The Investment Implications Of The U.S. Trade Tensions

Summary:

On Saturday, February 1st the White House announced the imposition of heavy tariffs on goods exported from Mexico, Canada and China, and all three nations announced their intention to retaliate. These tariffs threaten to raise prices and slow economic activity across all four countries.

The U.S. President’s actions and foreign reactions

The actions taken by U.S. President Trump were in the form of three executive orders. While Congress should normally be involved in setting tariffs, U.S. President Trump claimed the right to do so using emergency authority to combat the flow of illicit drugs. The executive orders specify 25% tariffs on all goods imported from Mexico, 25% on all goods imported from Canada, with the exception of energy products where the tariff rate is 10%, and 10% additional tariff on all goods imported from China. The tariffs come into effect at midnight on the evening of Monday, February 3rd.

Canada, Mexico and China have all responded. Canadian Prime Minister, Justin Trudeau, announced 25% counter-tariffs on CAD 155billion of U.S.-made goods starting with levies on CAD 30billion worth of goods starting on Tuesday and ramping up to the full amount after 21 days. Provincial premiers and politicians vying to replace Trudeau as Prime Minister also expressed support for retaliatory action.

Mexican President Claudia Sheinbaum announced that she is readying both counter-tariffs and other measures in retaliation. Meanwhile, the Chinese Commerce Ministry also pledged to take countermeasures.

The economic impact of tariffs

The tariffs announced by U.S. President Trump, along with retaliatory actions by our trading partners, could both raise prices and slow economic growth.

With regards to inflation, the first question is how much might tariffs reduce consumption of goods imported from these three countries, and the second is how much of the import tax would end up being paid by consumers. The Investment Implications Of The U.S. Trade Tensions_1

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We estimate that the U.S. imported USD 1.36trillion in goods from Canada, Mexico and China last year and that the tariffs announced by the U.S. President would have implied an additional average import tax of 19% on those goods, on top of current tariffs against China. Under the crude assumption that a 19% increase in prices results in a 19% decline in purchases (either through lower consumption or substitution of other goods or suppliers), the tariffs announced could have raised USD 206billion. Last year, total nominal U.S. consumer spending was USD 19.8trillion. So if all of the price increases were passed on to U.S. consumers, it could be expected to increase the U.S. consumer price index by just over 1%. This, of course, assumes that foreign manufacturers, importers or retailers don’t absorb some of the cost. However, it also ignores the potential knock-on effects of retailers trying to maintain their percentage margins in the face of lower volumes, compensating wage increases or the impact of tariffs on other countries, regions and locations that U.S. President Trump has threatened.

Tariffs would also lower economic activity. The U.S. exported roughly USD 760billion in goods to Canada, Mexico and China last year and slower economic growth in these countries, combined with the effect of retaliatory tariffs, could significantly reduce those exports. The effects would be more severe for Canada and Mexico than the U.S., however, as exports to the U.S. account for a much larger share of GDP in Canada and Mexico than the other way around. It is also worth noting that both Canada and Mexico had less momentum entering 2025 than the United States, with the most recent GDP readings showing year-over-year growth of 1.5% and 0.6%, respectively, compared to 2.5% in the U.S.

Equally serious, the uncertainty caused by the recent trade tensions could stall production and investment – no company will want to pay a tariff this week if it could avoid it by waiting until next week. No company could make a plan on whether to build a plant in Canada, Mexico or the United States without having some idea of the tariffs that could be levied upon it.

