Trump’s tariffs on Canadian oil, the failures of globalization, and why prices at the pump might rise by 25% in 2025

Earlier this week, President-elect Donald Trump posted on Truth Social that he would impose 25% tariffs on Canada and Mexico—two of the country’s largest trading partners. “As everyone is aware, thousands of people are pouring through Mexico and Canada, bringing Crime and Drugs at levels never seen before.” wrote Trump, adding that the governments of both countries had the “absolute right and power to easily solve this long simmering problem.” Until the issue was resolved, Trump stated, tariffs would take effect on day one of his administration.

The United States receives a significant portion of its crude oil from Canada, and tariffs on these imports could directly affect drivers, as the added costs would likely be passed down to consumers. According to the U.S. Energy Information Administration (EIA), Canadian imports of crude oil reached record levels, averaging 4.3 million barrels per day. This crude oil is refined in the U.S. and sold to consumers and the private sector. These imports account for approximately 50 percent or more of the total crude oil supply in the United States.

How drivers could be impacted by tariffs on Canadian oil

In 2023, the U.S. spent approximately $124 billion on crude oil imports from Canada. If a 25 percent tariff were imposed on Canadian crude oil, American importers and refiners would face three options. First, they could reduce imports to a level where the total cost, including the tariff, remains around $100 billion, resulting in a lower supply of crude oil. Second, they could maintain the same quantity of imports and pass the 25 percent tariff cost on to consumers. Third, they could import the same quantity but absorb some of the tariff cost, sharing only a portion with consumers. In all three scenarios, drivers would face higher fuel prices.

In the first scenario, a reduced supply with constant demand would drive prices higher. In the second and third scenarios, the extent of price increases would depend on how much of the cost importers pass on to consumers. According to the EIA, the average price of a gallon of gas in 2025 is projected to be $3.20. If a 25 percent

tariff were imposed and fully passed on to consumers, the average price could increase by $0.80 per gallon.

If Donald Trump and his team assume that prices won’t rise because production and refining capacity will increase, they forget that infrastructure would need to be built and that currently next year capacity is not expected to grow.

The Trump team’s theory on tariffs

The Trump team theorizes that domestic and foreign corporations will see economic benefits in bringing manufacturing back to the U.S., thereby increasing employment and revitalizing the domestic manufacturing base. However, tariffs are not sanctions; they are taxes paid on the demand side. At a campaign stop in October, the then GOP candidate said that tariffs would help bring back the American automobile industry.

Even if tariffs succeed in bringing jobs back—something many economists doubt—it will take time, and consumers are likely to face rising prices in the meantime. Moreover, it is not only about bringing back the jobs, but ensuring that they come back as quality jobs, with fair pay, conditions, and benefits. When Trump speaks of “Making America Great Again,” these jobs are often what come to mind—especially for white men who view Trump as a path back to the dignified lives their fathers and grandfathers lived.

The death of American manufacturing

Under President Bill Clinton, trade with China was normalized—a process that began under the Nixon administration. When the World Trade Organization (WTO) was established in 1995, China was allowed to become a full member. It is important to consider the historical context of this time: the USSR had fallen, and many within the U.S. government believed the country faced little foreign competition. In the decade preceding and following this shift, manufacturing jobs were sent overseas as companies hired workers abroad for a fraction of what they paid U.S. workers.

In the decade preceding and following China’s WTO accession, US manufacturing jobs were increasingly outsourced as companies sought cheaper labor abroad. In 1979, when manufacturing employment in the US peaked, nearly one in five workers—about 20 percent of the workforce—was employed in the manufacturing sector. Today, that figure has plummeted to just 7 percent. This decline has created significant economic challenges, particularly for workers without a college degree, a majority of whom, according to exit polls from NBC voted for Donald Trump and believed in his economic message that was centered around imposing tariffs on critical trade partners.

The offshoring of manufacturing jobs inflicted substantial harm on communities across the country. As factories closed, incomes fell, local businesses shuttered, and no new investment came to replace what was lost. This decline coincided with the opioid epidemic. In 2000, the CDC reported fewer than 20,000 overdose deaths; by 2023, that figure had surged to 107,543. The economic pain that Donald Trump spoke to in this election did not materialize in this cycle, it has been brewing for decades.

A failed economic vision for the 21st century

President-elect Trump’s rhetoric on trade has galvanized support across the country, fueled by widespread discontent with decades of trade policy under administrations from both parties. Alan Greenspan, former Chair of the Federal Reserve (serving from 1987 to 2006), admitted mistakes in the wake of the 2008 Financial Crisis. A student of Milton Friedman, Greenspan believed in the 1980s and 1990s that the US should transition from a manufacturing-based economy to one driven by services and ‘innovation.’ Presidents of both political factions kept him on as Fed Chair throughout their presidency and over his tenure, the proportion of workers within the service industry in the US rose from 65 percent of the workforce to 75 percent. This shift left a void for workers who would have been employed in manufacturing or the logistics that support domestic production.

But, some might argue that the new jobs were better than those that were sent overseas. The follow up question being, by what metric. Labor force participation is lower than it was thirty years ago. Median real wages, adjusted for inflation, have grown by only about 0.7 percent annually since 1995—an increase of just 17 percent over 24 years. These gains have been marginal and have not significantly expanded workers’ purchasing power. At the same time, wealth inequality has worsened. The top 50 percent of households own 97.5 percent of the country’s total net worth, up from 96.6% in 1995. Meanwhile, the bottom 50 percent have seen their share drop from 3.5 percent to 2.5 percent. Is this a record either Democrats or Republicans want to champion? Over three decades, the bottom half of workers, who drive the economy, have been left with less.

The false promise of outsourcing

Outsourcing has allowed corporations to keep wages relatively stagnant over the last three decades while selling cheaper goods. This has enabled consumers to buy more relative to what they could have afforded when these goods were made domestically. However, the benefits of this model have been unevenly and unfairly distributed. The top 1 percent of households have seen their share of total wealth grow from 26.5 percent in 1995 to 30.2 percent in 2024. For those at the bottom, the costs of globalization have been stark: doing more with less, while witnessing the rising concentration of wealth at the top.

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