Montreal, Ottawa, March 7 - After all the threats and then all the negotiations, as of March 4th, 2025, the tariffs imposed by the 47th President of the United States and the counter-tariffs enacted by the Trudeau government have taken effect. Many experts consider the situation to be holding North America hostage, as economic conditions are expected to worsen for all parties involved. As business owners begin to weather the storm, this journalist questions how Canadian businesses can navigate this turbulent situation for growth amid political and economic instability.

Understanding the Situation at Hand

When evaluating the impact of the 25% U.S. import tariff and the equivalent counter-tariff imposed by Canada, it is essential to identify the products and raw materials affected by these measures. If a company's sector is trade-sensitive or relies on a long supply chain, the risk of exposure to customs duties is significantly high. Some of the most vulnerable sectors include:

• The automobile industry
• Oil 
• Steel and aluminum 
• The airplane industry

Conversely, tariffs will have a variety of indirect effects. When prices rise for essential goods and services, households have less disposable income for discretionary spending. If a service or product is deemed non-essential or less essential, households will likely cut back, especially as the prices of other goods rise simultaneously. For example, the snack or entertainment industries may be impacted. In cities where economic activity is heavily concentrated in a sector significantly affected by tariffs, the economy risks slowing down due to potential layoffs and decreased production. 

Demand Sensitivity Analysis 

Canadian companies should first consider conducting a market analysis to assess demand elasticity. Thus, engaging with customers is an essential method for evaluating whether tariff costs can be passed on to consumers without negatively impacting sales. Sales of non-essential or luxury goods and services will likely decline sharply. Additionally, this analysis helps identify what competitors are offering and at what price, allowing businesses to stay competitive or differentiate themselves by developing unique advantages that justify higher costs

Supply Chain Optimization

There is a difference between strengthening the supply chain and optimizing it. Optimizing mainly consists of making the supply chain more consistent and efficient. In this context, a company can assess whether certain products undergo multiple cross-border shipments between Canada and the United States, review operational expenses to eliminate inefficiencies and re-evaluate supplier costs to explore more affordable alternatives.

In the short term, conducting a comprehensive financial and commercial assessment can identify areas for improvement. This includes analyzing company processes to eliminate waste, which may involve automating certain operations and transitioning to energy and resource efficient practices.

In the medium term, integrating technology, automation, and artificial intelligence into company strategies can help reduce labour costs while enhancing employee efficiency and productivity.

Cancellation of Expansion Projects, Reduction in Workforce, Reduction in Production

Despite many best efforts to anticipate various scenarios, uncertainties will always persist. According to a KPMG survey of 250 Canadian business managers, 80% believe the Canadian government should reintroduce COVID-19-style measures to support small and medium-sized enterprises, yet 79% remain concerned about the potential inflation such measures could trigger. Additionally, 86% view Donald Trump's tariffs as a warning sign for businesses, while 90% advocate for government policies encouraging Canadians to buy locally. Meanwhile, 85% believe the tax system should be revised to partially relieve businesses of financial burdens, allowing them to remain competitive. However, 46% are considering shifting their investments and production to the United States to avoid customs tariffs, an outcome the American president had referenced during his campaign.

A CFIB survey on how Canadian businesses plan to respond to the tariffs reveals that 44% will seek new suppliers, 23% will cancel expansion plans, 19% will reduce their workforce, 18% will explore new markets, and 13% will stockpile American goods. Conversely, 7% are considering closing their operations, while 4% plan to relocate, suggesting significant economic stress. 

New Markets, New Suppliers

When it comes to strengthening the supply chain, Canadian companies will have no choice but to diversify their suppliers and markets. Businesses that rely heavily on U.S. suppliers may need to explore alternatives in Europe, Asia, or domestic sources. This strategy mitigates the impact of tariffs and reduces exposure to exchange rate fluctuations. Various federal programs support companies in expanding into international markets, helping to offset the risks of declining sales and diversify revenue streams. As a result, businesses become more resilient to political and economic shifts. 

Interprovincial Trade

In an interview with CTV News, Mark Manger, a political economist at the University of Toronto, states that “In many cases, the reason is simply that “[trade regulations] … are provincially regulated, and that we don’t have a federal regulator to enforce the same rules across the whole country” (CTV). This is primarily due to factors such as regulatory discrepancies, differing standards, protectionist policies, and logistical challenges. Furthermore, the federal government mandates inspections of alcoholic and agricultural products when they cross provincial borders and enforces complex tax categorizations.

These limitations, however, are in the process of being reduced or removed to better support Canadian businesses. As of March 5, 2025, Internal Trade Minister Anita Anand, in an interview with CTV, stated that by “breaking down those barriers to trade, we’re going to be able to add up to $200 billion to the Canadian economy without even going through Donald Trump,” implying that “Canada’s leaders say internal trade barriers increase costs for businesses and consumers, limiting economic growth. They acknowledged that, while progress has been made in recent years, more work is needed” (CTV). This sentiment is shared by provincial leaders, as Premier of British Colombia David Eby and Premier of Ontario Doug Ford commented in a joint statement that “We must increase our economic resilience, reduce dependence on one market, and strengthen our domestic economy for the benefit of Canadian workers and businesses now and in the future,” they said. “One key step is to make it easier for Canadians to do business with each other from coast to coast to coast.”

A partial framework for addressing these barriers was outlined in the First Ministers’ statement on eliminating internal trade barriers in Canada, which acknowledges the economic harm caused by such restrictions. The statement states:

“The Prime Minister and premiers directed the Committee on Internal Trade to work with the Forum of Labour Market Ministers, to develop a service standard of 30 days or better to get people working faster, and provide a plan for Canada-wide credential recognition, while taking into account jurisdictional specificities such as language provisions, by June 1, 2025.”

This initiative presents the development of a standardized system for recognizing professional credentials across provinces and territories, removing barriers to create a national standard.

Canada's evolving trade landscape stresses the need for understanding the new economic conditions faced by Canada. While the federal and provincial governments have committed to reducing interprovincial trade barriers and addressing the impact of United States tariffs, actual progress depends on effective implementation. A national strategy will be essential in enabling financial resilience and ensuring that Canadian companies can remain afloat. Through informed decision-making, Canadian enterprises can mitigate risks and potentially find new growth opportunities in an evolving business landscape.

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