In this week’s The Seven…

• Looking up - Grande Prairie region
• Livestock producers - Another potential casualty of tariff wars
• Not again - Forestry could face double tariff whammy
• Mission critical - Alberta’s emerging lithium industry
• Ringing in a new year - Stronger retail sales heading into 2025
• Interesting Fact: Alberta well-represented on Team Canada
• Chart of the Week: Per capita retail spending

We are the champions, my friends/And we'll keep on fighting till the end

--“We are the Champions,” Queen

What a game! In a time of uncertainty and tension, Canada's hockey players did us proud and we can all stand taller today. And it was Oilers captain Connor McDavid that sealed the deal.

How can Canada take the win into the economic arena? In addition to stick-handling negotiations with the U.S., attention is turning to upping our game on home ice. Tearing down interprovincial trade barriers, fast-tracking critical infrastructure (ports, rail, pipelines), expediting major projects, and expanding into non-U.S. markets are some ideas. What are yours?

As the 30-day clock ticks down to blanket U.S. tariffs (scheduled to return March 4 without a deal), we look at a couple trade-exposed industries. But first we head north to talk about what’s going on in the Grande Prairie area.

Opportunities abound in Grande Prairie

At the Growing the North Conference in Grande Prairie there was energy and optimism in the air. A major natural gas producer in the centre of the prolific Duvernay and Montney plays, the Grande Prairie region stands to benefit from a structural shift driving natural gas demand: AI data centres and the arrival of liquified natural gas (LNG) exports on the West Coast.

There is also buzz around what is billed to be the largest industrial AI data centre industrial park in the world. ‘Wonder Valley’ in the M.D. of Greenview at full build out would be a massive $70 billion investment should it proceed.

Tariffs strike a nerve for beef producers

As in the rest of the province, there was nervousness in Grande Prairie around potential U.S. tariffs. The northwest region is a major forestry, agriculture and energy producer, with the U.S. the main international customer.

In my visit to Vegreville last week and Grande Prairie this week, one trade-exposed industry that got referenced repeatedly was beef and, in particular, live cattle.

The U.S.-Canada livestock trade is highly integrated. Canada does not have enough processing capacity, so many live finished (or fed) cattle are shipped across the border for processing. Canada also imports ‘feeder’ cattle from the U.S. that cross into Canadian feedlots.

According to the National Cattle Feeders’ Association, the main U.S. destination for Canadian cattle is Sweetgrass, Montana, though Washington, Idaho, and Oregon are also major importers.

The U.S. is by far the largest export market for Alberta’s beef and cattle producers. Live cattle exports to the U.S. hit $1.4 billion last year, while frozen and fresh beef shipments were $2.8 billion.

Tariffs would make Canadian products more expensive in the U.S., hurting exports. They would also likely lower Canadian cattle prices as producers take on some of the burden. The resulting supply chain disruptions would increase costs. Counter tariffs would significantly raise costs of imported feeder cattle, with ripple effects on related industries, such as feed producers and meat processors.

Double whammy - Forestry sector braces for even more tariffs

Long before the latest Trump tariff threat, Alberta’s lumber industry has been grappling with U.S. tariffs.

The softwood lumber dispute is a long-standing trade conflict between Canada and the United States. The U.S. claims that Canadian lumber is unfairly subsidized, but Canada has regularly challenged this claim and argued the U.S. duties are in violation of international trade agreements.

Specific tariff rates vary depending on the lumber producer and are determined through periodic reviews by the U.S. Department of Commerce. These rates were recently raised to an average of 14.5% (range of 12-17%), and now Canada’s industry is bracing for an additional 25% tariff.

The Canadian forestry sector has faced a number of challenges over the past two decades. In a review of the industry, Statistics Canada points to the U.S. housing crisis in 2008/09, the softwood lumber dispute, pine beetle, wildfires, land use policy changes, and rail car issues. In particular, B.C. has faced a significant decline in lumber production, with several mill closures. According to the Business Council of British Columbia, B.C.’s forestry sector has been adversely impacted by “changes to policy and regulatory frameworks, a declining annual allowable cut, and external factors such as softwood lumber tariffs and volatile prices.”

Alberta has witnessed production declines since 2020, in part due to weaker demand (U.S. housing starts have fallen in each of the past three years). However, with B.C. production falling significantly, Alberta’s share of total Canadian softwood lumber production has increased from 15% in 2015 to 19% in 2024.

