President Donald Trump’s tariffs on Canada and Mexico could mean higher heating bills and prices at the pump.
After a monthlong pause on his tariff plans, Trump on Tuesday imposed a 25% tax on most imports from Canada and Mexico, with a 10% tax on Canadian energy imports such as natural gas and oil. An administration official last month said the lower levy was meant to minimize disruptions in gasoline and home heating prices, but experts say Americans can still expect price increases.
“The full brunt of this action was tempered a little bit by the fact that energy tariffs on Canada are 10% rather than 25%, but there’s still going to be an effect on consumer prices,” said Ernie Tedeschi, director of economics at the Budget Lab at Yale.
How much will gas prices go up due to tariffs?
While the U.S. is the world’s top crude oil and natural gas producer, it turns to other countries to help supply its refineries with crude oil that is heavier than what is generally produced domestically.
As of December, about 4.2 million barrels of crude oil were imported from Canada each day, accounting for more than 60% of total imports, according to the Energy Information Administration. Another 451,000 barrels came in from Mexico each day on average.
Imports from the two countries account for about a quarter of the oil U.S. refiners process into fuels like gasoline and heating oil, according to the U.S. Department of Energy.
With those imports now subject to tariffs, the “great debate” is whether the producers or U.S. consumers will take the hit, according to Andy Lipow, president of consulting firm Lipow Oil Associates.
“It may be both,” he said.
Tariffs are essentially taxes paid by importers, which typically pass on at least a portion of those costs to consumers. The Yale Budget Lab estimates Trump’s tariffs could drive natural gas prices up 5% and gasoline prices up 1.6% on average in the long run.
Shorter-run effects on oil and gas prices “may be larger,” according to the budget lab.
“Consumers should assume that, in the short run, the pain is going to be greater,” Tedeschi said.
Regular U.S. gas at the pump cost $3.10 per gallon on average on Tuesday, according to AAA. Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, a D.C. think tank, said tariffs could add 20 to 30 cents per gallon on average in the near term.
Ziemba said certain regions like the Midwest, where refineries have been set up to work with heavier-grade Canadian crude, could take a bigger hit.
“The tariff cost will be split between the exporters, the U.S. refineries and the U.S. consumers,” with those in the Midwest and Northeast “likely to be most affected,” Ziemba said.
Meanwhile, lawmakers in northeastern states in particular are ringing alarms over the risk of increased energy costs.
Three members of Maine’s Congressional delegation warned tariffs “may raise prices on gasoline, energy, groceries and much more,” noting Canada supplies the oil people in Maine rely on to heat their homes. Massachusetts Gov. Maura Healey also warned that gas and heating costs could “skyrocket on Massachusetts residents and businesses.”
How soon will price hikes go into effect?
Some companies have already warned that consumers should prepare for price hikes.
Irving Oil, a Canadian refiner that serves homes and businesses in northern New England, last month said tariffs will result in price increases for U.S. propane customers. Maryann Mannen, CEO of U.S. refiner Marathon Petroleum, said during a February earnings call that the majority of cost increases will “be borne by the producer and then, frankly, to a lesser extent, the consumer.”
Ziemba said prices could go up at the pump soon after tariffs go into effect.
Gas prices “tend to be a little quicker to go up and a little slower to go down,” she said. Price jumps “could happen pretty quickly, even though the actual molecules at the gas station might still be what was produced before the tariff.”
Ziemba added that Trump “may take some solace” from OPEC+, an alliance of oil exporting countries, agreeing on Monday to increase crude oil production starting next month, which should help keep oil prices down.
West Texas Intermediate, the U.S. standard, settled at a 12-week low of $68.37 after the announcement.
Ripple effects on the economy
Higher energy prices could have ripple effects on the broader U.S. economy, warned Tedeschi of the Budget Lab at Yale.
“Virtually everything in the economy takes some energy to produce,” Tedeschi said. “So you can expect that the cost of anything would go up at least a little as a result of these energy increases.”
The tariffs could also complicate the Federal Reserve’s plans to cut rates twice this year.
“Even if it doesn’t necessarily make them hike interest rates, it will almost certainly make them more hesitant to cut interest rates this year,” Tedeschi said.
