Trade Relations Between the U.S. and Canada: Impact of Tariffs on Small Businesses
The trade dynamics between the United States and Canada have traditionally been strong, forming a critical backbone for both countries’ economies. In 2024, the trade of goods between the two nations amounted to an impressive $762.1 billion, with Canada relying heavily on the U.S. market. A significant portion of Canadian goods—over three-quarters—was exported to the U.S., while nearly half of all products imported into Canada came from its southern neighbor.
Starting in March, the Trump administration implemented a series of tariffs that aimed to reshape trade relations. Among these were a 10% tariff on Canadian energy exports and a hefty 25% tariff on various imports from both Canada and Mexico. This move, which Trump had pledged upon taking office, was designed to bring manufacturing back to the U.S. However, a select few items were exempt under the United States-Mexico-Canada Agreement (USMCA) created to promote trade among the three countries.
In addition to these tariffs, a 25% levy on vehicles not manufactured in the U.S. was introduced, creating further strain on Canadian automakers and component suppliers. Many Canadian businesses voiced their frustrations as they faced increased costs and potential losses in key markets.
Local businesses in Canada have reacted in various ways as these tariffs unfolded. For example, Balzac’s Coffee Roasters—a popular chain in Ontario—decided to show its support for Canadian products by renaming the traditional Americano to "Canadiano." Similarly, Your Independent Grocers, an independently owned supermarket chain, proudly displays products with a Canadian maple leaf logo, signaling to consumers that these items are locally prepared. They have also marked the products affected by tariffs with a distinct "T" logo to alert shoppers.
Corinne Pohlmann, executive vice president of advocacy at the Canadian Federation of Independent Business (CFIB), highlighted the significant impact tariffs have had on small businesses. The CFIB advocates for over 100,000 small enterprises across various Canadian provinces and territories. According to a survey conducted in late 2024, approximately half of the CFIB members were involved in importing or exporting with the U.S. Furthermore, more than 25% of those surveyed witnessing a heightened demand for Canadian-made products, and over half expressed a lack of confidence in the U.S. as a reliable trading partner.
The tensions surrounding tariffs have strained long-established connections between U.S. and Canadian businesses. Entrepreneurs are reportedly navigating the complexities of determining who will absorb the increased costs stemming from these tariffs. Many have approached CFIB for guidance on renegotiating existing contracts with U.S. partners, reflecting the emotional toll these economic changes have taken. Pohlmann expressed that many Canadians felt a sense of betrayal due to the tariffs.
In response to rising trade tensions, the Liquor Control Board of Ontario (LCBO) halted purchasing U.S. products starting in early March. Signage at an LCBO retail location even communicated the message, "For the good of Ontario, for the good of Canada," as customers confronted the absence of beloved American items like California wines and Tito’s Vodka.
However, not all items are simply classified based on origin. For instance, a spokesperson for LCBO clarified that products manufactured in Canada—such as locally produced Coors Light—remained available, regardless of the owner’s nationality. This illustrates the complexities surrounding product sourcing versus ownership in the context of tariffs and trade relations.
Historically, tariffs have served as instruments of "hard power" in foreign policy, designed to induce changes in geopolitical relationships through economic pressure. As countries like Canada, Mexico, and Japan have benefited from long-term trade agreements, there’s been growing concern over the potential erosion of U.S. influence in this area.
Former Secretary of State Antony Blinken articulated fears regarding the weakening of America’s “soft power” in the global arena—a crucial aspect of diplomacy and international relations. He emphasized the risks associated with allowing rival countries, particularly China, to expand their own influence at the expense of established partnerships.
Even if there is a future reduction in tariffs, Canadian businesses may find it challenging to restore the trust and cooperative spirit that once characterized U.S.-Canada trading relationships. Pohlmann cautioned that lost contracts and diminished trust could have long-lasting effects, stating, "While we’d welcome a permanent reprieve from tariffs, the trading relationship between Canada and the United States has been fractured and may never be the same again."
