President Trump's pursuit of U.S. energy dominance, coupled with Canada's response to proposed tariffs, has thrown North American energy markets into uncertainty. With diplomatic and economic tensions mounting between the two nations, industry stakeholders are assessing the potential long-term implications for continental energy strategies and partnerships that have defined the region for decades.

Relations between the United States and Canada, longtime trading partners, shifted significantly on February 1, 2025, when President Trump announced a 25 percent tariff on Canadian imports. While most sectors faced the full tariff, Canadian energy resources received preferential treatment with a reduced rate of 10 percent. Tensions escalated immediately when Prime Minister Trudeau responded the following day with a promise of retaliatory tariffs should any of Trump's proposed measures take effect, marking the opening in what appears to be a developing trade conflict between the neighboring nations.

The trade dispute intensified when President Trump recently threatened to double tariffs on Canadian steel and aluminum from 25 percent to 50 percent. This escalation came in response to Ontario's planned 25 percent surcharge on electricity exports to the United States, which would have affected power supplies to Michigan, New York, and Minnesota.

Regulatory agencies have cautioned that an energy trade war could have the potential to destabilize markets, though some industry leaders remain less concerned. Responding to Ontario's proposed 25 percent tariff on energy exports to Michigan, the Michigan Public Service Commission offered a measured assessment, stating that "while the vast majority of Michigan's electricity is either produced by the electric utilities or purchased under long-term power contracts, the imposition of these tariffs could have some impact on prices in the regional energy markets, though the ultimate impact on Michigan customers is likely to be small." This perspective was reinforced during CERAWeek when Constellation Energy CEO Joe Dominguez suggested in an interview that tariff increases would have only a minimal effect on energy deals and investments.

However, as nations and utility companies compete for energy dominance in a market of rising demand, what industry experts classify as "small" impacts may have more significant implications for residential customers. Projections on how much residential bills would increase as a result of a tariff vary widely, with California estimating a modest $.16 increase to the average consumer, Ontario Premier Doug Ford estimates that residential customers may see on average a $100 increase on their monthly utility bill. This increase could signal rising debate in the future about cost allocation in future utility proceedings.

A widespread concern is how tariffs might affect reliability. Michigan Public Service Commission Chair Dan Scripps noted that electricity from Ontario flows through Michigan and into several other states via the Eastern Interconnection's electrical grid. A disruption to this power flow could potentially result in widespread outages across both the United States and Canada.

In addition to the concerns on reliability and price increases, U.S. utilities have expressed concerns about how tariffs might affect their operations and infrastructure plans. In February SEC filings, several major utility companies including FirstEnergy and American Electric Power warned that tariffs could disrupt supply chains and increase costs. According to the Atlantic Council, the U.S. imports about 80 percent of its electric transformers, with Mexico being the largest supplier. President Trump's 25 percent tariffs on steel and aluminum will also raise prices for grain-oriented electrical steel used in transformer manufacturing. "Higher prices for transformers, especially transformers imported from Mexico, because of tariffs will raise project-development costs and delay infrastructure upgrades, hitting Texas hardest," the Council noted, citing an existing transformer shortage.

The ongoing tariff tensions are prompting Canada to reconsider its long-term energy strategy with Canadian officials exploring options to diversify their energy exports beyond the United States. With the recent expansion of the Trans Mountain Pipeline to Canada's west coast, Canada may begin to seek access to potential markets in Asia with industry experts suggesting that the current trade tensions could accelerate Canadian interest in further expanding its pipeline network to reduce dependence on U.S. markets.

Despite both countries stepping back from threats to impose tariffs on the energy market, America's 25 percent steel and aluminum tariff has still taken global effect, with implementation paused until April 2 for USMCA-origin goods, after which parties may apply for exemptions. While Ontario Premier Doug Ford indicated that Canada's retaliatory electricity surcharge remains on the table, he emphasized that Canada's primary objective is to be first in line to secure an exemption from the new tariff regime which is set to take full effect on April 2.

Regardless of a potential trade war on the horizon, both countries will likely have to carefully weigh the political gains against facing one another with the potential disruption of one of the most reliable energy integration systems. It is very likely that as tariffs and their effect on the energy market loom industry leaders, regulatory bodies, and policymakers on both sides of the border facing complex challenges of preserving critical energy partnerships.