025—the fourth day after returning to power—Trump urged Saudi Arabia and other OPEC members to boost production in a video address to political and business leaders at the World Economic Forum in Davos: “You must bring oil prices down.” At the same time, however, he chose Saudi Arabia as the venue for the March 24, 2025, talks between the U.S. and Russia aimed at ending the Ukraine war and improving U.S.-Russia relations. From May 13 to 16, 2025, he made the Middle East his first overseas trip of his second term, visiting Saudi Arabia, Qatar, and the United Arab Emirates—demonstrating the close ties between the U.S. and Saudi Arabia. Under this dual pressure, OPEC+—led by Saudi Arabia—increased oil production nine times in 2025, driving international oil prices steadily downward. Tariff wars were the dominant theme of the global economy and trade in 2025. Trump’s successive rounds of tariff measures triggered extreme volatility in the international oil market and sustained downward pressure on prices. On January 31, 2025—shortly after beginning his second term—Trump announced that, effective February 1, he would impose an additional 25% tariff on goods from Mexico and Canada, while temporarily applying a 10% tariff on Canadian petroleum products, with broader energy-related tariffs scheduled to take effect from mid-February. Thus began the tariff war that severely disrupted the global economy and trade in 2025. Because Canada is the largest source of U.S. oil imports, the tariff conflict with Canada caused WTI crude to surge $2.65 per barrel and Brent crude $1.67 per barrel on February 3, 2025—with WTI’s gain exceeding Brent’s. At 4 p.m. on April 2, 2025, in the White House Rose Garden, Trump declared a national emergency and signed an executive order instituting the “reciprocal tariff” policy, launching tariff wars with countries worldwide—casting a heavy shadow over global economic growth and severely disrupting international oil prices.

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