Ontario's Power Cut Threat: A Double-Edged Sword

Ontario's Retaliation Against U.S. Tariffs: Potential Impacts on North American Energy and Economy

In a bold response to President Donald Trump's recent imposition of tariffs—25% on Canadian imports and an additional 10% specifically targeting Canadian energy—Ontario Premier Doug Ford has announced a series of countermeasures. Among these is the cancellation of a $100-million contract with Elon Musk's Starlink, initially intended to provide high-speed internet to 15,000 rural and northern Ontario homes and businesses by June 2025. Ford cited Musk's close ties to Trump as a factor in this decision.

Ford's retaliatory measures extend beyond the Starlink contract. The Liquor Control Board of Ontario (LCBO), the province's government-run alcohol retailer, has removed all U.S. products from its shelves. Additionally, U.S. companies are now barred from bidding on Ontario government procurement contracts, effective immediately. These actions are a direct response to what Ford describes as economic attacks on the province.

The most significant threat, however, is Ford's consideration of cutting off electricity exports to the United States. Canada is a major electricity supplier to the U.S., with exports reaching a record high of $5.8 billion in 2022. 

 

The United States imports approximately 33.23 terawatt-hours of electricity from Canada annually, with states like New York, Michigan, Minnesota, North Dakota, New Hampshire, Maine, California, Vermont, Nevada, and Arizona being the primary recipients. This extensive cross-border energy trade is facilitated by over 35 major electricity transmission lines.

Economic Implications for the United States

Should Ontario proceed with halting electricity exports, the economic repercussions for both countries could be substantial. In the United States, states heavily reliant on Canadian electricity—such as New York, Michigan, and Minnesota—would face immediate challenges. These states could experience increased electricity prices due to the sudden need to source alternative, potentially more expensive, power supplies. Industries in these regions, particularly manufacturing sectors with high energy consumption, might see operational costs rise, potentially leading to reduced competitiveness and job losses.

The broader U.S. economy could also feel the strain. Increased energy costs can lead to higher production expenses, which often trickle down to consumers in the form of elevated prices for goods and services. Inflationary pressures could mount, and consumer spending might decline, slowing economic growth.

Economic Implications for Canada

For Canada, particularly Ontario, ceasing electricity exports would mean forfeiting significant revenue. The province could lose substantial income from electricity sales, impacting public finances and potentially leading to budgetary constraints. However, Ford's administration appears prepared to absorb these losses to assert economic sovereignty and counter U.S. tariffs.

Potential for Escalation

The situation is poised for further escalation. Canadian Prime Minister Justin Trudeau has already announced a 25% levy on C$30 billion worth of U.S. imports, with additional tariffs on another C$125 billion in U.S. goods set to take effect in the coming weeks. Trudeau has accused Trump of aiming for "a total collapse of the Canadian economy" to facilitate annexation, highlighting the severity of the diplomatic rift.

Premier Ford's stance is resolute. He has warned that if the trade war continues without resolution, Ontario will impose a 25% surcharge on all critical minerals and power exports to the U.S. as early as April. Ford emphasized the need to "inflict as much pain as we can until we come to an agreement," underscoring the province's readiness for a prolonged economic confrontation.

Double edge sword

The escalating trade tensions between Canada and the United States, marked by tariffs and retaliatory threats, have placed the North American energy sector at a critical juncture. Ontario's potential cessation of electricity exports to the U.S. could disrupt energy supplies, elevate costs, and strain economic relations. Both nations face significant challenges ahead, and the resolution of this dispute will require careful negotiation to mitigate adverse economic impacts on both sides of the border.