A new report from Desjardins Economics reveals that Canada’s provinces have up to $100 billion in fiscal reserves to respond to potential U.S. tariffs without significantly increasing their debt burdens.
As provinces enter the 2025 budget season, the looming trade uncertainties triggered by U.S. President Donald Trump’s proposed tariffs have cast a shadow over economic forecasts. The report predicts that upcoming provincial budgets will prioritize contingency planning to mitigate the impact of these tariffs on key industries and regional economies.
“The provinces are heading into a budget season with the type of uncertainties we haven’t seen since the pandemic,” said Laura Gu, Senior Economist at Desjardins.
Nova Scotia was the first to address the tariff concerns in its budget release last week, setting aside $200 million in a reserve fund to cushion the economic impact. Other provinces are expected to announce similar measures as they unveil their budgets in the coming weeks.
Desjardins’ analysis indicates that provincial governments can deploy their $100 billion in financial reserves without pushing the net debt-to-GDP ratio beyond 35%, a level last seen during the COVID-19 pandemic. The report suggests that an equivalent amount of support is available from the federal government, should further intervention be needed.
The severity of the impact will depend on each province’s reliance on trade with the U.S. According to Desjardins’ projections:
- Ontario, Quebec, Manitoba, and Prince Edward Island are expected to face the most significant economic downturns due to their dependence on exports and manufacturing.
- British Columbia and Nova Scotia are likely to experience milder effects, as their economies are less reliant on U.S. trade.
- The report assumes that Canada will secure exemptions for energy products, providing some protection for Alberta, Saskatchewan, Newfoundland and Labrador, and New Brunswick from the worst tariff impacts.
Desjardins forecasts that in a “partial tariff” scenario, the hardest-hit provinces could see employment decline by 1%, though a more severe trade dispute could push job losses in Central Canada and P.E.I. to recessionary levels.
Economists at Desjardins caution that while the provinces and federal government have the financial capacity to provide relief, stimulus measures should remain targeted and temporary to prevent long-term debt escalation.
“The theme of this budget season will be to respond to these immediate threats in the most timely manner to avoid a severe economic fallout,” Gu added.
As the uncertainty surrounding U.S. trade policy continues, provincial governments are expected to prioritize strategic spending plans to protect jobs, industries, and economic stability. Alberta is set to release its provincial budget on Thursday, offering further insights into how governments will navigate these economic challenges.