Trump Dangles Keystone XL Revival as Canada Tariff Deadline Looms

Canada has obtained a three-day reprieve from President Donald Trump's threatened 50% tariffs, but a final trade deal remains unresolved due to Canadian auto exports, according to Reuters on Wednesday. Late Tuesday, Trump mentioned energy as a potential component of an agreement, stating that the 830,000-bpd Keystone XL oil pipeline "may be awoken from the grave" as part of the deal.

Trump declared a "DEAL" with Canada, pending final document completion, but Canadian Prime Minister Mark Carney did not confirm this. Carney only indicated that "substantial progress" had been made and that "important work" remained. Washington has postponed the tariffs until the end of August 21 while negotiations continue, and Ottawa has not confirmed the details of any agreement.

The main sticking point is the auto industry dispute. The U.S. has proposed reducing its 25% tariff on Canadian-made vehicles to 15%, potentially lowering to 7.5% for vehicles with sufficient U.S. content. Canada opposes this, seeking to include Canadian and Mexican parts in the tariff calculation. This disagreement could impact Canada's auto industry competitiveness in its largest export market.

The auto dispute also serves as leverage for other deal aspects. Trump wants Canada to lift retaliatory measures from the trade war, such as tariffs on U.S. vehicles and provincial bans on American liquor, while expanding access to Canada's protected dairy market. Keystone XL is Trump's carrot to seal the deal. After granting Canada three more days to negotiate out of the threatened 50% tariffs, Trump hinted at reviving the pipeline that would provide Alberta with an additional 830,000 barrels per day of capacity into the U.S. This would not be the first new Canadian crude route backed by Trump this year, as he issued a presidential permit for Bridger Pipeline's $2 billion expansion from Montana to Wyoming in April.

Bridger is already proceeding. Details on reviving Keystone XL and its inclusion in the unfinished trade agreement remain undisclosed by Washington or Ottawa.