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Justin Trudeau’s first priority: Mending Canada’s economic ties with the U.S.

October 20, 2015, 4:58 PM UTC

Justin Trudeau, Canada’s newly elected prime minister, is under no illusions about his country’s relationship with the United States.

“For our American cousins, the relationship is consequential. For us, it has often been definitional, ” Trudeau said earlier this year. “Prime Ministers and governments are commonly and rightly judged by how they foster that relationship for the greater common good … this is how it should be.”

While some in Canada, like Stephen Harper, the country’s outgoing prime minister, may view such deference to the U.S. as a sign of weakness, nothing could be further from the truth. If anything, Trudeau’s keen understanding of this most important of relationships will only increase Canada’s influence and power in Washington, not weaken it. This would allow Trudeau to tackle a long list of policy objectives that the outgoing Conservative Party has left lingering with the U.S. for the last decade. It could see Ottawa and Washington reach landmark agreements concerning everything from border security to climate change to the construction of the controversial Keystone XL Pipeline.

The left-leaning Liberal Party pulled off a stunning election win on Monday night in Canada, moving from the third-place party in parliament to firmly securing a definitive majority over its rivals, the far left National Democratic Party and the current ruling Conservative Party. It was a result that would have been considered totally impossible just a few months ago. The Liberal’s win is due mostly to its charismatic leader, Justin Trudeau, the son of one of Canada’s longest-running prime ministers, Pierre Trudeau, who led Canada in the 1970s and early 1980s.

Throughout the nearly three-month campaign, a record for a federal election in Canada, the ruling Conservative Party, led by Prime Minister Stephen Harper, tried to discredit Trudeau as an intellectual lightweight pretty boy who wasn’t “ready” to run the country.

While Trudeau certainly is pretty, an intellectual lightweight he certainly is not. He proved throughout the campaign and in a number of televised debates that he not only had a firm grasp of the challenges facing his country but that he also had a viable plan to tackle them. Undoubtedly, the biggest issue in this election was Canada’s souring economy, which is intrinsically linked to its largest trading partner, the United States. Unfortunately for Harper, weak commodity prices sent the Canadian economy into recession just before the campaign kicked off.

Harper tried to play up his experience helping Canada weather the recession of 2009-2011 as reason to elect him to a fourth term. But his conservative approach to tackling the economic downturn, which included austerity measures and tax cuts on the wealthy, didn’t resonate with Canadian voters. Trudeau’s numbers rose significantly after he revealed his economic plan, which was diametrically opposed to Harper’s. Trudeau argued that now was the time to increase, not cut, spending so Canada could “invest” in its infrastructure. Ironically, that’s exactly what Harper did to get Canada out of recession in 2009. But Harper played up cutting budgets and taxes to get conservative voters to come out and support him. But it seems to have backfired.

Thus ends a decade of Conservative rule in Canada. Trudeau is unabashedly liberal, and he is in favor of raising taxes on the rich and running deficits to achieve his economic goals. It’ll be interesting to see how he plans to do that when oil from Canada’s tar sands is trading at under $30 a barrel. But Trudeau likely knows that in order for him to tax and spend, Canadian oil prices will need to rise. To do that, he will need help from the United States.

Yes, this all comes back to the Keystone XL pipeline.

Canadian oil trades at such a discount to the U.S. benchmark price of oil is not just because it is more expensive to dig up but also because it is basically trapped. Pipelines that go to and from the massive oil sands of Alberta only connect with refineries in the U.S. Midcontinent, severely constricting the market potential of Canadian crude. Keystone would change that as it would (eventually) connect Alberta with America’s largest refining, which is located on the U.S. Gulf Coast.

Keystone would also allow Canadian oil to be shipped out of North America for the first time, through ports in Texas, meaning that if U.S. demand for oil slumps, it can sell it elsewhere. Trudeau claims that Harper royally messed up the plans to build Keystone by pursuing an arrogant and hard-nosed approach with the Obama Administration. “From the famous ‘no-brainer’ comment in 2011 to the endless stream of ministers who went to the U.S. to lecture the Obama Administration, this was Harper’s strategy. And it is his failure,” Trudeau said in a speech earlier this summer.

Trudeau has argued that the act of building a simple pipeline through the U.S. wasn’t really the contentious issue; it was how Canada approached the matter. After all, this is just a pipeline—the U.S. has thousands of miles of pipeline crisscrossing everywhere—why would they be so opposed to helping out their Nafta ally? The fracking revolution may have lowered U.S. dependency on foreign oil, but it didn’t eliminate it. It still needs Canadian crude, and its refiners in the Gulf Coast were set up to process the country’s heavy tar-like oil. And while Canadian crude may be exported, the subsequent increase in oil prices as a result would be more likely to hurt U.S. refining margins than it would negatively affect drivers at the pump, given the depressed demand for gasoline in the U.S.

Yes, the Keystone pipeline was a “no brainer,” as Harper put it. But saying that to a sitting U.S. president facing reelection was not wise. Canada is undoubtedly a great friend and trading partner to the U.S., but it is hardly its equal on the world stage. Harper seemed to have forgotten that point and President Obama held up Keystone as a reminder of that power.

Trudeau wants to change that. He recognizes that Canada needs the U.S. more than the U.S. needs Canada. Unlike Harper, Trudeau wants to work with the Obama Administration in assuaging concerns, be they real or imaginary, that Keystone would be harmful for the environment. That won’t be done through the commission of more studies; instead, it will be done via bargaining and respect. For example, Canada could offset the environmental pollution that would come from Keystone oil by promising to cut greenhouse emissions elsewhere in the country.

“Mr. Harper continues to pretend that there’s a choice between environment and economy,” Trudeau said in a televised debate with Harper in September, which was held in the heart of Canada’s oil country. “He chooses to say that you cannot build a strong economy if you’re protecting the environment.

“That has been his failure—and that has been his failure felt right here in Calgary. He talks about being the best friend that Calgary has ever had, that Alberta has ever had. But he hasn’t gotten pipelines built. He has made the oil sands a pariah.”

Trudeau insists that he still supports Keystone despite the environmental costs because his party is “pro trade.” But at the end of the day, Keystone is just one piece of a single industry. The economic ties between the U.S. and Canada go far deeper and need to not merely be maintained but nurtured. It is now up to Trudeau to mend fences with the White House and get Canada back up and running. Both Canada and the U.S. would be better off for it.