Lower tariffs for oil would soften blow for Alberta but outlook still 'pretty grim,' says ATB economist

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Canada’s energy sector will face a smaller tariff hit than the rest of the economy — if Donald Trump moves ahead with his trade threats — but Alberta would still feel the sting from the United States imposing levies upon all of the country’s exports, according to two new studies.

However, the province should narrowly avoid dropping into a recession if tariffs are ultimately imposed by the president, says an analysis released Monday by ATB Financial.

A day before the U.S. was set to slap tariffs on all Canadian imports, the trade action was paused Monday for a month as the two countries agreed to discuss the dispute.

But a new report by ATB details the expected impact of the trade measures that were approved by the U.S. president on the weekend.

The new estimate shows provincial economic growth slowing significantly, based on a 10 per cent tariff placed by the U.S. on Canadian oil and gas, and a higher 25 per cent levy placed on other products throughout the year — and Ottawa retaliating.

The study indicates the province’s economy would grow by a feeble 0.5 per cent this year under the tariffs, far weaker than its initial base-case outlook issued in December of a 2.5 per cent expansion.

However, if the higher rate was applied to all exports — including billions of dollars of Alberta oil and natural gas sold to the United States — ATB has previously estimated the provincial economy would slip into recession.

“What we found is it (the 10 per cent rate) softens the blow, but it’s still significant and a lot of the damage is coming from countermeasures,” ATB chief economist Mark Parsons said in an interview.

“It is better than our worst-case scenario (of) what Trump is threatening, but it does still seem pretty grim, unless this can be resolved.”

The data is not an expected forecast, but it paints a picture of what could happen under a lower tariff for energy, he said. The outlook also highly depends on how long tariffs remained in place between the two countries.

The announced levies would lead to almost 36,000 fewer jobs being created in Alberta than under ATB’s base-case scenario. Alberta’s unemployment rate is projected to average 7.6 per cent this year under tariffs, up from 6.5 per cent in the base case.

And while a 10 per cent tariff on energy is less painful than the higher level, ATB data indicates it would negatively impact cash flow for petroleum producers by seven per cent, with heavy oil producers facing the biggest pinch.

ATB also assumes a four per cent drop in oil and gas capital spending, relative to its initial outlook, because of a wider price discount for Canadian oil and increased inputs costs for the sector.

The study notes that in 2023, energy accounted for 82 per cent of the province’s merchandise exports to the United States.

And Alberta wouldn’t escape the pain of tariffs, even with a lower rate for energy, because the province is more highly trade-exposed than any other, said a report Monday from Alberta Central chief economist Charles St-Arnaud.

The study says that with the two different tariff levels, the effective rate of the U.S. levies on all Canadian exports is 20.3 per cent, dropping to 12.7 per cent in Alberta because so much of the province’s exports will face the lower tariff.

“However, this doesn’t mean Alberta will be the least affected province,” it notes.

The cost of tariffs as a share of Alberta’s gross domestic product is 4.1 per cent, which would be the fourth-highest impact among all provinces, according to the report.

“With a 25 per cent blanket (tariff) on everything, Alberta would have been the hardest-hit economy,” said St-Arnaud.

“With the lower tariffs on energy, it has reduced the impact on Alberta, and now Ontario is really the province that’s seeing the most of the impact.”

cvarcoe@postmedia.com