By Staff Reporter
OTTAWA — Canada’s budget watchdog put a number on the trade war Tuesday, and it is a big one for both sides of the Niagara River.
In its October Economic and Fiscal Outlook, the Parliamentary Budget Office cut its forecast for Canada’s real economic growth to 0.9 per cent this year and 1.5 per cent in 2027, down from 1.1 and 1.6 per cent in June. In a companion assessment note, it estimated that the tariffs Washington and Ottawa have traded since early 2025 will leave Canada’s economy 1.4 per cent smaller after five years than it would otherwise have been, and could cost as many as 185,000 jobs at the peak.
The report landed the same day Finance Minister François-Philippe Champagne announced he will table Budget 2026 on Nov. 5. That leaves Prime Minister Mark Carney’s government two weeks to answer a question the watchdog has now framed in hard numbers: how long can Ottawa keep spending its way through a trade fight it did not start?
“Canada faces a more challenging economic and fiscal outlook than we projected in June,” Parliamentary Budget Officer Annette Ryan said in a news release, as reported by The Canadian Press. “Additional trade measures and ongoing uncertainty are weighing on growth in real output — what we produce as a country.”
For Western New York, the report is a mirror. The same tariffs that are shrinking Canada’s forecast are taxing the steel, aluminum, dairy and machinery that cross the Peace Bridge and the Lewiston-Queenston Bridge every day, and the PBO’s figures offer one of the clearest public accountings yet of what the fight is costing the region’s largest trading partner.
How the fight escalated
The PBO’s note traces a relationship that has moved, in its words, from “largely tariff-free access” under the Canada-United States-Mexico Agreement to one “increasingly defined by tariffs and sector-specific trade restrictions.”
U.S. pressure eased early this year after a Supreme Court ruling struck down some measures, the note says. Then talks on a broad trade deal collapsed this summer. Washington imposed a 50 per cent tariff on C$27.6 billion of Canadian goods effective Aug. 22, and Ottawa answered dollar for dollar. Its counter-tariff list, in force since Sept. 8, applies 15, 25 and 50 per cent duties to C$27.6 billion of American imports, focused on “steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics.”
The schedule reads like an inventory of upstate New York’s exports. American milk powder, whey and milk protein face 50 per cent duties. Cheddar, mozzarella, provolone, Swiss and other cheeses face 25 per cent. Dozens of steel tariff lines, from hot-rolled coil to rebar, wire and bridge sections, are listed at 50 per cent.
The PBO calculates that the measures introduced since June pushed the average effective U.S. tariff rate on Canadian goods from 5.3 per cent to 7.7 per cent, while Canada’s equivalent rate on American goods doubled from 1.6 per cent to 3.0 per cent. About US$1 billion of Canadian products are now banned outright from the U.S. market, the note says.
What the trade data show
The pain has not shown up evenly, and the data complicate the simplest story about tariffs.
Statistics Canada’s August trade report, released Oct. 6, found exports to the United States jumped 8.1 per cent in August while imports from the U.S. fell 2.5 per cent. Canada’s trade surplus with the U.S. widened from $6.1 billion to $11.2 billion, which the agency called “the largest positive monthly change ever observed in Canada’s trade balance with the United States.”
StatCan pointed to a likely reason: Washington announced the new tariffs July 22 and they took effect at the end of August. “The announcement of tariffs may influence trade patterns and prompt importers to increase shipments before the tariffs take effect in order to avoid additional costs,” the agency wrote. In other words, some of August’s surge was American buyers racing the deadline, a sugar high that September’s figures, due Nov. 4, may reverse.
The PBO found that Canadian firms are adapting faster than its models predicted. As of August, merchandise exports to countries other than the United States were 51 per cent above their 2024 monthly average, compared with a 10.5 per cent increase in exports to the U.S. Non-energy export volumes in the second quarter were only 1.1 per cent below the PBO’s pre-tariff baseline.
The provincial breakdown matters on this side of the border. As of the second quarter, Quebec’s exports to the U.S. stood at 92 per cent of their 2024 level, British Columbia’s at 99 per cent, Ontario’s at 105 per cent and Alberta’s at 111 per cent. The PBO credited Ontario’s relative strength “in part” to a rebound in auto exports in the spring. Quebec’s weakness, it said, reflects its exposure to aluminum and other targeted industries.
