Tariff impacts on Ontario municipality capital expenditure

Tariff impacts on Ontario Municipality

Ontario’s municipalities are bracing for significant cost increases in infrastructure development as new tariffs on U.S. imports come into effect. With over $26 billion in annual investment at stake, rising material and fuel prices threaten to delay projects and strain local budgets.

The problem: Rising construction costs amid tariff tensions

Ontario’s municipalities invest around $26 billion annually in essential infrastructure, including roads, water pipelines, buildings, and social assets. This spending supports numerous small-scale projects across the province and relies heavily on a wide variety of materials, labour, and equipment. However, the sector’s dependence on imports particularly from the United States makes it vulnerable to international trade tensions. With Canada set to impose retaliatory tariffs on U.S. imports, the cost of materials and fuel is expected to rise significantly.

The challenge: Managing cost pressures from tariff impacts

Ontario’s construction sector imports around 25% of its materials and fuel from the U.S. The new tariffs—10% on diesel and fuels, and 25% on other imported goods are expected to create direct cost pressures on municipal infrastructure projects. These rising costs risk straining budgets and delaying projects, especially in asset types most exposed to imports, such as vehicles. Although vehicle acquisitions represent a smaller share of the total, their cost sensitivity to tariffs is high. Non-residential buildings and roads, which make up a significant portion of planned spending, will bear the bulk of the total cost increase.

The solution: Quantifying the impact to support budget planning

To help municipalities navigate these financial challenges, the Association of Municipalities Ontario commissioned Oxford Economics to assess the likely cost implications of the tariffs for FY2025–26 and FY2026–27. The research estimates an overall increase of approximately CAD $1 billion in capital expenditure rising from $51 billion to $52 billion directly attributable to the tariff impacts. This analysis enables better-informed planning, helping municipalities anticipate budgetary pressures and adjust project timelines, procurement strategies, or funding allocations accordingly.