US datacenters in for shock as Canada mulls cutting the juice over Trump tariffs

Short-term result likely to be increased energy prices across the board

Updated Trump's tariffs are raising a new question mark over US datacenters and their expanding energy consumption, with price hikes possible as Canada threatens to withhold energy supplies in response.

The recently inaugurated President Trump over the weekend unleashed 25 percent tariffs targeting imports from Canada and Mexico, while his favorite villain China got a 10 percent duty imposed on top of existing levies. That said, energy-related imports from America's northern neighbor will be subject to a lower 10 percent tariff, and the tax on Mexican imports has been delayed a month.

These tariffs have widely been met with dismay, with tech industry groups within the US saying they are not a good idea and stock markets in Europe and Asia declining amid threats of a widespread trade war.

In Canada, it is being suggested the country should go further in retaliation than merely imposing its own tariffs on US-made goods, and withhold the supply of key items to America including energy resources.

One group making this suggestions is the Canadian Labour Congress, to which most Canuck unions are affiliated. It labeled the US tariffs "an attack on Canadian workers and our economy," and called for "cutting off US access to critical Canadian resources – including electricity, lumber, critical minerals, oil, and gas – until the tariffs are lifted."

According to Heatmap News, the US imports thousands of gigawatt hours of electricity from Canada every year. While this makes up less than 1 percent of total American power consumption nationwide, "it's a significant and growing source of low-cost, low-carbon power for some regions," it states.

About 30 US states receive some of their electricity from Canada, the BBC notes. Most of these are Northeastern states like Vermont, New York, and Maine, but British Columbia and Manitoba also supply energy to Western and Midwestern regions of the US.

Datacenters are already said to represent at least 4.4 percent of electricity consumption in the US, and this is expanding rapidly thanks to trends such as demand for AI-related services. A recent report [PDF] from the Lawrence Berkeley National Laboratory (LBNL) estimates that datacenter energy consumption will grow to between 6.7 and 12 percent of the total by 2028.

As The Register reported last year, some Americans could face a 70 percent hike in electricity bills by 2030 unless action is taken to boost energy capacity in response to rising demand from all those bit barns.

The short-term impact is likely to be a rise in energy prices across the board, according to energy market intelligence firm Argus.

"The North American energy industry is an obvious casualty of Trump's trade war. But its effects will be felt in automobile manufacturing, agriculture, steel, aluminum, potash, and every other sector of the economy," Argus warned in a report.

Argus noted only last month that President Trump has pushed for off-grid electric generation to power datacenters. It claimed that he told developers to build electric generating facilities next to planned new-build datacenters, allowing them to bypass the grid, which he described as "old" and unreliable. The developers would then be able to fuel their generators with "anything they want," including natural gas.

However, the US Department of Energy identifies Canada as America's largest supplier of natural gas.

Whether this will have any long-lasting impact remains up for debate. Investment bank Goldman Sachs has already indicated that it believes oil and gas prices will see a limited short-term impact, and that it also expects the tariffs on Mexico and Canada to be short-lived.

IDC's senior research rirector in EMEA, Andrew Buss, told us that a bump in energy prices may not be much of an impediment for bit barn operators.

"GenAI workloads are going to be somewhat resistant to increases in the cost of power overall, given the capex cost of the Nvidia systems themselves at cluster and supercluster scale, and the substantial investment in state-of-the-art datacenter facilities to house and power them. The increased operating cost of higher energy prices will unlikely be a huge constraint on workload capacity or buildout plans," he said.

However, the high cost of energy has previously been cited as a major concern by datacenter operators, and the new tariffs all add to the level of uncertainty that the industry is facing, along with other issues such as building materials, planning regulations, environmental concerns, and skill shortages.

Vlad Galabox, research director for Cloud and Data Center at Ombida, told us he thinks it is wrong to "assume that there are no implications of Canada withholding energy exports to the US, at least within the short term. This is because the North American energy supply chain is incredibly integrated. Some US states might find it logistically simpler to import energy from Canada rather than from a fellow US state.

"However, in 2022 the net US energy imports represented 1 percent of the total demand of the country. This went down to 0.4 percent in 2023. Economists project the US to be a net exporter in the long run. This is why I'd bet on the US government holding a pretty firm stance during any trade war negotiations. In any way, the administration has indicated it would rather go through short term pain for long term gain.

"From a pure electricity import and export perspective, the US is a net importer, and I would guess a trade war would reduce the access to clean electricity for data centers, impacting sustainability targets. Importing clean electricity while exporting coal helps the US clean-up its energy supply chain. 60 percent of US generated electricity is from fossil fuels, compared to 19 percent of Canadian electricity. However, given how quickly some US corporations have dropped their D&I targets, I can see them quickly dropping sustainability targets, as well.

"In the EU we found ourselves in a pickle when we cut off Russian gas when coal energy plants were scaling down. The coal was there but the plant capacity was not. This is why in the short terms there could be disruption. I would guess in the long term it's solved. Ultimately, impact on the data center industry... mostly disrupts sustainability targets."

The UK's FTSE 100 was down 1.3 percent at the time of writing, Japan's Nikkei index had fallen 2.6 percent, while in the US the S&P 500 E-mini futures is down more than 1.5 percent and the Nasdaq is on track to fall 1.7 percent. ®

Updated to add at 2215 UTC

The tax on Canadian imports has been put back at least a month following a conversation between President Trump and Canadian Prime Minister Justin Trudeau. "Proposed tariffs will be paused for at least 30 days while we work together," the prime minister tweeted.

We assume that means Canada's retaliatory levies are also on hold. Trudeau also promised his nation will continue in its efforts to police the US-Canada border from organized crime and fentanyl trafficking.