It is quite possible that Trump’s administration will seek to compensate exporters that will be hurt by these trade tensions, reducing any net revenue benefit for the U.S. federal government. Slower economic growth would also, of course, reduce revenue. Moreover, the prospect of higher inflation from the trade tensions would probably further delay any further U.S. Federal Reserve easing and possibly boost long-term interest rates. In this context it is worth noting that a 1% increase in U.S. Treasury interest rates across the board would eventually add USD 300billion to the annual interest paid on the U.S. federal debt. The Investment Implications Of The U.S. Trade Tensions_2

The Investment Implications Of The U.S. Trade Tensions_2

Trade tensions end game

As this is being written, it is completely unclear what the end game of these recent trade tensions could be. It may be that, over the course of negotiation, tariffs on Mexico and Canada are scaled back to 10%. However, tariffs could also be broadened to include Japan, Europe and other trading partners. One small restraining factor is that U.S. President Trump intends to use tariffs as a revenue source in paying for part of the extension of the 2017 tax cuts and other tax cuts that he promised on the campaign trail. It is possible that, as the big tax bill is being negotiated, he will want to settle on an amount to pencil in for tariff revenue and stick to it. However, experience from his first term and the first two weeks of his second suggest that policy uncertainty could persist.

It is also worth considering that other countries will tend to maintain tariffs to match the U.S. levies and could target particular U.S. companies as a way of concentrating their retaliatory fire power, with U.S. technology companies probably the most exposed to trade revenge.

Investment implications

In the meantime, investors have every reason to be concerned about the trade tensions. Last week’s GDP report on January 30th showed that the U.S. economy entered 2025 with plenty of momentum, and this should be further confirmed by the U.S. jobs report on February 7th. However, U.S. equity markets continue to carry high valuations both overall and particularly among mega-cap technology stocks. These trade tensions have the potential to impart a stagflationary impulse to this investment environment, boosting inflation and interest rates while dragging on growth and profits.

If this scenario unfolds, U.S. equities with the highest valuations are likely the most vulnerable while non-U.S. assets and real assets could provide ballast to portfolios. Most of all, investors should ensure that they are well diversified and balanced as we head into much stronger and uncertain trade winds.

Source: JP Morgan

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Adam

Economic

Strong Export Growth Despite Trade Challenges with China

Japan’s food export industry continues to thrive, achieving a record high for the 12th consecutive year in 2024. According to the Japanese Ministry of Agriculture, Forestry, and Fisheries (MAFF), the country’s total exports of agricultural, forestry, seafood, and processed food products reached 1.51 trillion yen ($9.72 billion), representing a 3.7% increase compared to 2023.

This growth was primarily driven by strong demand from the United States and other key markets, which compensated for a sharp decline in exports to China. Beijing’s comprehensive ban on Japanese seafood imports, imposed in response to the release of treated wastewater from the Fukushima Daiichi nuclear plant, significantly affected Japan’s seafood trade.

The U.S. Emerges as Japan’s Largest Food Export Market

With China imposing restrictions, Japan successfully diversified its export markets, particularly in the United States, which became the top destination for Japanese food exports in 2024. Exports to the U.S. reached 242.9 billion yen ($1.56 billion), marking an impressive 17.8% increase from the previous year. This surge was fueled by Japanese scallops finding new buyers in the U.S. market, helping to mitigate losses from the Chinese import ban.

Japan’s exports to Taiwan also grew significantly, increasing 11.2% to 170.3 billion yen ($1.1 billion). Taiwanese consumers favor Japanese apples as luxury gifts, contributing to higher demand, along with increased shipments of scallops.

Meanwhile, exports to China declined 29.1%, falling to 168.1 billion yen ($1.08 billion). The Hong Kong market, which has historically been Japan’s largest food export destination, also saw a decline of 6.6%, reaching 221 billion yen ($1.42 billion).

Japanese Cuisine Gains Global Popularity, Boosting Exports

Beyond seafood, the rising global appreciation for Japanese cuisine has boosted exports of seasonings, beverages, and processed foods. Sales of mixed sauces and condiments, such as Japanese curry and mayonnaise, increased by 15.9%, reflecting the growing international appeal of Japanese flavors.

Green tea exports saw an even stronger surge, climbing 24.6%, largely due to rising health-conscious consumption trends worldwide. The increasing global preference for natural and functional foods has positioned Japanese green tea as a premium product in international markets.

