Provinces face divergent tariff threats

“​Canadian provinces are highly reliant on international trade, most of which is with the U.S.,” it said in a research note.

This exposure is not evenly distributed however. Fitch reported that, while goods exports represent 31% of Canadian GDP, this ranges from 17% for Nova Scotia to 40% of GDP for Saskatchewan.

And, while the U.S. buys 77% of Canadian exports, this varies from 42% for Newfoundland and Labrador to 93% in Alberta, it noted.

“Overall, while no province would be entirely immune to the negative effects of U.S. tariffs on Canadian imports, those with low reliance on U.S. exports or with economies diversified away from exporting sectors might be better positioned to adapt and mitigate the impact,” said Moody’s Ratings in its own report on the provincial impact of shifting Canada-U.S. trade relations.

“Among the provinces most at risk are Ontario and Quebec. Both have a deep, broad trade relationship with the U.S., hence a trade dispute would be felt across a large part of their economy,” it said.

“Alberta is also highly exposed should Canada restrict oil exports as part of retaliatory measures,” Moody’s said.

In its analysis, Fitch assumed that the U.S. imposes 25% tariffs on goods imports from Canada that are currently subject to duty, which represents about 21% of the value of all imports from Canada to the U.S.

“Under Fitch’s tariff scenario, production from oil, gas and mining, concentrated in western Canada, would likely be among the hardest hit, affecting non-renewable resource revenue in Alberta, Saskatchewan and British Columbia,” it said.

“​Machinery and transportation equipment would also be affected, with manufacturing powerhouses Ontario and Quebec bearing the brunt due to their large steel, aluminum, automotive and related sectors,” it added.

The economic impact of higher tariffs would, in turn, hit provincial revenues, Fitch noted, as output growth slows, potential job losses arise, and as business investment is reduced.

“A trade dispute could also weigh on provinces indirectly if they need to introduce new or expand existing programs to counter social pressures that may arise. Ontario indicated that it could be required to spend billions of dollars to support the economy and its citizens if the tariffs lead to economic downturn,” Moody’s said.

Ultimately, the prospect of trade disruptions, and increased uncertainty in relations between Canada and the U.S., is credit negative for all Canadian provinces, it concluded.