On Saturday, February 1, 2025, U.S. President Donald Trump announced sweeping new tariffs on Canadian goods, which will be implemented March 1. The measures include a 25% tariff on most Canadian imports and a 10% tariff on energy products. In swift retaliation, the Canadian government imposed staggered equivalent 25% tariffs on U.S. imports, igniting fears of an escalating trade war reminiscent of earlier U.S.-China tensions.
Retailers across Canada are bracing for immediate price hikes after tariffs come into force. Gary Newbury, a retail supply chain and last-mile expert, shared his insights on how these tariffs will ripple through the industry.
“I suspect there’s an opportunity for retailers to raise prices even before they’re directly impacted,” Newbury noted. “They’ll argue that they need to build in a buffer now to manage future costs from these tariffs. This approach isn’t new—we’ve seen it before with gasoline companies, where prices rise in anticipation of cost increases and fall more slowly when wholesale prices drop.”
Newbury further explained that retailers may use the tariffs as a pretext to increase prices even if current inventory was sourced before the new duties took effect. “Retailers struggling with tight margins might seize this as an opportunity to improve profitability under the guise of external cost pressures,” he added.
For consumers, this means tighter household budgets. “It’s going to be a tough time,” Newbury added. “Retailers will pass these costs along to consumers, and the uncertainty makes it even harder.”
Small Retailers Face Greater Vulnerability
While large retailers like Walmart and Canadian Tire may have the resources to mitigate some impacts, small and medium-sized businesses are more vulnerable. “Smaller retailers often rely on local wholesalers, who in turn depend on imports,” Newbury said. “They don’t have the same bargaining power or supply chain flexibility, making them more susceptible to sudden cost increases.”
Newbury elaborated, “This dependency on local wholesalers creates a critical vulnerability. When wholesalers face increased import costs due to tariffs, they pass those costs directly to smaller retailers. Unlike larger chains that might have direct supplier agreements or diversified sourcing strategies, small businesses often have limited options, leaving them with little room to negotiate better terms.”
This vulnerability could lead to more rapid price hikes for consumers shopping at independent stores, particularly for US imported goods. “The wholesalers will pass on the tariffs, and small retailers have little choice but to absorb the cost or raise prices,” Newbury explained.
He added, “Smaller businesses may also struggle with cash flow issues if they need to pay higher upfront costs without the volume-based discounts larger retailers negotiate. This can create a cascading effect where increased costs strain financial stability, potentially leading to reduced inventory, layoffs, or even closures in extreme cases.”
Impact on Cross-Border E-Commerce
For Canadian businesses that rely heavily on exports to the U.S., the outlook is equally grim. Companies that ship products like apparel or specialty goods directly to American consumers will face new barriers.
“If a business does 90% of its exports to the U.S., these tariffs could be devastating,” Newbury said. “They’ll have to decide whether to absorb the costs, pass them on to customers, or find new markets.”
Newbury raised an interesting point about de minimis thresholds, which exempt small shipments from certain duties. “Businesses might pivot to smaller shipments to avoid tariffs, but that adds logistical complexity and costs,” he explained.
Supply Chain Disruptions: A Complex Web
The auto industry, heavily reliant on cross-border supply chains, is poised to be among the hardest hit. “Imagine a plant in Detroit and another in Oakville. Components ping-pong back and forth across the border multiple times before a finished vehicle rolls off the assembly line,” Newbury explained. “Each crossing will now attract a 25% tariff. The cumulative effect will be staggering.”
This isn’t just hypothetical. Parts can cross the border up to six or seven times during production. “We’re talking about costs compounding with every border crossing,” Newbury said. “A component worth $100 could effectively double in cost after multiple crossings.”
Newbury highlighted how deeply integrated North American supply chains are, with certain parts requiring multiple rounds of sub-assembly across borders. “The complexity is not just in the movement of goods but also in the network of suppliers dependent on each stage. Disruptions here have a domino effect,” he noted.
The Currency Factor
Exchange rates could further exacerbate the situation. “If the Canadian dollar weakens against the U.S. dollar, our imports become even more expensive,” Newbury noted. “We’re already seeing signs of this, with the loonie slipping below 70 cents USD.”
This double hit—from both tariffs and a weaker currency—could lead to inflationary pressures across the board. “We’re looking at a scenario where everything from groceries to consumer electronics could see price increases,” Newbury warned.
He also pointed out, “Currency fluctuations can trigger price volatility, making it hard for businesses to forecast and manage costs effectively.” Additionally, a weaker Canadian dollar doesn’t just affect imports; it also has complex implications for exports. “While a lower loonie can make Canadian goods more competitive in the U.S. market, the benefit is often offset by increased costs for raw materials and components that Canadian manufacturers import to manufacture goods for exporting,” Newbury explained.
“The interconnectedness of North American supply chains means that even export-oriented businesses face higher input costs, eroding any competitive edge from favourable exchange rates,” he added. “Ultimately, the combined impact of tariffs and currency devaluation creates a challenging environment for both importers and exporters.”
The Threat of Escalation
Trump’s executive order not only imposes tariffs but also grants him the authority to increase them at his discretion. “There’s a real threat of retaliation from both sides,” Newbury warned. “If Trump raises tariffs to 50%, what will Canada do? Matching that could devastate both economies, but failing to respond could be seen as a sign of weakness.”
Newbury expressed concern over Trump’s unpredictability. “The language in the executive order leaves room for sudden escalations. We could see tariffs doubled overnight based on political maneuvering rather than economic rationale,” he cautioned.
He elaborated on the limited strategic responses available to Canada. “Our options are constrained. Escalating tariffs in response might lead to a tit-for-tat scenario that spirals out of control. Alternatively, diplomatic negotiations could help de-escalate tensions, but with an unpredictable counterpart, that path is fraught with challenges.”
Newbury also highlighted the potential for abrupt policy shifts. “Trump has hinted at using tariffs as a bargaining chip, meaning rates could fluctuate wildly depending on political developments. This volatility makes it difficult for Canadian businesses to plan for the short to medium term,” he said.
A Trade War’s Broader Implications
Beyond the immediate economic impact, these tariffs could reshape trade dynamics for years to come. “We’re not just talking about temporary disruptions,” Newbury emphasized. “Businesses will reconsider their supply chains, sourcing strategies, and even where they manufacture products.”
He elaborated, “Companies might seek alternative suppliers in non-tariffed countries or invest in local production to reduce exposure. This could lead to long-term shifts in trade relationships.”
Newbury also highlighted the potential for businesses to reroute supply chains as a strategy to mitigate the impact of tariffs. “Some companies may explore using third countries as intermediaries to avoid direct tariff costs. This could involve shifting manufacturing to countries not affected by the tariffs or reconfiguring logistics routes to minimize exposure,” he explained.
“However, while rerouting supply chains might offer short-term relief, it introduces new challenges,” Newbury added. “Businesses have to consider the added costs, potential delays, and the complexity of managing relationships with new suppliers or logistics partners.”
Navigating Uncertainty
As Canada and the U.S. brace for the fallout from these new tariffs, retailers and consumers alike face an uncertain future. The ripple effects will be felt across industries, from automotive to apparel, with small businesses particularly vulnerable.
“The best-case scenario is a stalemate,” Newbury concluded. “The worst-case scenario? A full-blown trade war that harms both economies, with Canada likely bearing the brunt of the impact.”