Japan’s Ambitious Export Growth Target for 2025

Despite challenges in the Chinese market, Japan remains committed to expanding its agricultural, seafood, and food product exports. The Japanese government has set an ambitious goal of achieving 2 trillion yen ($12.8 billion) in food exports by 2025, requiring an additional 500 billion yen ($3.2 billion) in export growth over the next year.

To meet this target, Japan is actively working to diversify its export destinations, strengthen trade partnerships, and promote Japanese food culture worldwide. Efforts include marketing campaigns to increase brand recognition, trade agreements with new partners, and investments in export infrastructure to enhance food distribution efficiency.

Japan Strengthens Global Presence in Food Trade

Japan’s record-breaking food export performance in 2024 underscores the resilience and adaptability of its food industry, even in the face of geopolitical trade barriers. While China’s seafood ban remains a challenge, the rapid growth in U.S. and Taiwanese markets demonstrates Japan’s ability to redirect exports and maintain strong international demand.

With global interest in Japanese cuisine continuing to rise, the country is well-positioned to expand its food exports further, particularly as consumer preferences shift toward healthier, high-quality products. However, achieving the 2 trillion yen target in 2025 will require ongoing strategic trade expansion, market adaptation, and continued diplomatic engagement to navigate evolving trade relations.

Source: The Japan Times

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Adam

Commodity

Gold Surges Past $2,800 as Investors Flock to Safe-Haven Assets

Gold prices have soared to unprecedented levels, surpassing $2,800 per ounce for the first time on January 31 and climbing further to a record high of $2,830.49 per ounce on February 3, 2025. This surge is not merely a short-term fluctuation but rather the result of a combination of economic, political, and financial factors. The uncertainty surrounding U.S. trade policy, Federal Reserve interest rate decisions, and inflation trends has fueled a rush toward gold as a safe-haven investment, pushing its value to new heights.

A primary driver behind the gold rally has been the escalating trade tensions sparked by President Donald Trump’s tariff policies. Trump announced a 25% tariff on Canadian and Mexican imports, initially set to take effect on February 4, though temporarily postponed by one month for negotiations. Additionally, the White House is considering a 10% tariff on Chinese goods, which has further unsettled global markets. The fear of prolonged trade conflicts and economic instability has led investors to seek gold as a hedge against uncertainty, increasing demand and driving prices higher.

Federal Reserve Policy Adds to Market Volatility

Beyond trade tensions, Federal Reserve policy has played a crucial role in gold’s recent price movements. Fed Chair Jerome Powell’s recent statements signaling that the central bank is "in no rush to cut interest rates" have clashed with President Trump’s push for lower rates, adding another layer of uncertainty to financial markets. Historically, high interest rates tend to weigh on gold, as the metal offers no yield, but in an environment where investors fear inflation and economic instability, gold remains an attractive asset.

Inflation concerns have also contributed to the rally. U.S. consumer spending has remained strong, fueling expectations that inflation could persist at elevated levels. This has reinforced the perception of gold as an effective hedge against purchasing power erosion, further boosting demand.

Long-Term Demand and Supply Constraints Support Gold Prices

Gold’s appeal during periods of uncertainty is not new. Over the past five years, gold prices have risen by approximately 77%, while in the last two decades, the metal has appreciated by a staggering 564%. Central banks, particularly in China, have continued to accumulate gold reserves, providing further support to prices.

In January 2025, gold recorded its strongest monthly gain since March 2024, rising by over 7% compared to the previous month. The demand surge has also led to supply constraints, with reports indicating that the Bank of England (BoE) now requires up to eight weeks for gold withdrawals, underscoring the pressure on global inventories.

Market Projections: Will Gold Hit $3,000 in 2025?

Looking ahead, analysts remain divided on gold’s trajectory for the rest of 2025. Some market experts, such as Nigel Green, CEO of deVere Group, believe that gold will continue its upward momentum amid geopolitical and economic uncertainty, advising investors to increase gold allocations in diversified portfolios.