The sectors the PBO says are taking the heaviest hits are steel, aluminum, forestry and softwood lumber, auto manufacturing, plastics, electrical equipment, furniture and wood products. Those industries are, in the note’s words, “integrated into cross-border supply chains.” That describes much of Western New York’s manufacturing base, where, as the office of Rep. Tim Kennedy put it last month, materials “frequently cross the northern border multiple times during production, subjecting them to tariffs at every step.”
The Western New York ledger
Mr. Kennedy, the Buffalo Democrat, laid out that two-way exposure at a Sept. 22 event at the Northland Workforce Training Center. Citing figures from the Consulate General of Canada in New York, his office said New York exports $482 million in aluminum and $254 million in iron and steel products to Canada each year, while importing $1.1 billion in aluminum and $586 million in copper from Canada. Statewide, 816 Canadian-owned companies employ 88,700 New Yorkers, the release said.
“Manufacturing built this region, and the workers training right here at Northland are the reason Western New York’s manufacturing sector has a future,” Mr. Kennedy said. “But that future is at risk when the materials that cross the border during production get taxed each time.”
Erie County Executive Mark C. Poloncarz joined him. “Trump’s unnecessary tariffs are raising costs for local manufacturers, creating uncertainty and threatening the jobs families rely on to pay their bills and put food on the table,” Mr. Poloncarz said.
Erie County Comptroller Kevin Hardwick framed it as a planning problem. “You cannot build a sound financial plan around uncertainty, and our local manufacturers are no different,” Mr. Hardwick said.
The PBO’s model makes a related point about who ultimately pays. In the first year, it says, corporate profits absorb most of the tariff cost. “Over time, firms reduce labour inputs and a larger share of the burden shifts to workers,” the note says. That is a Canadian estimate, but it describes the same supply chains Western New York plants sit on.
Ottawa’s math: more revenue, more spending
The PBO’s fiscal findings are where Ottawa’s accountability comes in.
Higher oil and commodity prices have padded Canada’s tax base. The watchdog says nominal GDP, the broadest measure of what the government can tax, will grow 5.6 per cent this year, “because prices are higher, not because the economy is producing more.” That windfall adds $37.4 billion in fiscal room over five years, front-loaded at $15.5 billion this fiscal year.
But measures announced since the spring economic update cost $52.6 billion over the same period, more than eating the windfall. The single largest is the $36 billion Productivity Mega Deduction, a business-investment tax break announced outside the budget cycle. Tariff support for affected workers and businesses adds $7.5 billion.
The result is a projected deficit of $63.3 billion this fiscal year, peaking at $70.2 billion in 2027-28 and still $67.8 billion in 2030-31. That final year is $9.5 billion worse than the PBO projected in June. Cumulative deficits over five years total $333.3 billion, but federal borrowing rises by $732.9 billion, because loans to Crown corporations, defence purchases and other capital outlays are financed with debt but kept off the deficit line under accrual accounting.
Interest is the fastest-growing expense. Public debt charges more than doubled from $24.5 billion in 2021-22 to a projected $59.3 billion this year and are on track for $83 billion by 2030-31. Per person, that is $1,419 this year.
“The PBO continues to maintain that debt-to-GDP ratio is an important benchmark for measuring fiscal health,” Ms. Ryan said. “It will rise steadily over the five-year horizon.” The PBO projects the ratio climbing from 40.8 per cent this year to 42.6 per cent in 2030-31.
The anchors, and the tariff money holding one up
The Carney government set two fiscal anchors in Budget 2025: balance day-to-day operating spending by 2028-29, and keep the deficit shrinking as a share of the economy. The PBO projects Ottawa will meet the first, with a $6.2 billion operating surplus in 2028-29, and miss the second, with the deficit-to-GDP ratio rising in 2027-28 and again, slightly, in 2029-30.
The watchdog was blunt about how much discipline those anchors impose. “On balance, the two fiscal anchors have imposed limited fiscal discipline on government spending and borrowing,” the report says. More than 80 per cent of the measures announced since June, $43.8 billion, are capital spending that falls outside the operating anchor entirely.
