Table of Content

• The latest on U.S. Tariffs on Canada
• What is a tariff?
• What do tariffs mean for businesses?
• Who pays tariffs on imports?
• Industries most affected by U.S. tariffs on Canada
• The potential impact on the Canadian economy
• Canada's response to US tariffs
• 8 Tips for Canadian businesses to prepare for tariffs
• Remaining resilient during uncertain times
• FAQ

Recently, the U.S. government announced new tariffs on Canadian imports, starting a trade war with one of its largest trade partners. Many everyday goods could face a 25% tariff, while energy products could be subject to a 10% tariff. 

These tariff measures were supposed to take effect on February 4, 2025, but have been pushed back by at least 30 days (until March 5, 2025). Although this news was welcomed by many businesses on both sides of the border, Trump was quick to add new measures by applying 25% tariffs on aluminum and steel from Canada and other countries.  

With the situation evolving daily, businesses must understand how it will affect their bottom line and loyal customers. This article will explain how tariffs work, who pays for them, what industries are affected, and how Canadian businesses can prepare for them.  

What is a tariff?

A tariff is a tax imposed by a government on imported goods. Typically, tariffs aim to protect domestic industries by making foreign products more expensive. Thus encouraging consumers to buy locally produced goods instead. 

In theory, this sounds good on paper.

However, since Canada and the U.S. rely heavily on each other’s resources, this may cause more harm than good. Economists predict that these measures imposed by Trump will cause prices to increase and businesses to lay off employees, which will then weaken the economy and lead to a recession. 

What do tariffs mean for businesses?

Simply put, a tariff is a tax imposed by a government on imported or exported goods. Generally, tariffs serve multiple purposes, including protecting domestic industries, creating revenue, and influencing trade negotiations. 

Approximately $3.5 billion of goods and services cross the Canadian-U.S. border daily. With this high volume of trade, it's no wonder that that tariffs can have a drastic impact for small and medium businesses.

Our nation supplies the United States with essential goods such as wood, petroleum, food, and auto parts. Making Canadian companies pay a tariff on these products will put pressure on profit margins.

Who pays tariffs on imports?

Typically, tariffs are paid by importers, such as American businesses who purchase Canadian goods. These businesses then have to decide whether to absorb the additional cost or pass it on to consumers through higher prices.

Here a few examples of how tariffs would apply to various businesses:

Scenario #1: A Canadian retailer importing American appliances (such as fridges or washing machines) may face an additional 25% cost, leading to higher prices for customers.

Scenario #2: An automotive manufacturer in the United States that relies on steel from Canada may experience increased production and material costs, resulting in reduced profit margins.

Scenario #3: Small businesses that depend on cross-border trade may adjust pricing strategies or look for other suppliers to lower costs.

Industries most affected by U.S. tariffs on Canada

While large corporations may be able to absorb some of these costs, small to medium businesses are especially at risk. The primary sectors that will feel the impacts are:

Automotive and manufacturing: Businesses relying on U.S. parts and raw materials may face rising costs.

Retail and consumer goods: Higher import costs on clothing, footwear, and home goods could increase prices. Small retailers who import goods from the U.S. may need to adjust their pricing. 

Food & beverage: Many American food and beverage products (including poultry, dairy products, and alcohol) entering Canada will be subject to tariffs, negatively affecting restaurants and grocery stores.

Agriculture: Farmers and food producers who export goods (such as wheat and baked goods) to the U.S. could face trade barriers, reducing competitiveness.

Electronics: Importing tech products from the U.S. could become more costly, affecting e-commerce businesses and small IT companies.

The potential impact on the Canadian economy

The ripple effects of these U.S. tariffs on Canada could be significant. It will affect businesses, consumers, and the economy.

Here are four negative ways the tariffs may impact our nation.

• Higher costs for businesses: Small and mid-sized businesses that rely on U.S. imports will face increased costs. This may lead to reduced profitability or higher prices for consumers.
• Inflation and rising consumer prices: With businesses passing on costs, Canadian consumers may see price hikes for everyday goods—from groceries to gas—all of which will contribute to inflation.
• Supply chain disruptions: Many businesses rely on cross-border supply chains. Tariffs may cause companies to search for alternative suppliers, which can be time-consuming and expensive.
• Reduced trade and economic growth: If businesses cut back on imports due to higher costs, trade between Canada and the U.S. could slow down. Jobs may be cut, and the economy could stagnate.

