The trade relationship between Canada and the United States is at a crossroads, with both nations engaged in a contentious tariff battle that could have severe implications for critical industries. In 2023, Canada was the U.S.’s largest supplier of vital minerals, providing $47 billion worth of uranium, aluminum, nickel, copper, and other key resources. This trade partnership is indispensable to the U.S. defense, nuclear energy, and manufacturing sectors, but the new tariffs from both sides could jeopardize this fragile alliance and hinder the U.S.’s push to reduce its reliance on China for strategic minerals.
The High Stakes of Tariffs
The minerals sourced from Canada are crucial for U.S. industries. Uranium fuels the nation’s nuclear reactors, nickel is integral to defense technologies and electric vehicle batteries, and aluminum is essential for everything from fighter jets to food packaging. However, a 25% tariff on Canadian minerals could add $11.75 billion to the U.S. cost base, escalating further if prices for base metals and uranium increase. This burden would hit industries in dire need of stable mineral supplies, particularly those involved in national security and advanced technology.
As the U.S. imposes these tariffs, Canada is expected to retaliate, much like it did during the Trump administration’s tariffs on steel and aluminum. In 2023, the U.S. sent $30.7 billion worth of minerals to Canada, and retaliatory measures could cost Canadian firms an additional $7.6 billion. This may prompt Canadian companies to seek alternative markets, further eroding the U.S. supply chain.
Critical Minerals at Risk
Canada plays an outsized role in providing the U.S. with minerals essential for its energy security and defense infrastructure. For example, uranium, which powers over 90% of the U.S.’s nuclear electricity, is heavily dependent on Canadian exports. The U.S. has limited uranium reserves compared to Canada, with U.S. reserves at 59,400 tons compared to Canada’s 588,500 tons. A disruption in uranium supply could threaten the U.S.’s nuclear power dominance, especially as the country struggles to ramp up nuclear plant construction, which has stagnated in recent years. With China poised to overtake the U.S. in nuclear power generation by 2030, securing a stable uranium supply from Canada is crucial.
Nickel, another key commodity, is pivotal for the defense and automotive sectors. It’s a critical component in military-grade alloys used in aircraft, vehicles, and weaponry. Canada supplies half of the U.S.’s nickel needs, with the U.S. relying on Canadian refineries to process its nickel. If tariffs make Canadian nickel too expensive, U.S. manufacturers might turn to cheaper alternatives from Indonesia, which is heavily controlled by Chinese mining companies. This undermines U.S. efforts to reduce its dependence on China for key mineral supplies.
Aluminum, used in defense technologies such as fighter jets and armor, is also a major trade item between the two countries. In 2021, over 75% of Canadian aluminum production was exported to the U.S. A 25% tariff would add about $2.2 billion in costs to the U.S. aluminum industry. Canada is a critical supplier, as the U.S. struggles to maintain a robust aluminum production capacity, with just five active smelters—only one of which is capable of producing military-grade aluminum.
The Integrated Nature of U.S.-Canada Supply Chains
The consequences of tariffs extend beyond the direct costs of raw materials. The integrated nature of U.S.-Canada supply chains means that minerals often cross the border multiple times before reaching their final destination. For instance, automotive parts can move between the U.S., Canada, and Mexico up to eight times. The U.S. automotive industry alone employs over 300,000 workers, and tariffs could threaten the livelihoods of many within this sector.
A Geopolitical Dilemma
The stakes are higher than just trade figures. The U.S. is locked in a race to secure its supply of critical minerals as part of its strategy to reduce reliance on China. Tariffs on Canadian minerals could push U.S. manufacturers into the arms of China, undermining decades of efforts to diversify supply chains and limit Chinese influence in strategic sectors. Given China’s control over key mining and refining operations in countries like Indonesia, any shift away from Canadian resources could ultimately harm U.S. economic and national security interests.
Looking Ahead
The ongoing tariff dispute between the U.S. and Canada is not just an economic issue—it’s a question of national security. Disruptions in the flow of essential minerals could hamper the U.S. defense industry, hinder nuclear energy expansion, and complicate efforts to transition to green energy. With U.S.-Canada supply chains highly integrated, the repercussions of tariffs could be felt across industries, impacting everything from military hardware to electric vehicles.
As both countries continue to engage in this tit-for-tat tariff war, the future of their trade relationship remains uncertain. The mineral trade between the two nations is too vital to national security and economic stability to be disrupted by such measures. For the U.S., the long-term costs of tariffs on critical minerals could far outweigh the short-term benefits, weakening its position in global markets while strengthening China’s hold over key resources.
