U.S. President Donald Trump’s threat to impose a 50% tariff on nearly $20 billion of imports from Canada continues to create economic uncertainty for retailers and businesses across Canada.
“Over the past year and a half, Canadians have learned that only about one in 10 trade threats from the President ever materializes,” said Dan Kelly, President and CEO of the Canadian Federation of Independent Business, in a tweet.
“But we still must take this seriously as this one hits the very fundamentals of the CUSMA (Canada, United States, Mexico Agreement) agreement. A huge swath of Canadian exports would now be affected, killing sales for many small and large businesses.
“And more than anything, this adds to the massive uncertainty that has stalled our economy for months.”
The so-called TACO narrative, “Trump Always Chickens Out”, may now represent a significant business risk in its own right, said Gary Newbury, Interim COO & Rapid Performance Recovery Specialist – RetailAID Inc.
“Retailers have seen tariff threats announced, delayed, modified or withdrawn often enough that some may conclude the latest proposal will follow the same pattern. However, dismissing a threatened 50% tariff as political theatre could leave businesses dangerously flat-footed if the administration decides it must proceed to maintain credibility and demonstrate that trading partners cannot simply wait it out. Retailers cannot react operationally to every political announcement, but neither can they afford to ignore one carrying such substantial cost and supply-chain implications.
“The broader problem is the continuing uncertainty. Retailers can model and manage a known tariff, even an unwelcome one. What is much harder to manage is a trading environment in which the rate, scope, implementation date and possible exemptions can change repeatedly.”
Retailers are making purchasing commitments, setting prices and planning seasonal inventory months ahead. Constant policy volatility makes those decisions slower, more expensive and more defensive. The result may be higher safety stocks, duplicated sourcing arrangements, reduced supplier commitments and postponed investment. All of which add cost before a tariff is even collected, explained Newbury.
“Canada’s response creates another potential layer of risk. The federal and provincial governments understandably want to resist measures they consider unjustified, but retaliatory tariffs, procurement restrictions and provincial bans on American products can increase Canadian inbound costs and restrict consumer choice. The continuing removal of U.S. alcohol from provincial channels has become part of the dispute rather than simply a symbolic Canadian response. Retailers and consumers on both sides of the border are therefore caught in a political contest they neither initiated nor need. Businesses face higher landed costs and greater operational complexity, while consumers ultimately experience the consequences through increased prices, reduced assortment or both,” he said.
“Some Canadian retailers and importers may consider accelerating cross-border shipments before any new Canadian retaliatory measures take effect. That can be commercially sensible where the goods have already been ordered, demand is reasonably certain, warehouse capacity is available and the tariff avoided exceeds the additional freight, handling and inventory-carrying costs.
“The danger arises when businesses import stock early, or buy more than the sales forecast supports based on gut feel and defensiveness. They may avoid a potential tariff only to create a certain working-capital and inventory problem.”
That risk is especially acute for seasonal, fashion, technology and discretionary merchandise. Inventory brought into Canada early may occupy expensive warehouse capacity for an extended period, delay cash conversion and eventually require markdowns to achieve sell-through, added Newbury.
“Obsolescence, storage costs and margin erosion can quickly become more damaging than the tariff the retailer hoped to avoid. Retailers must not exchange a possible tariff cost for a certain inventory problem. Any decision to accelerate imports should be supported by SKU-level demand forecasts, scenario modelling and clear assumptions regarding the timing and probability of government action,” he said.
“The political calculation in Washington is also far from straightforward. A significant tariff increase could raise costs for American manufacturers, importers and consumers close to the U.S. midterm elections, when affordability and inflation will remain politically sensitive. Even if the administration believes it can continue using presidential powers delegated under existing trade legislation, losing control of Congress would create greater scrutiny, investigations and resistance to the wider policy agenda.”
Tariffs imposed under existing executive authority may continue, but the political and economic consequences would not disappear merely because Congress had changed hands, noted Newbury.
“The immediate question is therefore who blinks first. Canada does not want to begin negotiations from a position that looks like capitulation, while Trump will want a concession he can present domestically as a victory. The dispute over provincial alcohol bans may provide a practical opening for negotiations, while the extraordinary argument over Canadian wildfire smoke adds another unpredictable element. Both governments need a face-saving route back to the table. Until that happens, retailers should treat the tariff as a credible scenario, prepare proportionately and avoid panic-driven inventory decisions,” he said.
“The greatest damage may not ultimately come from the tariff itself. It may come from the inability of businesses to plan confidently while trade policy is repeatedly used as a negotiating weapon.”
Retail analyst Bruce Winder said: “The Trump administration’s new planned tariffs on Canada hurt retailers on both sides of the border. In Canada, retailers face greater business uncertainty and a nervous consumer who fears job loss and therefore may cut back on spending in an already challenging economic environment.
“In the U.S., retailers face further cost inflation to the extent that they import finished goods from Canada that are included in the new tariffs or buy from U.S. suppliers who import raw material from Canada. Overall, the tariffs just add to the uncertainty for retailers which can negatively impact investment, earnings and other metrics.”
What the latest tariff actions indicate is something Canadians should not overlook: Canada matters to the U.S. economy, and we have something American businesses need — Canadian consumers, said George Minakakis, Founder and CEO of Inception Retail Group.
“Look at the issues being raised, from wine and liquor to automobiles and other American products that are not being bought or are not accessible to Canadian consumers. That’s not our doing.
“If we don’t surrender and accept their trade arrangements and demands, Canada will face higher tariffs. I don’t see the logic. Why further anger a consumer market you want to do business with?
“That turns normal commerce and trade logic on its head. Businesses normally compete for customers through better products, better service, innovation and value, not through the threat of tariffs when consumers choose to buy elsewhere.”
The United States remains an enormously important trading partner, and our economies are deeply interconnected. But strong trading relationships work best when they are mutually beneficial, fair and equitable, added Minakakis.
“Canada did not initiate the breakdown in this trading relationship, but we do have to determine what we do next,” he said.
“For Canadian retailers and businesses, I believe there is an enormous opportunity here. Build stronger Canadian brands. Give Canadians more reasons to buy from Canadian companies. Develop made-in-Canada services and source products strategically from Canada and other markets to create genuine differentiation.
“And for Canadians, there is an equally important message: keep buying, building and investing in Canada. Trade relationships may change. Our commitment to building a stronger Canadian economy should not.”
In a statement, Canadian Prime Minister Mark Carney said in a statement: “Canada believes in the benefits of free and fair trade, as evidenced by our new government signing more than 20 new economic and security partnerships. This trade dispute has raised costs for families, particularly in the U.S. Canada stands ready to engage intensively to address outstanding issues with the U.S. to the mutual benefit of our citizens.
“In all circumstances, Canada will work relentlessly and take any measures necessary to build our strength at home and to support Canadian workers, farmers, businesses, and families.”
In a LinkedIn post, Alberta Premier Danielle Smith said the new tariffs will hurt both Canadian and American businesses and workers.
“Tariffs are an economically destructive policy and have been proven time and again to hurt the people of the countries that impose them,” she said.
“I will be meeting with Premiers from across Canada and the Prime Minister later this week to discuss this issue and will reaffirm my position that the path to a positive resolution with our U.S. partners lies in strong, consistent diplomacy and a commitment to working to address shared priorities. I firmly believe that Canada and the U.S. are both stronger when we work together.”
