Opinion: Trump’s tariffs hurt Ontario but don’t explain its economic decline

Ontarians are right to rally around their province (and country) in the face of aggressive trade policies from the Trump administration. But although United States tariffs have clearly hurt both Ontario’s manufacturing sector and its broader economy — a fact Premier Doug Ford spends a lot of time talking about — Ontario’s economy was in trouble long before Trump launched his trade war.

GDP per person is a key indicator of living standards. By this measure, Ontario has lagged far behind almost every other jurisdiction in Canada and the United States. According to a new study co-authored by myself, Grady Munro and Joel Emes and published by the Fraser Institute , in 1999 Ontario’s per-person GDP was $50,246, which was 38th among the 10 provinces and 50 U.S. states — in the middle of the pack. (All figures are in Canadian dollars, adjusted for inflation.) Fast-forward to 2024, the latest year for which data are available, and Ontario’s per-person GDP was $59,276, good for only 51st among the 60 jurisdictions and behind Alabama and Kentucky.

During the 25 years from 1999 to 2024, Ontario’s real per-person GDP grew by $9,030, or just under 18 per cent — the fifth-slowest rate of growth of any province or state. Although for much of Canada’s history, Ontario was considered Canada’s economic engine, over the last quarter-century per-person GDP growth was much greater in the nearby states of New York (where it was $36,274), Illinois ($20,689) and Pennsylvania ($20,059).

Employment incomes in Ontario have also fallen behind, with workers paying the price. Since 2010 (the earliest year for which comparable data are available), Ontario has experienced the fifth-slowest growth in median employment income out of the 60 states and provinces. By that measure it now ranks 54th overall — ahead of only Saskatchewan, Manitoba and the four Atlantic provinces. Its median employment income of $37,419 per year places its workers behind those in the poorest states, such as Mississippi ($44,090) and South Carolina ($44,206).

Why did this happen? What explains Ontario’s relative decline?

Though many factors were at play over the 25 years the most crucial is that Ontario has struggled to improve labour productivity — essentially, how much workers produce per hour — which is a main driver of income growth. From 1999 to 2024, 45 U.S. states had higher rates of productivity growth than Ontario. Given Ontario’s weak productivity growth, it’s no surprise that incomes and living standards in the province are now among the lowest in North America. Reversing this trend will require more than spirited “elbows-up” rhetoric.

For starters, the Ontario government needs to reduce its spending and balance its budget. That would help restore investor confidence and reduce the likelihood of future tax hikes. The government should also reduce provincial personal income tax rates in order to improve incentives for saving, working and investing and make it more likely that high-skilled professionals and entrepreneurs will wish to move to Ontario. Queen’s Park should also cut the province’s headline business tax rate from 11.5 per cent to eight per cent in order to match Alberta’s lowest rate in the country, this in order to help attract investment and jobs. For inspiration, the Ford government can look west to British Columbia, where in the early 2000s a Liberal government reduced both personal and business taxes, laying the foundation for greater prosperity.

The Carney government should also play its part and reduce personal and business income tax rates. And it should remove regulatory barriers and restore federal finances by reducing government spending and balancing its books.

Improving our trading relationship with the U.S. should remain a focus for all governments, but Ontario’s economic malaise began long before President Trump’s tariffs and, unless bold policy reforms take place, will continue to hurt the economic prospects of Ontarians and their families even after Trump is gone.

Jake Fuss is director of fiscal studies at the Fraser Institute.