As of February 12, 2025, the trade landscape between the United States and Canada has experienced significant developments. On February 1, 2025, President Donald Trump announced the imposition of a 25% additional tariff on imports from Canada and Mexico, with Canadian energy resources facing a 10% tariff. These measures were set to take effect on February 4, 2025.
However, on February 3, 2025, both nations agreed to delay the imposition of these tariffs to allow for further negotiations.
Despite this temporary pause, President Trump has signalled intentions to announce an order requiring U.S. tariffs on imports to match the tax rates charged by other countries, potentially leading to substantial increases in taxes on imported goods.
These evolving policies have raised concerns among business leaders. For instance, Jim Farley, CEO of Ford, expressed that the tariffs could severely disrupt the U.S. auto industry, leading to increased costs and giving an advantage to international competitors.
What Tariffs Mean for Canadian Businesses
Tariffs on Canadian imports typically translate to increased costs for consumers, as the importing company passes down these expenses. This increase in the cost of Canadian goods can make them less competitive compared to domestic products or those from countries with lower or no tariffs. The Canadian Federation of Independent Business (CFIB) reported that 82% of businesses would be affected by tariffs in some way.
Potential Impacts on Canadian Businesses
The following are the potential impacts on Canadian businesses:
Lower Sales and Revenue: Higher costs of Canadian goods may lead consumers to opt for alternatives, causing a decline in sales and revenue for Canadian businesses.
Job Losses: Export-reliant industries like manufacturing, agriculture, and natural resources may face production slowdowns, layoffs, or closures due to decreased demand.
Reduced Market Access: Canadian businesses might struggle to expand in the U.S. market or be forced to exit altogether because of higher costs and competitive disadvantages.
Supply Chain Disruptions: Tariffs can disrupt integrated North American supply chains, increasing costs and causing inefficiencies and delays. Businesses may need to restructure operations or find new suppliers, which can be costly and time-consuming.
Retaliatory Tariffs from Canada: Canada may impose retaliatory tariffs on goods from the U.S., potentially escalating trade tensions and further disrupting industries that rely on cross-border trade.
Currency Fluctuations: Trade restrictions can influence currency exchange rates, and decreased demand for Canadian exports may cause the Canadian dollar to decline further against the U.S. dollar
Industries Most Affected
The following are the potential impacts on Canadian businesses:
Lower Sales and Revenue: Higher costs of Canadian goods may lead consumers to opt for alternatives, causing a decline in sales and revenue for Canadian businesses.
Job Losses: Export-reliant industries like manufacturing, agriculture, and natural resources may face production slowdowns, layoffs, or closures due to decreased demand.
Reduced Market Access: Canadian businesses might struggle to expand in the U.S. market or be forced to exit altogether because of higher costs and competitive disadvantages.
Supply Chain Disruptions: Tariffs can disrupt integrated North American supply chains, increasing costs and causing inefficiencies and delays. Businesses may need to restructure operations or find new suppliers, which can be costly and time-consuming.
Retaliatory Tariffs from Canada: Canada may impose retaliatory tariffs on goods from the U.S., potentially escalating trade tensions and further disrupting industries that rely on cross-border trade.
Currency Fluctuations: Trade restrictions can influence currency exchange rates, and decreased demand for Canadian exports may cause the Canadian dollar to decline further against the U.S. dollar
Industries Most Affected
The tariffs are expected to have cascading effects throughout North American supply chains, impacting companies that trade directly between the U.S. and Canada and those that rely on cross-border supply chains.
Direct Impact Industries
Agricultural and Food Products: Significant impact on cross-border food supply chains.
Beverages and Spirits: Targeted by Canadian tariffs.
Energy Sector: Subject to a 10% U.S. tariff.
Steel and Aluminum: Included in the second phase of Canadian countermeasures.
Automotive: Disruptions to the integrated North American auto manufacturing sector are possible.
Secondary Impact Industries
Logistics and Transportation: Changes in trade flows may affect shipping routes and volumes.
Retail: Higher costs for imported consumer goods and potential supply chain disruptions.
Manufacturing: Companies using imported components or materials in their production processes.
Distribution: Businesses that warehouse and distribute affected products.
Service Industries: Companies providing support services to directly affected industries.
