The news: Some 40% of Canada’s small exporters sell products hit by the new 50% US tariff, according to a Canadian Federation of Independent Business survey of 1,833 business owners. Among those firms, 77% expect revenue to drop, including 35% who expect it to fall by at least half.
The tariff has been applied since August 22 to about $20 billion of Canadian goods. Washington imposed it under Section 338 of the Tariff Act of 1930, a legal authority that had never been used until this year. Unlike earlier tariff rounds, this one applies even to goods that meet CUSMA rules of origin. In those rounds, exporters could avoid the duty by certifying their products under the trade pact; that option no longer exists for the targeted products. The list runs from machinery and wood products to food, plastics and packaging.
The survey is the third from CFIB in 13 months to find that small exporters are paying US tariff costs themselves. Last summer, at lower rates, 63% of small exporters said they covered the costs directly or split them with partners, at a median of $22,500.
“It is clear that most small exporters have had to eat much of the cost of US tariffs in order to keep their American customers,” CFIB president Dan Kelly had said at the time.
By the numbers: The figures come from the two weeks before the tariff took effect, so they show what businesses expect, not what has happened yet.
78% of affected firms said the tariff would make their products uncompetitive in the US market.
75% said it will push them to reduce their reliance on US customers.
78% said they are waiting to see what happens before responding.
How it works: Many small exporters must pay the duty before their shipment crosses the border. That means the money leaves their account before they can decide whether to raise prices.
John Melich, owner of Gear182, a Brampton, Ontario maker of 3D-printed tactical gear sold to US buyers through Etsy, told BNN Bloomberg the platform requires him to prepay the duty before a shipment moves. The tariff alone is now $50 on a $100 product. “After including shipping prices and our Etsy fees, we’re literally going to lose money on each product,” he said.
Those upfront payments are causing some shippers to delay loads. Lisa McEwan, co-owner of Toronto customs broker Hemisphere Freight, told The Canadian Press she had six customs entries, the paperwork that clears a shipment into the US, that she could not submit until clients paid. Her clients, who make sweatshirts, metal coil and farm machinery, are holding shipments back because they cannot cover the duty.
The pattern: Nike recorded a $986 million tariff refund this year, while the typical CFIB member who absorbed tariff costs paid $22,500.
Large companies have more ways to handle the same tariffs:
FedEx is returning $800 million in collected duties to its shippers. Razor split its US duties with Walmart and its factories by building them into the price the factory charges. General Motors raised its full-year profit guidance the day after the 50% tariff on Canada was signed.
Ford expects a net tariff cost of about $1 billion this year even after expecting $3 billion in refunds, and Caterpillar expects a hit of $2.2 billion to $2.4 billion, so large companies are not escaping the cost. But they can spread it through refund claims, cost-sharing with big partners and price increases. Small exporters mostly report paying it themselves.
During the last comparable round, the 2018-19 US steel and aluminum tariffs, about 30% of Canadian steel exporters and 36% of aluminum exporters left the US market permanently by 2019, per Statistics Canada. The firms that left carried more debt than the firms that stayed.
The counter: Statistics Canada’s broader business-conditions survey, published in June, found a different result. About 33% of businesses with fewer than 20 employees reported a negative impact from US tariffs, compared with about 43% of both mid-sized and large firms. That survey covered all businesses, not just exporters whose products are targeted, so the two surveys measure different groups.
The tariffed goods are also about 5% of Canada’s total exports. Robert Kavcic, senior economist at BMO, called the affected trade “relatively manageable” for the national economy. But for a firm in the targeted categories, he said, “your US market could effectively be gone.”
What’s next: Canada’s countermeasures take effect September 8: tariffs of 15% to 50% on US goods worth the same amount, including steel, dairy, appliances and farm equipment. Ottawa also added C$7.5 billion in support in late August. That includes a C$1.5 billion short-term financing program for small and mid-sized exporters and a C$2 billion fund for capital projects at tariff-affected businesses. The government has provided roughly C$25 billion in tariff support since the trade war began.