Goldman Sachs has maintained its forecast of gold reaching $3,000 per ounce by the end of 2025, though this projection was made before Trump’s latest tariff announcements. Similarly, JPMorgan strategists expect gold’s average price in 2025 to be around $2,950 per ounce, with potential spikes beyond the $3,000 mark if market conditions remain volatile.

However, not all analysts are as bullish. Emma Wall from Hargreaves Lansdown argues that while gold may hold its value, it is unlikely to experience another explosive rally unless new catalysts emerge. Suki Cooper from Standard Chartered Bank also suggests that the Federal Reserve’s rate cuts in the first half of 2025 could support gold, but the impact may weaken in the second half as economic conditions stabilize.

A key risk to gold’s continued rally is the potential for a stronger U.S. dollar. If confidence in U.S. economic recovery strengthens, the dollar could gain traction, reducing the attractiveness of gold as an alternative asset.

Gold’s Future Hinges on Geopolitical and Economic Shifts

Gold’s recent price surge reflects heightened economic and geopolitical uncertainty, making it an attractive investment for those seeking stability in turbulent times. While many forecasts suggest that gold could break past the $3,000 barrier in 2025, the market remains highly sensitive to macroeconomic trends, including Federal Reserve policy, trade developments, and inflation dynamics.

The ongoing tariff disputes, inflationary pressures, and unpredictable monetary policy shifts create both opportunities and risks for gold investors. While upward momentum appears strong, the path ahead remains complex, with potential volatility shaping gold’s long-term outlook. Investors must closely monitor global economic shifts to navigate the uncertain terrain ahead.

Source: Reuters

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Warren Takunda

Economic

Risky assets, including stocks, commodity currencies, Bitcoin, and metals, pared Monday’s losses after the Trump administration agreed to postpone the 25% tariffs on Mexico and Canada. However, equity futures fell on Wall Street after China hit back with retaliatory levies on US goods early on Tuesday, with the impact likely to ripple through European markets.

Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau both agreed to tighten border controls to combat drug trafficking, particularly fentanyl. US President Donald Trump announced on Monday that he is pausing tariffs on both nations for one month while negotiations continue. As tariffs on China took effect, Beijing announced countermeasures starting on 10 February, potentially leaving time for negotiations.

Market risk appetite recovers

Despite China’s announcement, risk sentiment improved across all asset classes following Trump’s decision to delay tariffs on Mexico and Canada. The US dollar index erased early gains and ended little changed, while global stock markets pared their losses.

The sharpest reversals occurred in the Canadian dollar and Mexican peso, both of which erased their losses against the US dollar and closed higher on Monday. The euro also rebounded from a more than two-year low against the dollar. Other commodity currencies, such as the Australian dollar and New Zealand dollar, saw sharp rebounds from multi-year lows. Earlier in the session, these currencies had weakened against the US dollar by 2–3% at their lowest points.

Equities also recovered from session lows. In the US, the Dow Jones Industrial Average finished 122 points lower after falling more than 600 points intraday. The Nasdaq ended flat, recovering from a 2.5% intraday drop, while the S&P 500 slid 0.76%, trimming its earlier 1.9% decline. European benchmarks closed lower before Trump's decision to delay the tariffs. However, China’s retaliatory measures weighed on sentiment, with most Asian markets were lower on Tuesday.

Additionally, Bitcoin rebounded above $98,000 (€95,039) at 9:00 am ECT after plunging to a day low of $91,178 (€88,412), according to Coinbase.

Notably, gold prices reached record highs amid ongoing geopolitical uncertainties. Spot gold surpassed $2,800 for the first time in history, while gold futures on Comex hit a new high of $2,857 before retreating.

Uncertainties remain, with focus shifting to China

Despite the temporary relief, markets remain on edge due to ongoing uncertainties. “Investors face a conundrum,” said Michael McCarthy, market strategist and chief commercial officer at Moomoo Australia. “The increased likelihood that the US President will continue using threats of chaos as a negotiating tool only adds to the risks.”