On the positive note, Canadian consumers are becoming more conscious when it comes to buying Canadian products to support local businesses. According to Toronto Sun survey, 84% of respondents said they started buying more goods produced in Canada.

Canada's response to U.S. tariffs

Canada is considering retaliatory 25% tariffs on some U.S. goods, if the U.S. tariffs are imposed.

Both federal and provincial governments have announced measures to support Canadian businesses and combat tariffs. Partly due to the 30-day push back until March 5, few specifics have been announced yet, but here’s what we know so far to help you stay prepared.

Federal government providing tariff relief

To protect business owners and workers, the Canadian government announced that it create a remission process whereby business can submit a request for relief from these U.S. tariffs. For instance, this may apply to those who face exceptional circumstances or where a business is unable to source materials from non-U.S. suppliers.

Although there are no specific details just yet, more information will be published in the near future about relief support programs.

In addition, the federal government published a list of the $30 billion worth of products from the U.S. that will be subject to 25% tariffs (before the 30-day delay agreement came into effect). The list includes common products such as meat, yogurt, cheese, fruits and vegetables, tea, coffee, furniture, appliances, kitchen tools, and glassware.

Provincial governments responding to U.S. tariffs

Many provinces are taking swift action and showing solidarity to combat these tariffs brought on by the U.S. For example, British Columbia, Manitoba, Newfoundland and Labrador, Nova Scotia, Ontario, Quebec, and PEI are removing U.S. alcohol from their liquor stores.

New Brunswick, Nova Scotia, and PEI are looking to cancel existing U.S. contracts or stop signing new deals with American companies, where possible.

Furthermore, New Brunswick will launch programs to provide training for workers and entrepreneurs, and collaborate with other provinces and territories to reduce trade barriers. Nova Scotia will also double the toll costs for commercial vehicles entering from the U.S.

The provinces and territories will announce additional measures as the situation unfolds. 

8 Tips for Canadian businesses to prepare for tariffs

It may be challenging for small business owners and solopreneurs to navigate these new tariffs.

To help you get started, here are eight proactive steps you can take.

1. Assess your supply chain: Identify which suppliers are affected by tariffs and research alternative suppliers within Canada or from countries with lower trade barriers.
2. Find backup suppliers: Explore domestic or international sources to reduce dependency on U.S. goods. Alternatively, you can negotiate better terms or bulk discounts with existing suppliers to offset higher costs.
3. Adjust pricing strategically: If you need to increase prices, consider a gradual approach or bundle products to keep customers satisfied.
4. Diversify revenue streams: Find new markets outside the U.S. to decrease reliance on American customers.
5. Integrate automation: Optimizing operations through automation can help maintain profitability and cost-efficiency.
6. Prioritize business efficiency: With business solutions like Quickbooks you can stay on top of your finances and grow your company even in tougher economic environment.
7. Review cash flow and pricing strategies: Adjust pricing models and assess cash flow to account for increased costs.
8. Monitor government support programs: The Canadian government may introduce relief measures for businesses impacted by tariffs. It's best to stay informed about potential tax breaks, grants, or financial assistance programs.
9. Apply for tariff relief: The Canadian government is launching a new remission process for businesses to request relief from the U.S. tariffs.

For more details about the types of tariffs and the history between Canada and the U.S., find out more in our article on what new tariffs mean for small businesses. 

Remaining resilient during uncertain times

U.S. tariffs on Canada are set to impact businesses across various industries—especially those that depend heavily on American imports. It's prudent for business owners and solopreneurs to take action to reduce the financial burden and keep operations running smoothly.

Be sure to assess how these new tariffs will affect your daily operations. Also, consider researching cost-cutting measures and working with Canadian suppliers.

Lastly, you can take further steps to prepare for the storm. Use QuickBooks Online to effectively manage your cash flow and monitor overhead costs, so you can focus on growing your business—no matter what happens beyond our border.