The by President Donald Trump’s administration on imports from Canada in July 2026, and the by Prime Minister Mark Carney’s administration on imports to Canada from the U.S. a month later, do not include oil and natural gas. Electricity and some petroleum products were also left out, although they remain subject to a imposed in 2025.
That’s because the two countries’ energy systems and markets are so intertwined that tariffs would devastate both economies. Canada is the to the United States, supplying . It is also the only direct foreign supplier of electricity to the U.S., with moving electricity from Canada south across the border.
In truth, Canada could , as Ontario provincial Premier Doug Ford threatened in August 2026.
But researchers like , who study the historical links that have shaped Canadian and U.S. business relations, know that over the past 50 years Canada has expanded its energy production with one specific goal: serving U.S. consumption. In 2024, were exported to the U.S. Without American buyers, there is no real energy market in Canada.
Early connections
Since the second half of the 19th century, energy generated on – and across them – has connected the two nations. The Great Lakes Basin was the hydraulic center of energy interconnectivity, as both nations shared the energy generated by Niagara Falls and the .
During the early stages of World War II, even before the U.S. entered the fight, Canada and the U.S. started to integrate their energy systems. That work was part of through the integration of defense manufacturing production systems.
The of 1940 and the 1941 consolidated and formalized the strategic economic and military cooperation between the two countries and set the foundations for future collaboration.
From cooperation to integration
After the war, Canadian and U.S. businesses liked the idea of sharing production and manufacturing operations, even beyond war-related work.
Nevertheless, manufacturing on both sides of the border went back to prewar ways of producing things domestically. Nationalist voices opposed the idea of further integrating the Canadian and U.S. economies.
Less than two decades after the war ended, though, the two nations signed the , which eliminated tariffs on cars, trucks and automotive parts. Canadian parts manufacturers could compete directly with those based in the U.S., all to serve U.S. automakers.
This initial experiment in free trade revealed to businesses on both sides of the border that supply chain integration could benefit other production and service industries.
By 1989, the two countries had that removed tariffs for goods crossing the border in either direction. That opened the door for more closely integrating their energy markets too.
In 1992, a U.S. over the country’s energy markets. Some of the provisions allowed Canadian companies to sell excess energy to the U.S., and two years later the brought Mexico into the relationship too.
NAFTA integrated the production, processing and distribution of thousands of goods and services across all three countries.
But it was the interconnection of energy infrastructure that turned the Canadian and U.S. economies into one single energy market. Today, four major U.S. electrical grids depend on imported power from Canada: those serving the six , , , and .
Moreover, there are connecting Canada with the United States. And although energy products move back and forth across the border, the with Canada. Much of the U.S. economy runs on Canadian energy, and much of Canada’s energy production is sold to the U.S.
The current reality on the ground shows an integrated energy system between the two nations: something very difficult and costly to untangle, and a process that would take decades to reengineer.
Local impact
Today, those links form the basis for very tight integration between the two countries’ business and industrial marketplaces.
For example, Maine, where I live and work, gets close to from Canada.
The state’s northern electrical grid is run by the , owned by the province of New Brunswick, which serves Mainers.
Today, Maine’s electric grid is owned mostly by foreign interests, including , and the owner of Versant Power, which serves 16% of Maine’s market. is served by Central Maine Power, which is from Spain.
Canadian energy reaches deeper into the U.S., too. In 2025, Hydro-Quebec, a company that , secured a deal with local regulators to use Maine as a corridor to supply clean energy to Massachusetts. Hydro-Quebec is of the province of Quebec.
The bilateral integration of energy infrastructure over the past 30-plus years explains why this sector was exempt from the most recent tariffs.
, Senior Lecturer of Management,
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