On Tuesday, China’s state Council Tariff Commission announced that China will impose 15% levy on coal and liquified natural gas (LNG) from the US and a 10% duty on American crude oil, farm equipment and certain vehicles staring from 10 February. Investors expected that Trump to delay tariffs on China in a similar manner.

While negotiations with Mexico and Canada continue, Trump stated that the US will hold discussions with China “probably over the next 24 hours” on Monday. He added that if no deal is reached, tariffs on China will be “very, very substantial”. Fox News reported that Trump is set to speak with Chinese President Xi Jinping regarding fentanyl trafficking.

On Sunday, the Chinese Ministry of Commerce issued its statement over the Lunar New Year holiday weekend, declaring that the US's unilateral tariff hikes violate WTO rules. China intends to file a lawsuit with the WTO and firmly safeguard its own interests. A spokesperson for China’s Ministry of Commerce added that the tariff escalation will not resolve the US’s domestic problems, an apparent reference to fentanyl concerns. However, China left the door open for further negotiations, stating that it hopes the US will “correct its wrongful practices” and engage in “frank dialogues, strengthened cooperation, and conflict resolution based on equality, mutual benefit, and mutual respect”.

Source: Euronews

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Adam

Economic

Uncertainty Over UK’s Trade Status Amid Trump’s Tariff Policy

The United Kingdom is anxiously awaiting confirmation on whether it will be spared from U.S. trade tariffs, following mixed signals from President Donald Trump. While Trump recently hinted that Britain might avoid punitive tariffs, he also warned that the UK had “gone too far” in some areas, leading to speculation that British exports could still become a target for U.S. trade measures.

Trump’s latest comments come in the wake of his aggressive tariff decisions against Canada, China, and Mexico, a move that has already triggered global stock sell-offs and a strengthening U.S. dollar. Analysts believe that the European Union (EU) could be next in line for similar trade restrictions, raising concerns over the broader implications for transatlantic trade.

For now, UK officials admit that they are uncertain about Trump’s final decision on whether Britain will be included in the U.S. tariff measures.

Trade Surplus with the U.S.: A Double-Edged Sword?

One of the key arguments in Britain’s favor is its trade surplus with the U.S., which amounted to $14.5 billion in 2023, according to U.S. data. The assumption is that this surplus could make the UK less likely to be targeted, given Trump’s focus on reducing U.S. trade deficits.

However, UK statistics paint a very different picture. According to the UK’s Office for National Statistics (ONS), Britain actually enjoyed a much larger trade surplus with the U.S. of £71.4 billion ($89 billion) in 2023—significantly higher than the U.S. figures.

This discrepancy is due to differences in how the two countries calculate trade flows. The U.S. includes trade with the British Crown Dependencies—Jersey, Guernsey, and the Isle of Man—as part of its total UK trade balance, while Britain does not.

Jersey, in particular, is a major financial hub with over 35,000 registered financial firms managing assets worth more than £450 billion. The way trade data is compiled has created a significant statistical gap, which could influence how Trump views the UK’s trade relationship with the U.S.

Potential Risks for the UK in U.S. Trade Policy

While the UK hopes to secure an exemption, several risks remain. Given that Trump’s America First trade policy aims to punish nations with significant trade surpluses, the ONS data showing a much higher surplus could put the UK in Trump’s crosshairs.

Moreover, if the U.S. adjusts its trade reporting methods to exclude transactions with the British Crown Dependencies, the UK’s official trade figures with the U.S. could be revised downward—something Britain may not want at this critical moment.

Adding to the uncertainty, Trump’s broader tariff strategy against the EU could indirectly impact Britain, given the UK's close economic ties with European markets. If Trump imposes wide-ranging tariffs on the EU, British exporters could still face secondary effects, such as disruptions in European supply chains or reduced market access.

