It's the Keystone Catch-22. If U.S. President Donald Trump is true to his trade talk, he'll approve a new pipeline for Alberta oil, and that will pump new uncertainty into the rest of Canada's trade with the United States.
That's one minefield that Prime Minister Justin Trudeau has to dodge now that Mr. Trump has made it clear he will move to quickly renegotiate the North American free-trade agreement. The trick seems to be getting Mr. Trump to think of Alberta oil as his own.
For some Canadians, one silver lining to Mr. Trump's protectionist talk has been his vow to quickly approve the Keystone XL pipeline that his predecessor, Barack Obama, rejected. The proposed pipeline would pump 830,000 barrels a day of Alberta bitumen into the U.S., to conduits that can carry it to the Texas coast.
It seems like a win-win for Washington and Ottawa. Natural Resources Minister Jim Carr reiterated Monday that the Liberal government wants Keystone XL to go ahead.
The problem is that could clash with another major aspect of Mr. Trump's trade policy: undoing U.S. trade deficits.
Mr. Trump has signalled that he wants to impose protectionist measures such as tariffs against countries that sell more goods and services into the U.S. than they buy from Americans. He has cited that as a key reason for rewriting NAFTA. And it goes further. He and his key trade advisers have indicated they want mechanisms in trade deals so that they will be reopened if and when the U.S. develops a trade deficit.
For Canada, that doesn't seem so bad right now. The U.S. enjoyed an $11.9-billion (U.S.) trade surplus with Canada in 2015. Blackstone Group CEO Stephen Schwarzman, chair of Mr. Trump's strategic and policy council, met with Mr. Trudeau's cabinet in Calgary on Monday and told reporters that U.S.-Canada trade is roughly in balance, so Canadians should not worry. He suggested Canada might negotiate an exemption to a potential new U.S. border tax.
But Keystone XL would wipe out the U.S. trade surplus, and a hike in the price of oil to $75 or $80 a barrel would suddenly turn it to deficit.
Just imagine what that could mean for Canada under a new, rewritten NAFTA that triggers a renegotiation whenever the U.S. develops a trade deficit with Canada: when oil prices go up, trade rules for other goods from cars to cattle could be rewritten, creating uncertainty for exporters.
It would be a no-win. If Mr. Trump gets the pipeline he wants, Canada could expect NAFTA to be re-opened again. And again.
The price of oil is already the key variable that swings Canada-U.S. trade from surplus to deficit and back. The U.S. had a $15-billion trade deficit with Canada in 2014, but oil prices plummeted, so even though Canada exported more barrels of oil to the U.S. in 2015, its value declined by $34.7-billion, according to National Energy Board figures.
That suggests it could be critical for Mr. Trudeau to convince Mr. Trump that he should consider Canadian oil like U.S. oil – in other words, that the U.S. should not count Canadian oil as an import when they consider their trade balance.
In one sense, that's not a wild notion. U.S. Republicans have often argued that buying oil from Canada reduces dependence on the Middle East and other less-than-friendly countries.
But it doesn't really fit with the new Trump Administration's expressed theories about trade and economic policy.
The chair of President Trump's new National Trade Council, Peter Navarro, has written extensively that trade deficits are a drag on U.S. economic growth. He has proposed trade measures, notably targeted at China, to try to combat those trade deficits. But Mr. Navarro has also written extensive warnings that U.S. dependence on foreign oil is a big part of that economic problem, and argued that the U.S. should impose import fees on foreign oil. Mr. Navarro's writings don't offer economic arguments for exempting Canada from those measures.
That means Mr. Trudeau must work to make the Trump Administration see Canadian oil as part of their own continental supply – otherwise, in Washington's eyes, a pipeline or a price change could tilt the balance.