Key Takeaways:
- The US has attacked oil-rich Venezuela and captured its president Nicolás Maduro, potentially giving the US access to Venezuela’s large reserves of heavy crude oil.
- The US may not need Canadian oil as much, which could affect Canada’s bargaining position in trade talks.
- Experts believe that Venezuela’s oil sector and infrastructure have been deteriorating for over a decade, posing significant risks for US oil companies.
- Canada is still deeply reliant on the US economy, which could make it difficult to push back against the president in trade talks.
- The US has a number of demands that Canada must meet to extend the Canada-US-Mexico Agreement (CUSMA), including bolstering market access for US dairy products and addressing provincial boycotts of US alcohol.
Introduction to the Situation
The recent US attack on Venezuela and the capture of its president Nicolás Maduro have significant implications for Canada-US trade talks. The wife of a top adviser to US President Donald Trump, Katie Miller, warned on social media that "the US doesn’t need anything from Canada. Free trade is over." This statement has raised concerns about the future of trade between the two countries, particularly in the energy sector. As Canada gears up to review the Canada-US-Mexico Agreement (CUSMA), experts and former officials are weighing in on the feasibility of ramping up Venezuelan oil production and the road ahead for Canada-US trade talks.
Can Venezuela Displace Canadian Oil?
According to RJ Johnston, the director of energy and natural resources policy at the University of Calgary, Venezuela’s oil sector and infrastructure have been deteriorating for over a decade, which poses significant risks for US oil companies who may want to re-enter the country. Johnston notes that if the US government creates a partnership with the US oil industry and provides significant capital, it could change the calculus. However, left to their own devices, US companies may not be eager to invest in large projects in Venezuela. Prime Minister Mark Carney has stated that he is not worried about the prospect of increased oil production from Venezuela because Canadian oil is cheaper, cleaner, and lower-risk.
Trump’s Leverage
Kate Kalutkiewicz, a former senior director for international trade at the National Economic Council during Trump’s first term, believes that the events in Venezuela do not change the Canada-US energy dynamic in the near term. However, she notes that Trump is serious about reducing reliance on any singular trading partner for any particular good or commodity. Trump prides himself on being a good negotiator and is always thinking about how to create leverage in any negotiation. Fen Osler Hampson, co-chair of the Expert Group on Canada-US Relations, echoes Kalutkiewicz’s assessment, stating that the events in Venezuela show Trump and his team view the Western Hemisphere as their playground.
Canada’s Leverage
When asked what leverage Canada may have over the US in trade talks, Kalutkiewicz notes that Canada is still deeply reliant on the US economy, which could make it difficult to push back against the president. However, Hampson argues that Canada can take its money to other countries and buy their finished products, such as electric vehicles from China and agricultural goods from Mexico. As a consumer and purchaser of American goods, Canada has leverage and options. Kalutkiewicz suggests that Canada should focus on expanding its economic relationships with other economies to show the US that it’s not the only game in town.
The Future of CUSMA
The US has a number of demands that Canada must meet to extend CUSMA, including bolstering market access for US dairy products and addressing provincial boycotts of US alcohol. US Trade Representative Jamieson Greer has also stated that the US will take aim at the Online Streaming Act, which brought online platforms like Netflix, Spotify, and YouTube under Canadian broadcasting rules. Laura Dawson, executive director of the Future Borders Coalition, notes that it’s difficult to say what kind of concessions will be brought to the table during the 11th hour when the horse trading takes place. While Dawson thinks a brand new North American trade agreement is unlikely to come out of these talks, she also doesn’t believe that CUSMA would be abandoned. Kalutkiewicz believes that some of Trump’s actions show he’s been convinced that the North American supply chain is critically important for US economic competitiveness, and she feels optimistic that the structure of CUSMA remains strong.