Canada Braces For Tariffs, But Impact Will Not Be Evenly Felt Across Provinces

The Canadian economy is bracing for considerable economic disruptions resulting from U.S. President Trump’s executive order to impose sweeping tariffs on Canadian exports. While not everyone is convinced that all of the tariffs will come to fruition, the threat to Canada’s economy is real and significant.

The value of exports to the United States amounted to $546.6 billion in 2024. That value represents a nearly 60% increase from 2020, the year Trump all but wrapped up his first term in office. Over the last decade, exports to the U.S. have accounted for 72.3% to 79.9% of Canada’s international exports. The exposure to a trade war with the United States cannot be understated.

Breaking down 2024’s U.S.-bound exports by province illustrates which of Canada’s jurisdictions could be hit the hardest in the event of a trade war. Ontario, Alberta and Quebec will likely be affected more than other areas of the country due to export volumes and values. However, removing energy products from consideration takes Alberta’s contribution to the U.S. export portfolio from 30% to 8%, leaving Ontario and Quebec as the only provinces contributing more than 10% toward the products entering the U.S. market, at 52% and 23%, respectively. Tariffs on oil aren’t expected to exceed 10%, as opposed to the 25% levied across all other product types.

Looking at each province’s trade activity in 2024 as a percentage of the estimated provincial 2024 gross domestic product illustrates each province’s challenges.

Alberta exports to the U.S. account for 45% of its GDP. If energy exports are removed entirely from consideration, that 45% U.S. export-to-GDP ratio drops to 8%. New Brunswick, Saskatchewan, Newfoundland and Labrador all experience significant declines in percentage of GDP affected when energy products are removed from consideration.

The western provinces of Canada are likely to avoid the level of economic shock felt in the east. The anticipated lower tariffs on oil will be felt almost immediately by American consumers in the form of higher prices for gasoline.

Additionally, the now-completed Trans Mountain pipeline expansion (TMX) presents the possibility of ramping up oil exports to other international markets. Roughly 20% of the added capacity, the equivalent of approximately 180,000 barrels a day, is currently available and could provide alternatives for producers who would otherwise be facing tariffs. However, tariffs on crude oil could hamper oil production and will reverberate through Alberta’s manufacturing industry.

Reduced business investment and rising unemployment will also take momentum from the multifamily market, which in Edmonton is coming off a landmark year of investment while Calgary faces the prospect of further reductions in its already-slipping average apartment rent rates.

Quebec and Ontario are both heavily weighted to trade with the United States: 75% and 77% of all their international trade is U.S.-bound, respectively. Half of Ontario’s trade with the U.S. is in the ‘Machinery and Equipment’ category, which includes car parts. One-third of Quebec’s U.S.-bound products are in the same category. Another 23% of Quebec’s trade falls under ‘Metallic Mineral Products’ and ‘Fabricated Metal Products.’

The manufacturing sectors in these two provinces will likely be affected at an inordinate level. Real estate markets will experience a sudden reduction in space demand, led by industrial, from large scale specialized buildings through to the small bay market that supports the manufacturing industry. Retail and multifamily markets will be far from unscathed, suffering from the knock-on effect of increased unemployment, reduced consumer spending, and a likely increase in the already high number of resident outflows to other provinces from Ontario.

While British Columbia’s contribution to Canada’s exports is just 7.6%, it is one of the more diversified provinces in terms of trading partners. Roughly 53% of BC’s exports end up in the United States. However, 16% of BC’s exports go to China, 10% to Japan and 6.5% to South Korea. India, the European Union, countries belonging to the ASEAN region, and a collection of smaller countries worldwide account for another 15% of British Columbia’s current trade network.

The province will not be left without scars. Canada’s reciprocal tariffs on inbound products will increase construction costs after having levelled off. Vancouver’s acute housing shortage will likely be aggravated as more projects are delayed or potentially scrapped altogether. Even small projects that can be fast-tracked through planning processes will suffer under the sudden reacceleration of costs. This will affect the multifamily market’s recovery and reduce the momentum in the small bay industrial market, which is a significant contributor to the health of Vancouver’s industrial market.

While all provinces and territories ardently oppose the trade war, its effect on these jurisdictions will be felt at differing magnitudes. British Columbia and Alberta, the two provinces that could be considered the most insulated from tariffs, are also the two provinces with existing trade relationships and infrastructure already in place to help offset the overall national effect by pivoting trade practices more in the direction of other countries. More countries will likely face similar challenges and could also consider altering trade relations.

Source CoStar. Click here for the full story.