The key is energy. Official U.S. data shows the U.S. had a bilateral merchandise trade deficit with Canada of USD$48.3 billion in 2025 on total two-way trade of USD$872.3 billion. But if you strip out our energy exports, particularly oil, America had a massive trade surplus of roughly USD$63.2 billion.¹

Canada is America’s second largest export market. Until very recently, we bought more American goods than any other country, with Mexico only inching slightly ahead of us in 2025. The integrated nature of the Canadian and U.S. economies means that the trade balance is determined by structural demand rather than unfair trade practices.

The U.S. energy paradox

Oil seems synonymous with the Strait of Hormuz these days, but the U.S. has been the world’s top producer since 2018. It both exports and imports oil and more than 60% of those imports come from Canada; we ship approximately four million barrels south every day. ²

The make up of total energy production and consumption is complex but on paper the U.S. is roughly energy self-sufficient. This is a historic shift from just 20 years ago when U.S. oil production was bottoming out and it relied heavily on imports.  But then new technologies (primarily horizontal drilling and hydraulic fracturing) triggered a U.S. shale oil boom that steadily lowered once dominant OPEC imports. Yet the U.S. still buys foreign oil, just from different sources – and Canada became # 1: ³

• In 2005, Mexico, Saudi Arabia, Venezuela and Nigeria together supplied 52% of U.S. oil imports. We supplied 16%.
• By 2024, our share of American oil imports was 62% while Mexico, Saudi Arabia and Venezuela together supplied 14%.

Why does the U.S. buy so much oil from us? Geographical proximity and geopolitics help but price, the distinct physical differences in types of crude oil and U.S. oil refinery configurations are the critical factors. The bottom line is it’s a profitable business for major U.S. oil companies.  

American shale oil is primarily light, sweet crude while Canadian exports, largely from Alberta’s oil sands, consist mainly of heavy, sour crude, known as Western Canadian Select (WCS). Decades ago, massive U.S. refineries, particularly in the Gulf Coast and Midwest, were specifically designed to process heavy crude varieties of oil. So those refineries want our product and benefit from the discount WCS trades at to global benchmark prices. The discount has been volatile historically, but according to Alberta government data the average price for WCS in 2026 up to the end of July was $13.30 less than a barrel of West Texas Intermediate (WTI). ⁴

American refiners process WCS into high-value fuels and book healthy gains from selling the output. It’s a win-win: Canadian oil producers have a reliable customer, and refining arbitrage creates profits for U.S. oil companies. So it’s no surprise that the actual source of the U.S. trade deficit with us rarely features in White House pronouncements about our trading relationship.

Why does WCS sell for less?

• Most crude extracted from the oil sands is bitumen, which is very viscous and thick. It requires extra processing and must be diluted with lighter hydrocarbons just to pass through a pipeline.
• WCS travels considerable distances (adding expense) to U.S. refineries.
• WCS has a high sulfur content. Removing it and refining heavy oil into consumer products like gasoline or diesel requires complex, expensive equipment.
• Because it costs more money and energy to process than light, sweet oil, heavy oil inherently sells for less worldwide.
• A lack of alternative markets for land-locked WCS has historically been another factor.

Diversifying beyond the U.S.

The oil sands – U.S. trade benefits both parties but, as in any business, relying so much on one market can have risks. While our energy sector has (so far) been left largely untouched in the trade fight, the sharp turn in US-Canada relations makes diversification prudent. It’s  not a new topic, particularly in BC and Alberta, but events have given it much more traction than just a few years ago.

The huge Indo-Pacific region offers significant potential. China is the world’s largest net crude oil importer, but until very recently bought little from Canada. Yet developing new routes for moving oil to the BC coast for export takes years and enormous capital.  A major step was the opening of the Trans Mountain pipeline expansion (TMX) in 2024, but it was only completed with substantial federal government funding – and ultimately ownership. The expanded system, which originated in the 1950s, nearly tripled pipeline capacity from 300,000 barrels per day to 890,000. Trans Mountain has additional plans to optimize its existing pipeline system by boosting efficiency and capacity to approximately 1,190,000 barrels per day by 2030.⁵

Thanks to TMX, the value of our oil exports to Indo-Pacific markets between May 2024 and September 2025 soared from almost nothing to an average of $571 million per month. China quickly became the biggest buyer of Canadian oil after the U.S., generating $5.9 billion in sales in the same period. And according to the Canada-China Business Council our energy exports there jumped 67% in Q1, 2026, to $3.38 billion, year over year. ⁶

An uncertain future

Donald Trump says he wants the Keystone XL project revived but that wouldn’t help us diversify. The federal government, Alberta and Ontario have all announced major Canadian pipeline initiatives in 2026, but the private sector has not publicly signalled any intent to invest in them, and Ottawa already owns TMX.

The Strait of Hormuz impasse highlights the stable and reliable nature of our energy sector, and higher oil prices in 2026 have generated tax windfalls for Alberta and Ottawa. Yet new pipelines will require increased production to be viable, and major oil sands producers Suncor and Canadian Natural Resources each announced recently they don’t plan to accelerate production plans due to long-term global demand uncertainties. The outlook for Canada as an energy superpower is brighter these days but not guaranteed.

 

Sources

1 Canada | United States Trade Representative

2 https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_m.htm

3 https://boereport.com/2025/02/01/explainer-why-canadian-oil-is-so-important-to-the-united-states/

4 Alberta Economic Dashboard | WCS oil price

5 https://www.transmountain.com/projects

6 https://ccbc.com/research-and-reports/canada-china-trade-in-q1-2026/#:~:text=Canadian%20exports%20to,60.2%25%20YoY%29.

 

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