“A balanced operating budget anchor should not be interpreted as a balanced fiscal position,” Ms. Ryan said, according to the Ottawa Sun.
There is an irony in the numbers that matters to American exporters. Ottawa’s near-balance in 2027-28 depends on the counter-tariffs Canadians pay on American goods. The PBO assumes those duties bring in $5.3 billion that year. “Without that revenue, the day-to-day operating deficit would be $5.6 billion,” the report says, instead of the $0.3 billion it projects.
Over four years, the PBO expects the counter-tariffs to raise $18.1 billion, while the support programs Ottawa has announced for hurt workers and firms total $19.9 billion. The countermeasures, in other words, roughly pay for the relief, with $1.8 billion to spare on the cost side. The PBO assumes they stay in place through 2028-29.
That creates an awkward incentive. Every dollar of duty on Western New York cheese or steel is, for now, a dollar helping Ottawa hit its own target.
The government’s answer
Mr. Champagne’s office rejected the watchdog’s framing. John Fragos, the minister’s press secretary, told the Toronto Sun the government will balance day-to-day spending a full year early. “The upcoming budget will detail as much, and the principled assumptions behind the accelerated timeline, including our adherence to strict anchors,” Mr. Fragos said in a statement quoted by the Sun.
He defended separating capital and operating budgets, saying it lets governments “spend less on operations, giving us more to invest in capital expenditure,” and pointed to Canada’s AAA credit rating, the Sun reported.
The Canadian Taxpayers Federation was less charitable. “Paying interest on the federal debt will cost each Canadian $1,400 this year and that’s unaffordable and unacceptable,” said Franco Terrazzano, the group’s federal director. “Carney needs to put down the credit card, pick up some scissors and cut spending.”
Ms. Ryan pointed to a narrower test. “Over the longer term, Canada’s economic and fiscal outlook will depend heavily on whether recent capital budget investments can translate into stronger productivity, economic capacity and prosperity,” she said.
Prices, rates and the border
Several of the PBO’s assumptions bear directly on cross-border life. It expects inflation to average 2.8 per cent this year, driven by energy prices tied to the disruption of shipping through the Strait of Hormuz and by price pressure from Canada’s own counter-tariffs. It assumes the Bank of Canada starts raising rates in early 2027, reaching 2.75 per cent by mid-year. And it expects Canada’s unemployment rate to rise from 6.4 per cent to 6.7 per cent by the end of this year as the new tariffs bite.
The watchdog also noted a stronger Canadian dollar. StatCan said the loonie gained 1.1 U.S. cents in August, its biggest monthly rise since December 2025. For Buffalo-area retailers, that is a rare bit of good news. The Chronicle reported Oct. 17 that Canadians are driving back to the U.S., though not across the Peace Bridge.
Who is accountable, and what would change it
The PBO is careful to call its tariff scenario “a status quo assumption rather than a forecast of the outcome of negotiations.” Its forecast assumes every U.S. measure in force on Oct. 1 stays put. Change that, and almost every number in the report moves.
That puts the most direct lever in Washington. The White House chose the August tariffs. For New York’s delegation, the PBO’s 185,000-job estimate on the Canadian side, and its finding that workers end up bearing more of the cost over time, are an argument for treating a negotiated settlement as a regional jobs issue rather than a foreign-policy abstraction. The Chronicle reported Oct. 16 on how the Niagara Frontier is bracing for a longer trade war with a Jan. 1 auto tariff looming.
In Ottawa, the accountability runs to the Nov. 5 budget. The PBO has said plainly that the government’s anchors restrain little, that borrowing is running at more than twice the pace of deficits, and that the operating target leans on tariff revenue that would disappear in a deal. Mr. Champagne will now have to show whether his promised early balance survives a trade settlement, or depends on the fight continuing.
Two dates will tell much of the story. StatCan publishes September trade figures Nov. 4, the first full month under both countries’ new tariffs. Mr. Champagne tables his budget the next day.
The Buffalo Chronicle is seeking further comment from the Parliamentary Budget Office, Finance Canada and Rep. Kennedy’s office and will update this story with any response.
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