Canadian Prime Minister Justin Trudeau has stated in a public letter that U.S. thermal coal exports are being investigated. That follows tariffs applied by the U.S. Canadian lumber exports, as outlined in Panjiva research of April 25. Unsurprisingly U.S. Commerce Secretary Wilbur Ross has said that such a move would be “inappropriate” according to CNBC. The U.S. tariffs will likely have macroeconomic implications for Canada as its exports outside energy have only been growing modestly.

Panjiva data shows Canada is a small market for U.S. thermal coal exports. It accounted for 7.7% of exports in the 12 months to February 28, and shipments had already fallen 15% in the past quarter on a year earlier. A bigger challenge for U.S. exporters is the European Union, which is 38.5% of shipments and has fallen 15.5%. However, a loss of Canadian exports may be difficult to replace.

Despite the limited scale, the Canadian move should be seen against the backdrop of forthcoming NAFTA negotiations. Rhetoric between the two countries has become increasingly hostile – particularly in agriculture – with the Canadian trade surplus including energy jumping 228% on a year earlier in April. The U.S. has already stated that it wants the replacement for NAFTA to be a set of bilateral deals, which increases the stakes for Canada.

Chart compares U.S. exports of thermal coal, segmented by country, on quarterly and annual basis vs. 12 months earlier. Bubble size represents total shipments. Source: Panjiva