U.S. tariffs pose more risk to provinces than Canada’s credit, analysts say

Ratings agencies said some provinces were more at risk from the potential March 4 tariffs due to their disproportionate exposure to U.S. exports or weaker financial positions.

Canada enjoys AAA sovereign ratings from two top rating agencies and its finances could withstand a wave of U.S. tariffs, but some of its provinces could take a ratings hit if a trade war persists, analysts and economists said.

Ratings agencies said some provinces were more at risk from U.S. President Donald Trump’s threat to impose a 25 per cent duty on most Canadian imports on March 4 due to their disproportionate exposure to U.S. exports or weaker financial positions.

A lower credit rating potentially increases government borrowing costs, impacts revenue streams, and increases debt and deficits.

“There’s no doubt that tariffs … would have potentially significant differential effects on the provinces,” Douglas Offerman, senior director at Fitch Ratings, said in an interview.

Ontario and Quebec, the two provincial manufacturing powerhouses, face a significant threat, he said.

Alberta and Saskatchewan, with energy and potash exports to the U.S., also are vulnerable, though Alberta boasts better financial health than most other provinces, Offerman added.

British Columbia and Nova Scotia, though not heavily exposed to exports to the U.S., have been running higher deficits and debts, making them vulnerable even if tariffs have a minimal impact, said Travis Shaw, senior vice president and sector lead for global sovereign ratings at Morningstar DBRS.

The impact of tariffs on provinces will depend on the extent of the levies, how long they persist, and which sectors are targeted, Shaw said.