When it comes to US tariffs on Canada, the headlines may paint a simple picture, but the reality is far more complex. Canada is a critical trading partner that directly supports US industries, jobs, and consumers in ways that aren’t always obvious. Here are five key facts about the Canada-US trade relationship that might surprise you.

1. The US Has a Merchandise Trade Surplus with Canada (When Energy Is Excluded)
While the overall US-Canada merchandise trade balance shows a deficit, this picture is skewed by energy imports. When energy is excluded, the US actually had a merchandise trade surplus of $28.6 billion with Canada in 2023, a trend which has held since 2007¹, driven by high-value sectors like manufacturing, machinery, and automotive parts.

Why it matters: This surplus supports thousands of American jobs and highlights how interdependent the two countries are. As Cumberland Chief Investment Officer Peter Jackson has commented, energy imports heavily influence the deficit figures, but in key sectors like manufacturing, the US gains more than it loses.

2. Canadian Crude Imports Create a Win-Win Through Refining Arbitrage
Canada exports about four million barrels of crude oil to the US every day, accounting for 21% of US daily consumption². Canadian heavy crude oil flows into US refineries at a discount that can generally be estimated at $10–$20 per barrel as compared to lighter WTI crude³. US refineries process this Canadian heavy crude into gasoline and diesel, which are sold in the domestic market at competitive prices. Meanwhile, the US exports some of its own lighter crude globally at a premium.

The takeaway: As we have noted, this refining arbitrage benefits US refiners, oil producers, and consumers by keeping fuel prices low while allowing the US to profit from exports.

3. Canada Buys More US Goods Than Any Other Country
In 2023, the US exported $449 billion worth of goods and services to Canada, making it the US’s #1 export destination⁴. From machinery to precision instruments and aircraft, Canadian businesses are major consumers of American innovation. And it’s not just confined to border states—it’s a national relationship. In fact, 36 US states, from Michigan to Texas, rely on Canada as their #1 export destination⁵.

The impact: Industries across the US depend on Canadian demand, and disruptions in trade could ripple through local economies nationwide.

4. Canadian Imports Drive US Manufacturing Efficiency
Nearly 70% of US imports from Canada are used as inputs for the production of American goods⁶. From automotive parts to metals and chemicals, Canadian imports fuel US factories, enabling them to remain competitive globally.

Why it’s important: Tariffs on Canada could increase input costs for US manufacturers, reducing their ability to compete internationally.

5. Tariffs on Canada May Hurt US Consumers More Than Canada
Because Canadian energy and raw materials play such a large role in US supply chains, imposing high tariffs would likely lead to higher costs for American manufacturers and consumers. Tariffs on key imports, like energy and automotive parts among others, could raise production costs, making American goods less competitive globally.

It’s also critical to note that, while Canada’s overall trade imbalance with the US has increased since Trump’s first term, largely driven by higher energy prices, it is still dwarfed by the imbalances with China (close to US$300 Billion) and the Euro Area and Mexico (each around US$200 billion +/-)⁷.

The twist: Canada’s close trade ties create efficiencies that directly benefit the US economy. And, while Canada has been portrayed as a major contributor to the US trade deficit—in reality, it is not. Targeting it with tariffs is more about political narratives than economic necessity.

In our view, a closer look at the trade data reveals that Canada is not just another trading partner—it’s an essential economic ally to the U.S. As tariff debates unfold, acknowledging this deep interdependence could pave the way for more strategic solutions that ultimately benefit both nations.

At Cumberland, we’re closely tracking these developments to assess their impact on markets and position our portfolios accordingly. Our focus remains on helping clients navigate uncertainty while balancing attractive investment opportunities and prudent risk management.