The U.S. government is proposing a 25% tariff on all imports from Canada, citing economic protectionism and trade imbalances. The tariffs were supposed to come into effect on February 4, 2025 but were postponed by 30 days until March 5, 2025.

If carried out, this policy will significantly impact Canadian small businesses — particularly those that rely on cross-border trade for materials or export their products to the U.S.

With Canada and the United States sharing one of the world's largest trading relationships, these new tariffs have far-reaching consequences. Small businesses face rising costs, disrupted supply chains, and potential pricing challenges.

Keep reading to learn how tariffs work, why these new ones are being implemented, and how small businesses can prepare for potential economic challenges ahead.

Understanding the 2025 U.S. tariffs on Canada

The potential tariffs being threatened by the U.S. could impose a 25% tax on all imports from Canada. Currently they have vowed to move forward with steel and aluminum tariffs, but agricultural products, and retail goods and machinery could be next.

What is a tariff and how do tariffs work?

A tariff is a tax that a government places on imported or exported goods to regulate trade, protect domestic industries, and generate revenue.

While tariffs can encourage businesses to buy from domestic suppliers, they also disrupt global supply chains and create higher costs for businesses that rely on international trade.

Types of tariffs

Tariffs typically fall into two categories:

1. Ad valorem tariffs: A percentage-based tax applied to the value of imported goods.
2. Unit tariffs: A fixed amount charged per unit of imported goods, regardless of value.

Who pays tariffs on imports?

Although tariffs are imposed on importers, businesses and consumers ultimately bear the costs. Small businesses that rely on imported raw materials may face higher expenses, while companies exporting goods to the U.S. could struggle to remain competitive.

For example, if you own a business that imports aluminum to manufacture beverage cans, a 25% tariff could significantly increase your costs, forcing you to adjust prices or find alternative suppliers.

Why is Trump imposing tariffs on Canada?

The U.S. government has stated three main reasons for these tariffs:

1. Protecting American jobs: Encouraging businesses to rely more on domestic production.
2. Trade imbalance concerns: Addressing the U.S. trade deficit with Canada.
3. Retaliation for past trade policies: Citing disputes over industries like lumber and dairy.

This policy shift poses a challenge for Canadian small businesses that depend on U.S. trade, making proactive financial and operational planning crucial.

How do U.S. tariffs affect Canadian businesses?

The impact of tariffs varies by industry, but many small businesses will feel the strain due to higher production costs, reduced competitiveness, supply chain disruptions, and increased financial strain.

Here's how each could impact your small business:

• Higher production costs: If your business imports materials from the U.S., tariffs will increase prices for essential supplies like steel, aluminum, and machinery.
• Reduced competitiveness: If, on the other hand, your company exports products to the U.S., your goods may become more expensive than American-made alternatives.
• Supply chain disruptions: Tariffs may encourage companies to change suppliers, leading to delays or shortages in key materials.
• Increased financial strain: Small businesses with limited cash flow may struggle to absorb the rising costs resulting from the tariffs.

Proactive financial planning, supply chain adjustments, and exploring government support programs will be key to navigating this shifting trade landscape.

What industries are most affected by the US tariffs?

While the proposed U.S. tariffs have not yet been implemented, they could significantly impact several key Canadian industries if they are put in place.

Manufacturing and construction

Industries that rely on materials like steel and aluminum, such as automobile manufacturers, construction firms, and equipment producers, may see higher supply costs. If tariffs are imposed, businesses in these industries could face increased expenses, potentially leading to higher prices for consumers or reduced profit margins for manufacturers.

Agriculture and food production

Farmers and food processors could also be affected if the tariffs extend to agricultural products. Higher costs for raw materials, such as grains or meat products, could create financial strain, leading to price increases or reduced competitiveness in the U.S. market.

Retail and consumer goods

Retailers who export Canadian-made products to the U.S. may find it harder to compete with American brands if tariffs make their goods more expensive. This could impact businesses selling anything from clothing and furniture to packaged food products.

For companies that rely on imported materials, adjusting supply chains and pricing strategies will be critical to maintaining profitability.

As discussions around the tariffs continue, Canadian businesses should monitor developments closely and prepare for potential cost increases by reviewing sourcing strategies and exploring alternative suppliers.

How can small businesses prepare for the potential U.S. tariffs?

With the possibility of increased costs and supply chain disruptions, small businesses should take steps to reduce risks.

Below are practical strategies to help businesses navigate potential tariffs and remain competitive.

1. Reassess supply chain and sourcing options

Reducing reliance on U.S. imports can help businesses avoid tariff-related cost increases.

Consider sourcing materials locally, diversify suppliers, and negotiating bulk pricing and locking in long-term contracts before additional price hikes.

2. Adjust pricing and budget planning

Tariffs can shrink profit margins, making it important to review pricing structures and expenses.

To prepare for potential tariffs recalculate profit margins based on higher costs, explore new pricing strategies, and reduce any unnecessary expenses.

3. Strengthen relationships with customers and suppliers

Maintaining strong business relationships can help offset potential tariff burdens.

Businesses should be clear about price changes, offer loyalty programs or incentives to customers, and negotiate for the best pricing with existing suppliers.

4. Leverage tools for business efficiency and cash flow management

Managing cash flow effectively can help businesses stay financially stable during uncertain times.

Use tools like QuickBooks to track expenses, monitor profit margins, and forecast financial health can help:

• Reassess inventory needs to avoid overstocking tariff-impacted products.
• Explore new revenue streams by introducing alternative products or services.

Take advantage of tax strategies and government relief programs

Businesses may qualify for government support to ease the impact of tariffs.

Strategies include:

• Consulting an accountant to find applicable tax deductions and credits.
• Exploring tariff relief programs, which may offer exemptions or rebates for affected industries.

By planning ahead and using the right tools, small businesses can minimize risks, protect their bottom line, and stay competitive despite changing trade policies.

What government support is available for Canadian businesses affected by tariffs?

To help small businesses and self-employed Canadians, the government is offering financial assistance and trade support programs:

• Export Development Canada (EDC): Financing and insurance solutions for businesses expanding beyond the U.S.
• Canada Tariff Relief Program: Potential rebates and exemptions for certain imports.
• Business Development Bank of Canada (BDC): Loans and grants for businesses affected by tariffs.
• Canadian Trade Accelerator Program (TAP): Helps small businesses diversify export markets.

Businesses should stay updated with Canada’s Department of Finance and trade organizations for new relief measures.

Stay on top of your business finances

In times like these, staying on top of your business finances becomes even more crucial. Taking full control of your finances by tracking expenses, managing cash flow, and forecasting future costs can give you the necessary edge to understand and overcome the difficulties ahead, which can be decisive for the future of your organization.

If you want to protect your business, QuickBooks can help you navigate these challenges with confidence and safeguard your next ventures.