UK’s Trade Fate Hinges on Trump’s Next Move

The UK remains in a delicate position, awaiting confirmation on whether it will be spared from Trump’s protectionist trade measures. The discrepancy in trade surplus calculations adds a layer of complexity, potentially putting Britain at risk of being targeted despite its historical alliance with the U.S.

As negotiations continue, British officials will likely seek to leverage the "special relationship" with Washington while navigating the broader trade tensions between the U.S. and the EU. With Trump’s trade policies still evolving, the UK’s economic future remains uncertain, hinging on the final details of U.S. tariff enforcement and broader shifts in global trade policy.

Source: CNBC

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Jason

Oil prices fell on Tuesday as the US delayed tariffs on Mexico and Canada, easing concerns about a major disruption to crude oil flows to the world’s biggest economy.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.87 per cent lower at $75.30 a barrel at 2.55pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 1.54 per cent at $72.03.

US President Donald Trump has agreed to delay a 25 per cent tariff on Mexican and Canadian goods for a month in exchange for commitments on border security and crime enforcement from both countries.

Canada and Mexico are two of the largest crude suppliers to the US market. Energy resources from Canada were to have a lower tariff of 10 per cent.

As of October 2024, US refiners imported about 4.6 million barrels per day of crude from Canada and 563,000 bpd from Mexico, according to the US Energy Information Administration (EIA).

Potential tariffs would have huge implications for the oil and gas industries in the US, Canada and Mexico.

"US refiners would need to secure heavy crude from farther afield, which would raise their freight costs. If they continue to buy from the neighbours, they need to either seek discounts to offset the additional cost of the tariff or pass on the incremental costs to their consumers," said Vandana Hari, founder and chief executive of Vanda Insights.

"Mexico may be able to redirect most or all of its barrels that might be locked out of the US, but Canada has limited spare export infrastructure capacity, so either the producers will have to drop their prices and suffer the losses, or shut in output that is unable to find a market," Ms Hari told The National.

Meanwhile, the US went ahead with 10 per cent tariffs on goods from China, prompting Beijing to respond with its own tariffs.

Starting from February 10, China will apply a 15 per cent tariff on US coal and liquefied natural gas and a 10 per cent tariff on US crude oil.

While energy exports from the US to China are limited, a renewed trade war between the two countries will create uncertainty and risks dampening global trade, which in turn negatively impacts demand for crude oil.

Mr Trump initiated a trade war with China in 2018 during his first stint as president. By the end of 2019, the US had placed tariffs on about $350 billion worth of Chinese goods, and China had responded with tariffs on about $100 billion of US exports.

The "Phase One" trade deal, signed by both countries in January 2020 to de-escalate their trade war, required China to increase its purchases of US goods and services by $200 billion over the next two years.

Opec+ sticks to policy

On Monday, Opec+ stuck to its existing production policy amid pressure from Mr Trump to bring down crude prices by boosting output.

The group announced in December that the voluntary oil production cuts of 2.2 million bpd, which began in November 2023, would remain in place until the end of March. After that, the supply curbs will be gradually reduced each month until September 2026.

“Opec+ is likely to monitor the impact of tariffs on economic growth, the impact on US sanctions on Russia, as well the impact of interest rate cuts and fiscal stimulus measures,” said Giovanni Staunovo, strategist at UBS.

“We continue to expect the group to aim for a balanced oil market this year. Hence, we maintain our view that oil prices will remain supported around current or slightly higher price levels,” he said in a research note on Tuesday.

Last month, Mr Trump asked the group to lower crude prices, claiming cheaper oil could help end the war between Russia and Ukraine.

Source: THENATIONALNEWS

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Adam

Commodity

Economic

Impact of U.S. Tariffs on Global Oil Trade

The U.S. decision to impose new tariffs on imported oil from Canada and Mexico is reshaping global energy markets, creating significant challenges for American refiners while offering a competitive advantage to refineries in Europe and Asia. Under the new policy announced by President Donald Trump, imports from Mexico will be taxed at 25%, while Canadian energy products face a 10% tariff. This move, which aims to address national security concerns related to fentanyl smuggling and illegal immigration, has been met with skepticism from industry experts, who warn of higher fuel prices for American consumers and potential disruptions in refining operations.

