When you own a small business, government trade decisions can have a big impact on your business, both directly and indirectly. With great self-employed and small business advice, you can navigate these new tariffs and continue to grow your business. 

Understanding Tariffs and Canada Small Business Effects

Tariffs are taxes a governmental authority places on a specific types of imported or exported products. Governments may set tariffs on the raw materials businesses use to create goods, on finished products, or both. For example, you might see tariffs on aluminum, which companies use to manufacture beverage cans and automobiles. Or, you could see taxes on automobiles and canned beer — two finished products that use aluminum.

There are two basic types of tariffs:

Ad valorem tariffs: Taxes that change based on the value of imported goods or materials

Unit tariffs: These taxes are charged in a specific dollar amount for a set number of products

Governments tax goods to protect their nation’s companies from foreign competitors and to increase revenues. When governments impose tariffs, it costs more to import the goods. If you're selling those imported goods to customers, that means you might need to raise your prices.

The New Tariffs and Canada Small Business

After a lumber trade agreement between the United States and Canada expired in 2015, the United States set a tariff on Canadian softwood lumber in April 2017. This tax adds an average of 21% to the cost of lumber Canada sends to the U.S.

On June 1, 2018, the United States placed a 25% tariff on imports of Canadian steel and a 10% tariff on imports of Canadian aluminum. Canada responded immediately with similar tariffs. These taxes affect up to $16.6 billion in steel, aluminum, and other products it imports from the United States. This amount is the same as the Canadian exports that were affected by the United States’ tariffs in 2017.

On October 25, 2018, Canada set tariff rate quotas (TRQs) on seven classes of steel goods. What does that mean for you? If you’re importing certain goods from the U.S. without a valid import permit, you must pay a safeguard surtax of 25%.

More recently in 2024, there have been talks of new tariffs (tentatively 25%) being imposed on goods coming from Canada into the United States.

Relationships Between Tariffs and Self-Employed Individuals

How do these tariffs affect your small business? Imagine that you own a food delivery and catering service. You use lots of single-use aluminum pans for delivering, serving, and selling food. You buy soft drinks and beer in aluminum cans for bulk and individual sales, and you purchase aluminum canisters to store your secret-recipe whipped cream. Your budget for next year includes money to purchase a new delivery van. After the government sets aluminum tariffs, all of these items get more expensive. Suddenly, you're wondering if you have room in the budget.

When material costs increase, your suppliers may raise their prices. That means that your costs also get higher. This creates a dilemma: if you raise your prices in response, can you keep your customers? What's more, is it possible to raise your prices enough to cover the increased costs?

Since increasing prices could jeopardize your relationships with current customers and clients, before you change those menus, think about other options for dealing with your supply chain issues. Ask yourself whether it’s possible to:

• Cut costs in other parts of your budget
• Renegotiate current contracts or negotiate new contracts with your current suppliers with better terms
• Look for new suppliers that use only aluminum produced in Canada
• Find suppliers that source their aluminum from countries that aren't affected by the Canadian trade countermeasures
• Stock up on goods or materials before prices get higher
• Explore new ways to bring in income and offset the higher supply costs

Another option? Take advantage of Canada's trade agreements. Canada is part of the Comprehensive Economic Trade Agreement (CETA) with the European Union. This agreement makes it easier for you to buy tariff-free materials from suppliers in other member countries. Another option is the 11-country Comprehensive Progressive Agreement for Trans-Pacific Partnership (CPTPP). This agreement allows you to buy supplies from 10 Pacific Rim countries — without expensive tariffs.

Tariffs and Small Business Advice

As for tariffs and self-employed advice, it's always helpful to be proactive. Rather than standing back and waiting to see how things shake out, take action — even if you don't think the current tariffs affect you. After all, it's always a good idea to save money and strengthen your business position.

Do you have long-standing relationships with suppliers? If they want to keep your business, you may be able to negotiate better rates. If you need to sweeten the deal, try offering added value. You might offer to refer your industry contacts to the supplier. If you buy raw goods or components, consider offering the supplier a discount on the finished product.

If your company depends on suppliers that are affected by tariffs, you might want to start creating relationships with backup suppliers. That way, if your current suppliers are forced to raise their prices out of your budget, you have another solution. In an emergency, these backups can be a lifesaver — they can keep your operations running smoothly. Keep in mind that finding new suppliers may take weeks or months of research. You want to ensure that the supplier is reliable, and that they can coordinate with your shipping needs. What's more, you need to make sure their products meet Canada’s regulations before you begin contract negotiations. By starting early, you can have a plan in place when you need it.

As a small business, your cash flow is the lifeblood of your company. Tools such as QuickBooks Online can help you organize receipts, monitor income and expenses, and handle invoicing on the go. You can use the tool to check in on your profit margin and look for places to save money. You might find opportunities to reduce variable and indirect costs. 

If you’re in retail sales, you might review your inventory to make sure you’re not carrying more than you need — overstock takes up storage space and is prone to damage. Then, stock more of the products that sell quickly. If you're overloaded with old stock, consider having a sale to generate cash and rid yourself of unnecessary burdens. you might also make a charitable contribution that qualifies for a deduction at tax time.

Are you planning to make capital improvements or buy an expensive item that might be impacted by tariffs? It's a good idea to talk to your accountant or tax advisor about possible tax credits and deductions. More importantly, don’t be shy about asking for help in negotiating the purchase price and repayment terms.

When governments create new tariffs, it’s even more important to save money wherever you can in your small business and QuickBooks Online can help.