U.S. homebuilding is heavily dependent on imports, particularly from Canada. According to the Forest Products Association of Canada, the U.S. can only meet 70% of its homebuilding requirements from domestic sources. Canada is by far the largest foreign source of sawmill and lumber products, at more than 70% of U.S. imports in 2023.

A tariff would be self-defeating for the U.S., raising costs to homebuilders and owners at a time when the housing supply is stretched and California needs to rebuild following the wildfires. The National Association of Home Builders in the U.S. has raised alarm bells about tariffs on China, Canada and Mexico, arguing it will raise the cost of imported construction goods by US$3-4 billion.

As for Alberta, wood product manufacturers sent 93% of their international exports to the U.S. and would face weaker demand for their product if these tariffs come into force. Last year, Alberta’s wood product exports to the U.S. totalled $2.1 billion.

Emerging - Lithium from Alberta would be valuable to the U.S.

The U.S. needs critical minerals for batteries and EVs, and Alberta could be a major producer in the future for a critical ingredient: lithium. As covered in a previous Seven, an unconventional source of lithium is from the brine of oil and gas wells—playing to Alberta’s existing strength.

Alberta Energy Regulator projections are that Alberta commercial lithium production could rise from nothing today to 13.4 thousand tonnes by 2033. Most of the world’s lithium is processed in China (Australia is the largest miner), and there is no doubt the U.S. will be eager to find alternative suppliers.

As E3 Lithium founder and CEO Chris Doornbus noted in a recent Edmonton Journal article:

“Outside the rhetoric of the (Trump) administration, the general understanding amongst the United States is there’s a need for the domestic North American battery industry, and that’s from cradle to grave, which means the raw input, and the United States does not have enough lithium.”

Interestingly, the definition of ‘energy’ in the February 1, 2025 Executive Order on which a 10% tariff would apply (vs. 25% for other goods) captures critical minerals like lithium, perhaps an acknowledgment of America’s dependency on other countries.

Retailers poised for better 2025 if tariffs don’t spoil the party

It’s been a tough couple years for retailers across Canada. Consumers have been squeezed by rising prices, higher interest rates, and more recently, a softer labour market.

With new numbers today, Canada’s retail sales increased a modest 1.3% last year, but that was largely driven by more people living in Canada. Netting out population gains, retail sales dipped 1.6%.

A similar pattern holds in Alberta. There was a slightly higher increase of 1.8%, but per capita sales were down by 2.5%.

What did people buy less of? The weakness in 2024 was fairly broad-based (even food retailers only saw a modest 1.1% despite rising food prices). The largest declines came from items that are more discretionary and more likely to be debt-financed, like building materials/garden equipment and furniture.

When will things turn the corner? They already have. Alberta retail sales have been trending higher since mid-2024, so much of last year’s weakness was due to a tough first half. December sales were solid, up 2.4% over November (though part of this likely reflects the one-off effect of the GST holiday) and up 6% year-over-year.

We expect that consumers will really start to find their groove in the second half of the year, as interest rates settle lower and inflation hangs out around 2%. The wild card, of course, is tariffs. A trade war would keep the consumer on the sidelines longer, and we would expect another year of flattish sales in that scenario.

Interesting Fact: Alberta’s hockey talent on full display at 4 Nations tournament

Alberta, and in particular Calgary, was well represented on Canada’s roster for the 4 Nations Face-Off. Here are the players and their hometowns:

Brayden Point - Calgary

Brandon Hagel - Morinville

Aiden Hill - Calgary

Cale Maker - Calgary

Josh Morrissey - Calgary

Colton Parakyo - St. Albert

Based on Alberta’s share of the population in 1995 (the average year of birth for the typical player on the roster), there should be 9.4% Alberta players on the roster. With six of the 24 on the roster, Alberta’s share was 25%!

Chart of the week: Per capita retail sales

Albertans are big spenders, with retail sales per person of $21.2K, or 9% higher than the national average last year. Among provinces, only Newfoundland and Labrador spent more per capita. However, per capita sales have declined across Canada, including in Alberta, reflecting the sting from higher prices and interest rates. The gap between Alberta and the rest of Canada has closed in recent years, from $2,500 in 2017 to $1,800 in 2024.

Answer to the previous trivia question: Mistral AI (a French company) has named its new assistant Le Chat.

Today’s trivia question: In what year was the Smoot–Hawley Tariff implemented by the United States?