The U.S. heavily relies on heavier crude oil from Canada and Mexico to optimize its refining capacity. Industry analysts predict that these tariffs will increase costs for U.S. refiners, reducing their profit margins and possibly leading to lower production levels. In contrast, European and Asian refineries stand to benefit, as they can step in to supply refined petroleum products to the U.S. and capitalize on lower crude oil prices from disrupted suppliers.

European and Asian Refiners Gain a Competitive Edge

With U.S. refiners facing higher costs, European refineries are positioned to benefit from increased demand for diesel exports. The decline in U.S. diesel exports, which traditionally play a key role in global fuel markets, is expected to support refining margins in Europe. This shift is expected to be positive for European refiners but less favorable for European consumers, who may see higher gasoline prices as American demand for imports rises.

Asian refiners are also well-placed to take advantage of discounted crude oil from Mexico and Canada. Market analysts suggest that suppliers affected by the tariffs may lower prices to remain competitive, giving Asian refineries access to cheaper raw materials. Since many refineries in Asia are designed to process heavier crude, they are well-equipped to absorb displaced Mexican and Canadian oil.

The expansion of Canada’s Trans Mountain pipeline (TMX), which began operations in May 2024, further reinforces Asia’s strategic position. With TMX now capable of transporting an additional 590,000 barrels per day to Canada’s West Coast, China and other Asian countries could increase crude oil imports from Canada, potentially replacing supplies previously sourced from Venezuela and Saudi Arabia.

Challenges for U.S. Refiners and Consumers

For American refiners, the tariffs present significant hurdles. Data from the U.S. Energy Information Administration (EIA) indicates that Canadian and Mexican crude accounted for 28% of U.S. refinery feedstock in 2023, with Midwest refiners particularly dependent on Canadian oil. The shift away from these traditional suppliers will force refiners to seek alternatives, but not all facilities are equipped to handle lighter crude grades such as U.S. West Texas Intermediate (WTI).

While some U.S. refineries have upgraded to process more light crude, others still rely on heavier crude blends to maximize production efficiency. Analysts argue that substituting WTI for Canadian and Mexican oil could reduce refinery efficiency, leading to lower output and higher consumer prices.

The cost burden is expected to trickle down to American consumers, particularly in the Midwest, where refiners will likely pass tariff-related expenses onto gasoline prices. Some estimates suggest that gasoline prices in the region could rise by 20 to 25 cents per gallon, adding to inflationary pressures.

Strategic Shifts in the Global Oil Market

U.S. refiners have already begun stockpiling crude oil ahead of the tariff implementation, with record-high imports of Canadian crude reported in early January. However, since then, import volumes have begun to decline, suggesting that refiners are adjusting to the new cost structure.

Meanwhile, oil majors such as Chevron have reported weaker refining profits, with Q4 earnings falling below Wall Street expectations. The company’s downstream division, which includes refining operations, recorded its first quarterly loss since 2020, raising concerns about the profitability of U.S. refining in the new tariff environment.

Experts warn that if the tariffs remain in place, long-term competitiveness of U.S. refiners could be at risk, with potential reductions in refining capacity leading to higher domestic fuel prices.

A New Reality for the Global Oil Industry

Trump’s oil tariffs are reshaping global trade flows, making crude oil from Mexico and Canada less attractive to U.S. refiners while creating new opportunities for European and Asian markets. As American refineries struggle with increased costs, refiners in Asia and Europe are stepping in to capture market share, benefitting from cheaper feedstocks and higher demand for refined products.

While these changes may boost profitability for foreign refiners, they pose challenges for U.S. consumers, who may face higher gasoline and diesel prices as refiners adjust to the new cost landscape. The longer the tariffs remain in place, the more significant these shifts will become, potentially altering the structure of the global oil trade for years to come.