Canada could reap an oil windfall from Trump. But what do we do with the money?

John Rapley is an author and academic who divides his time among London, Johannesburg and Ottawa. His books include Why Empires Fall (Yale University Press, 2023) and Twilight of the Money Gods (Simon and Schuster, 2017).

In the short term, Canadians will fret that the incoming Trump administration will use the threat of tariffs to squeeze more from the country. With an economy that depends heavily on trade with our southern neighbour, and a surplus on that trade, Canada is both in the crosshairs and highly vulnerable.

However, there are reasons to hope not only that president-elect Donald Trump won’t come down hard on Canada, but that the country might actually enjoy a windfall from his term. Mr. Trump plans to scrap the Biden administration’s transition to renewable energy and switch to what he calls energy dominance – relying on abundant supplies of oil and gas to drive down energy costs and thereby allow the country to out-compete its rivals on input prices. He has chosen an energy secretary who has declared “there is no climate crisis and we are not in the midst of an energy transition either.”

But Mr. Trump’s pledges to deregulate and “drill, baby, drill” may not lead to to a big increase in American oil production. With output having already surged under Mr. Biden, given the strength of the economy, many oil executives are now prioritizing increasing returns over expanded production. That would make Mr. Trump even more dependent on Canadian oil, which makes up more than half of the U.S.’s total oil imports.

It’s thus unlikely that any tariffs from Mr. Trump would include oil and gas. Were he to impose tariffs on Canadian oil and gas, his voters would feel it at the gas pumps, a prospect no American president relishes.

So the odds are good that Canada might actually be able to look forward to a windfall from Trump 2.0, at least for as long as the American economy remains buoyant.

Nevertheless, it would be a mistake to think that this oil windfall would last, to take it as a harbinger of things to come. It’s important to remember that Mr. Trump will have only one term in office, and Republicans are more likely than not to lose control of the House of Representatives in the 2026 midterms, making him a lame-duck president.

And all the while, in the rest of the world, despite what Mr. Trump’s proposed energy secretary says, the energy transition is if anything picking up speed. Until recently, the prevailing assumption was that the switch to renewable energy would be mostly confined to the developed economies, since the cost of installing renewable capacity lay beyond the means of developing countries.

Suddenly, though, that backdrop has changed, and Mr. Trump can’t do much about it. That’s because the energy transition in China has proceeded much quicker than anyone expected, because of a massive government program to stimulate investment in new industry. Not only has the technology advanced so quickly that renewable energy is now often the cheapest source available, but the rapid expansion in Chinese industrial capacity means the country is swamping world markets with cheap products.

So when it comes to cars, for instance, EVs are now often the cheapest option available. And with BYD now producing a plug-in hybrid with a range of more than 2,000 kilometres, the need for charging infrastructure will soon become secondary. Thus, although EVs still account for a tiny sliver of the developing-world market, sales there have begun exploding, especially in some of the fastest-growing economies – up 70 per cent last year in India, 200 per cent in Malaysia, and more than 300 per cent in Thailand and Vietnam.

With Mr. Trump just weeks away from returning to the White House, there’s an air of uncertainty about what comes next. The man’s mercurial nature and his reduced reliance on establishment Republicans to staff his administration mean that the U.S.’s policy framework will be governed largely by his whims – tough to predict at the best of times.

But one thing is clear: The long-term outlook for oil, and the technologies fuelled by it, makes Canada’s prospects look very different 10 years out. If we get a Trump windfall, we’d do well to use it to develop new export industries, because the death knell for our old ones may ring sooner than we thought.