Tariffs Are Here: How Will They Impact Canadian Businesses?

The introduction of tariffs on Canadian goods can have far-reaching consequences for both American and Canadian economies. They can disrupt trade relationships, increase costs and alter the competitive landscape. There is no question that the trade situation with our neighbours to the south is—and will continue to be—in a state of flux, even if there is a temporary reprieve. Accordingly, understanding the implications of such tariffs is crucial for businesses to navigate these challenges and to plan for the potential for future tariffs. This article will equip Canadian businesses with an understanding of what tariffs are and the impact we expect tariffs to have on Canadian businesses.

The Current Status of the Tariff War

U.S. Tariffs

As discussed in our FTR Now of February 6, 2025, U.S. President Donald Trump directed the U.S. to impose new tariffs on imports from Canada, Mexico and China. The proposed tariffs were set to take effect on February 4, 2025, but were paused for a 30-day period to allow Canada and the U.S. to work toward structuring a deal.

After a 30-day pause, the U.S. has decided to proceed with imposing 25% tariffs on Canadian exports and 10% tariffs on Canadian energy; these tariffs took effect on March 4, 2025.

Canada’s Surtax

In response to the U.S. tariffs, Canada imposed its own retaliatory counter-tariffs, referred to as surtax, which includes 25% tariffs on a list of goods worth $30 billion, effective March 5, 2025, and which will increase to $155 billion worth of products in 21 days. Canada’s surtax will remain in place until the U.S. trade action is withdrawn. In the interim, Canada is also actively considering other non-tariff measures that may be necessary should U.S. tariffs not cease.

What Are Tariffs?

Tariffs are taxes or duties that are imposed by one country on imported goods and services from another country. They are usually calculated as a percentage of the value of the imported goods and are paid by the “Importer of Record”—that is, the entity responsible for importing goods and ensuring they comply with all customs and legal requirements.

How Are Tariffs Impacting Canadian Businesses?

On an immediate basis, Canadian businesses that are the Importer of Record for any goods are already feeling the impact of the U.S. tariffs and Canadian surtax. That said, the impact of tariffs will eventually go both ways and affect not only the importer, but the exporter as well. In the case of the current trade war between the U.S. and Canada, we anticipate Canadian businesses will be impacted in the following ways:

Increased Costs of Exporting Goods and Reduced Competitiveness

One of the most immediate impacts of U.S. tariffs on Canadian goods is the increased cost of exporting goods to the United States. Tariffs raise the price of Canadian products in the American market, making them less competitive compared to domestic products or goods from countries that are not subject to the same tariffs. This can lead to a reduction in demand for Canadian exports and the loss of market share to competitors. At the same time, given the implementation of Canadian surtax, the price of American products in the Canadian market will similarly increase for Canadian businesses importing American goods. Overall, these changes will result in an adverse impact on revenue streams for Canadian businesses.

Supply Chain Disruptions

Tariffs can also disrupt supply chains, particularly for industries that rely on cross-border trade for raw materials or components. Increased costs and logistical challenges can arise as businesses seek alternative markets or suppliers to mitigate the impact of tariffs. These disruptions can lead to delays, reduced efficiency and increased operational costs.

Market Diversification

In response to U.S. tariffs, Canadian businesses may seek to diversify their markets to reduce dependency on the United States. While this strategy can mitigate risk, it often involves making significant investments in marketing, establishing new trade relationships, and understanding different regulatory environments. Diversification can be a long-term solution but can also pose a challenge as it requires time and resources that not all businesses can afford, especially during times of uncertainty.

Impact on Employment

Depending on the severity of the tariffs and their impact on sales and demand for Canadian goods, Canadian businesses may face pressure to reduce costs through layoffs, hiring freezes, reduced working hours or even mass terminations. Read more about this in our FTR Now of February 14, 2025.

Reductions, or even the threat of reductions, in business can have a significant impact on employees, the business itself and even the local economy.

For employees, this can include financial stress, mental health issues, and exacerbated health issues with the loss of benefits.
For businesses, this can include decreased employee morale, loss of talent and reputational damage, which can weaken the organization’s capabilities and competitiveness.
For local economies, this can include a rise in unemployment rates and a decrease in consumer spending, particularly in regions where certain industries have been directly impacted by either the U.S. tariffs, the Canadian surtax or both.

Government Intervention and Support

To counteract the negative impacts of U.S. tariffs, the Canadian government may implement support measures for affected businesses including, but not limited to, financial aid, tax relief or other initiatives to promote market diversification. Such interventions aim to stabilize the economy and support businesses in navigating the challenges posed by tariffs. Businesses may also use existing government programs—such as the Employment Insurance Work-Sharing Program and Supplemental Unemployment Benefit Plans, discussed in our FTR Now of February 20, 2025—to manage temporary workforce disruptions and provide greater workforce security during periods of economic turbulence.

Long-Term Economic Impact

While the immediate effects of tariffs can be severe, the long-term economic impact depends on how businesses adapt and how trade policies evolve. Some industries may experience a permanent decline, while others may innovate and find new markets, ultimately emerging stronger. The resilience and adaptability of Canadian businesses are key factors in determining the long-term outcomes of U.S. tariffs and Canadian surtax.

Conclusion

As the trade relationship with the United States evolves, it is critical that Canadian businesses develop contingency plans in anticipation of varying scenarios. Whether the current tariffs remain in place or not, understanding them and considering how to effectively navigate them will leave employers better prepared in the face of uncertainty. What makes sense for one business will not necessarily be the same for another and each employer should be assessing the specific impact of tariffs on their business and exploring strategies to absorb their impact.

Contact your regular Hicks Morley lawyer for assistance with assessing your company’s unique circumstances, developing a strategy for managing your workforce that meets your objectives, and providing actionable steps to mitigate impact to your business, both immediately and into the long-term future.

The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hicks Morley Hamilton Stewart Storie LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hicks Morley Hamilton Stewart Storie LLP. ©

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