Canadian Provinces Face Growing Economic, Fiscal Risks From US Tariffs, UBS Says

10:27 AM EDT, 08/26/2026 (MT Newswires) -- US tariffs are increasing economic and fiscal risks for Canadian provinces, whose bond spreads tend to react more strongly to changes in growth than those of government-backed issuers and covered bonds, according to UBS Global Research in a note. Weaker economic activity would reduce tax revenues and could increase borrowing needs, wrote the bank in a Tuesday note that was made available to media on Wednesday. Provincial funding trends are diverging, with Ontario and Quebec already more than 60% through their FY2026-27 funding programs, compared with around 14% for Alberta, added UBS. However, higher oil prices could sharply reduce Alberta's borrowing needs and potentially deliver a fiscal surplus, providing a supportive technical backdrop. The provinces of Ontario and Quebec appear most vulnerable given their exposure to tariff-hit sectors, said UBS. In June, the US accounted for about 63% of Ontario's and 70% of Quebec's goods exports. Ontario is particularly exposed to autos, steel and aluminum, while Quebec's key exposures are aluminum and aerospace. Ontario's motor vehicle and parts exports to the US totaled about C$5.6 billion, or 31% of its goods exports there. British Columbia is less reliant on US trade but remains exposed to lumber and forestry, added the bank. Alberta appears relatively better positioned, said UBS. While around 85% of its exports went to the US in June, more than 80% were energy products exempt from the latest 50% US tariffs. This offers a meaningful cushion for the province's economy and finances if trade tensions persist into next year. Manitoba also has significant US exposure, with around 66% of exports going south, but its diversified export base should help limit the overall impact.