The Canadian economy will take a hit from higher U.S. tariffs, with Ontario and Quebec feeling it the most, according to new research from Scotiabank Economics.
In a new report, Scotia economists estimate that tariffs will cut national GDP by 1.1% by the end of 2026 — reducing GDP by an average of 0.4% this year, and 1% in 2026 and 2027 — compared with the baseline scenario of no tariffs.
At the same time, its models also project that Canadian employment will decline by 0.8% by mid-2026 due to tariffs, and that the employment level will be 0.3% lower this year, and 0.7% lower next year.
“Tariffs reduce potential GDP as they distort optimal allocation of resources, increase the cost of imported inputs for production, and create supply bottlenecks and supply chain disruptions,” it said, adding that this also creates inflationary pressures, which can be amplified by retaliation.
“Tariffs also generate a fall of aggregate demand because of the elevated uncertainty related to trade policies and potentially a fall of net exports,” it said.
Additionally, the tariffs weaken growth and stoke inflation in the U.S. too — reducing export demand, which “combined with the negative effects of uncertainty in our economy has slowed the rate of growth in Canada.”
These effects will be felt differently across the country, the report noted, as the provinces have different shares of its exports that are directly impacted by the U.S. tariffs, and different average tariff rates.
For instance, the provinces with the largest exposure to sectors that are targeted by tariffs — including steel, aluminum and auto manufacturing — face the the heftiest levies.
“Quebec and Ontario fare the worst on this metric, given their large steel and aluminum sectors,” the report said.
Conversely, it noted that, “The provinces that export mainly energy products to the U.S. face the lowest effective tariff rates, given that energy products are either exempt under [the Canada-United States-Mexico Agreement] or face lower tariffs than other goods.”
At the same time, the provinces with the greatest reliance on U.S. export markets, such as Alberta and New Brunswick, are also more exposed than provinces with lower cross-border exports, such as British Columbia and Nova Scotia, it noted.
Ultimately, the report concludes that Ontario and Quebec will face the largest negative impacts, “with GDP being 1.4% lower by the end of 2026 compared to a non-tariff scenario,” it said.
“Employment around 1% lower is expected in these provinces by mid-2026, with 2026 as a whole averaging 0.9% lower,” it added.
After Ontario and Quebec, the GDP for New Brunswick and Alberta will be hit next hardest, with declines of 1% and 0.9%, respectively, the report projected.