Why Canada can’t leverage oil like China did rare earths

On Monday, U.S. President Donald Trump threatened to stop the opening of the new bridge, costing $4.6 billion and connecting Windsor in Canada and Detroit in the U.S., until his country was “compensated” by Canada “for everything we have given them”. This is the latest in a series of threats that Mr. Trump has issued against Canada. In January, Canadian Prime Minister Mark Carney negotiated a deal with China to lower tariffs on Chinese electric vehicles in return for lower import taxes on Canadian farm products. In response, Mr. Trump threatened a 100% tariff on all Canadian imports.

In fact, Mr. Trump began his second term by making claims on Canada as the 51st State of the U.S. So, the current situation is not a sudden shift in the relationship, but a severe escalation of a strategy that began last year.

It was in this fraught climate that Mr. Carney took a stand against Mr. Trump in Davos. “The rules-based order is fading. That the strong can do what they can, and the weak must suffer what they must,” he said. “The middle powers must act together because if we’re not at the table, we’re on the menu.” The question is, can Mr. Carney walk the talk? Does he have strong bargaining chips like China had when the U.S. tried a similar tactic against the country?

When the U.S. waged a tariff war on China, the latter leveraged its dominance over ‘rare earths’, a critical component in clean energy technologies. It introduced measures that required the Chinese government’s approval to export items that contained rare earths. In fact, the U.S. is the second-largest importer of Chinese rare earths, with about 22% of China’s exports going to the U.S. in 2024. More importantly, about 35% of U.S.’s rare earth imports came from China (Chart 1A and 1B). Given this high dependency, China used the commodity as a bargaining chip.

Does Canada have a similar bargaining chip? In theory, it does. It is the U.S.’s largest foreign supplier of energy products such as crude oil. Data show that about 60% of the U.S.’s crude oil imports came from Canada in 2024. However, how practical is it for Canada to use this “leverage” to bargain?

Canada has been pumping almost all of its crude oil to the U.S., with 95% of all crude exports in 2024 going to its neighbour. So, even if it plans to reduce oil shipments to the U.S., it needs to negotiate fresh deals, like the one Ottawa is trying to strike with New Delhi. Notably, in parallel, Trump has claimed that India will be purchasing oil from Venezuela instead of Iran.

But even if Canada manages to secure deals to diversify away from the U.S., finding newer markets is not the only hindrance. The way Canada’s oil pipeline is built demands a forced collaboration with the U.S. About 95% of the oil is produced in Canada’s western provinces. Meanwhile, a large chunk of its population resides in its eastern provinces. In order for the oil to be transported from the west to the east, it must be transported through pipelines which pass through the U.S., because of geographical hurdles. So Canada’s oil network is intertwined with the U.S.’s energy infrastructure.

The other bargaining chip could be to threaten stopping exports to the U.S.’s northern States. The States that share borders with Canada are especially heavily dependent on Canada for imports; 90% of Montana’s imports and 70% of Maine’s in 2024 were from the northern neighbour.

However, the volume of imports by these States is too small compared to overall U.S. imports to have a significant impact.