Analyzing Canada’s Data Centre Boom And Tariff Bust

Canada’s data centre industry has been experiencing explosive growth, driven by surging demand for cloud computing, AI and big data services. According to Credence Research, in 2023, the market was valued at approximately USD 10.05 billion, with projections to reach $16.41 billion by 2032. Mordor Intelligence claims that power capacity is also expanding, and is expected to grow from 1.37 thousand megawatts (MW) in 2025 to 2.01 thousand MW by 2030. Furthermore, the colocation services market, which allows businesses to rent server space instead of maintaining their own data centres, is seeing even faster growth, with new announcements regularly, forecast to double from $1.42 billion in 2025 to $2.76 billion by 2030.

More specifically, one of the biggest trends shaping the industry is the rapid expansion of data centre storage. As businesses and consumers generate more data than ever, the data storage market is projected to jump from USD $0.92 billion in 2024 to $1.54 billion by 2029. This boom reflects the increasing reliance on AI-driven applications, cloud-based services and high-performance computing. Gartner reports that last year, an average 50 new AI products were released every day.

Growth also brings challenges, such as the rising cost of infrastructure and energy. This is pushing companies to explore innovative solutions like renewable energy-powered data centres and advanced cooling technologies.

More data also means more opportunity for policy makers to cash in. For example, the Canadian federal government is considering a huge $15 billion incentive plan to attract investment in AI-focused, green-powered data centres to support the industry’s rapid expansion. This initiative aligns with Canada’s broader push to position itself as a leader in sustainable digital infrastructure (NPR reports that the average data centre uses 300,000 gallons of water a day to keep cool), leveraging its abundant hydroelectric power, cold climate and environmentally friendly policies. If successful, these incentives could make Canada a global hub for cutting-edge AI and cloud technologies, ensuring long-term competitiveness in a rapidly shifting digital landscape.

Outside-in tariffs are weakening the economy and could drive up costs.

While Canada’s data centre market is on an upward trajectory, ominous clouds exist as outside-in tariffs drive up costs, creating turbulence in an otherwise thriving sector. The most immediate impact of these trade barriers is potential volatility in energy prices—something Canadian data centres depend on for daily operations. As energy costs fluctuate unpredictably, centres face higher operational expenses, forcing them to adapt to the ever-changing landscape.

But the storm doesn’t end with energy. Tariffs on critical materials like steel and aluminium have compounded the pressure. U.S. President Donald Trump has imposed a hefty 25 percent tariff on Canadian steel and aluminium, with Canada now contemplating retaliatory export taxes on energy. These trade barriers disrupt the supply chain and inflate costs for building and maintaining data centre infrastructure. Materials like steel, aluminium and various IT components are essential for data centre construction, and with tariffs squeezing the availability of these goods, the financial burden grows heavier.

The ripple effects of these tariffs extend beyond rising expenses. Canada’s broader economy could feel the strain as well. With approximately 20 percent of Canada’s GDP tied to exports to the U.S., sustained tariffs could push the country into a mild recession, potentially leading to a 2.5 to 3 percent contraction in GDP. Inflationary pressures are another concern, as the cost of imported goods rises, further straining the real economy. As the Bank of Canada points out, when there are few substitutes for tariffed goods, the impact on inflation is even more disruptive.

For Canada’s data centre operators, these tariffs are creating an environment of uncertainty. Economic instability may prompt businesses to delay or even reduce investments in new facilities and upgrades, slowing industry growth. The Bank of Canada has also highlighted that tariffs and trade uncertainty are already hurting critical sectors and regions across the country, further dampening the outlook for the data centre industry.

Supply chain disruptions are another challenge, as tariffs cause delays in acquiring essential equipment and materials. The Canadian Union of Public Employees has warned that the deep integration between Canadian and U.S. industries makes adapting to these tariffs especially difficult. Additionally, fluctuations in exchange rates, driven by trade tensions, could further drive up the cost of importing equipment and services for data centres.

In summary, the U.S. tariffs have overshadowed Canada’s data centre industry, raising costs, disrupting supply chains and contributing to broader economic instability. There are no blue skies, and the long-term effects could stifle investment and hinder growth, leaving the sector to weather the storm far from over.

Could rising costs push technology companies to rethink their Canadian presence?

The challenge is that technology companies, particularly those managing data centres, rely heavily on stable energy costs and robust infrastructure. If tariffs continue to push up the price of essentials like electricity, steel, aluminium and IT components, maintaining operations in Canada could become significantly more expensive.

As Canadian data centres face these rising costs, they may find it more economical to relocate or expand in regions like Ireland or Nordic countries, where energy is cheaper, taxes are lower, regulations are simple and trade policies are less restrictive. These countries offer lower operational costs, making them increasingly attractive to businesses looking to avoid the financial burden of high tariffs. For example, professional services company Ernst & Young found that Ireland continues to punch above its weight in attracting foreign direct investment through lower taxes.

Finally, the uncertainty surrounding tariffs further complicates long-term investment plans. Global cloud providers, with previously announced and built data centres in Canada like Amazon AWS, Microsoft and Google, might reprioritize more stable countries with predictable trade policies, moving critical investment projects away from Canada.

Inside-out strategies to protect data centres and unlock competitiveness.

With this backdrop of rising costs, it’s important to consider available strategic options in terms of where to play and how to win. Canadian companies should explore several strategies to mitigate these risks and uncertainties imposed by tariffs.

1. RELOCATION: Rather than relying on operations in the U.S., many companies could start reassessing data centre placement and evaluate the benefits of hosting their data centres domestically in Canada. This shift offers several advantages, including energy cost stability, especially in provinces with abundant hydroelectric power like British Columbia, Quebec and Manitoba. It also helps reduce network latency, enhances data privacy, supports local economic growth, retains data sovereignty and aligns with sustainability goals.
2. DIVERSIFICATION: Data centres should diversify their supplier base to counteract disruptions from tariffs on essential materials. By sourcing from countries unaffected by U.S. tariffs or exploring local suppliers, data centres can reduce their dependency on U.S. imports and build resilience. Easier said than done, but this diversification reduces vulnerability to trade barriers and helps stabilize the supply chain, ensuring that data centres can maintain operations without costly delays or shortages. The federal government have already seen this risk coming and are supporting more domestic manufacturing of semiconductors. 
3. EFFICIENCY: Investing in energy-efficient technologies such as advanced cooling systems (a top five 2025 trend according to Juniper Networks) and next-generation servers can significantly lower energy consumption and optimize facilities, helping offset the impact of potential energy price hikes due to tariffs.
4. SUSTAINABILITY: Sourcing alternative input energy sources like small modular reactors, hydro, solar or wind reduce data centre reliance on traditional hydrocarbon heavy energy supplies mitigates the risk of fluctuating energy costs. This strategy also supports sustainability initiatives, positioning data centres as leaders in green technology. With this backdrop provinces like Québec, with access to affordable hydroelectric power, might still hold a data centre advantage despite broader tariff-related challenges.
5. INDEPENDENCE: A report by Forrester found that microgrids and data centres are a sustainable power duo. To avoid the volatility of potentially disrupted imports, tariffs could push data centres to adopt microgrids—localized energy systems that combine renewable sources and storage for independent power generation. Using advanced AI-driven energy optimization, these microgrids would balance supply and demand more efficiently, ensuring that data centres function smoothly even in uncertain energy markets.
6. RESILIENCE: Data centres need reliable, uninterrupted power, and tariffs disrupting energy imports could force companies to diversify their energy sources. Despite data from  the U.S. Energy Information Administration indicating that Canada has exported significantly more electricity to the U.S. than it imported, tariffs might lead to more investment in localized battery storage solutions, such as large-scale lithium-ion, solid-state or alternative solutions like iron-air batteries. These technologies would enable data centres to ensure resilience and minimize reliance on cross-border energy supply chains, enhancing operational stability.
7. ADVOCACY: By engaging with industry groups and lawmakers, companies need to aim to secure subsidies or tax incentives to help alleviate the financial burden caused by tariffs. These collaborative efforts are essential in ensuring Canadian data centres remain competitive in the global market, helping them navigate the challenges posed by tariff-related disruptions while thriving in an increasingly digital world.

Success is rising above the clouds to power the future.

American businessman and former CEO of LinkedIn Jeff Weiner once said, “Data really powers everything that we do.” This sentiment rings true as Canada’s data centre industry experiences rapid growth, driven by the increasing demand for cloud computing, AI and big data services. According to Goldman Sachs Research, global power demand from data centres is projected to surge by up to 165 percent by the end of the decade. Despite these promising forecasts, the industry faces significant headwinds. Rising tariffs on essential materials such as steel, aluminium and energy are expected to escalate operating costs, compelling data centres to navigate an increasingly volatile economic landscape.

To mitigate these rising expenses, businesses must explore various strategies, including alternative energy sources, supply chain diversification and energy efficiency upgrades. The future of Canada’s data centre market—and whether it’s boom or bust—hinges on its ability to withstand these challenges. In an era marked by unpredictable tariffs, strategic flexibility will be crucial to keep up.

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