Canadian retailers could face higher costs and rising prices in the months ahead as new U.S. tariffs and Canada’s planned retaliatory measures disrupt trade, although the extent of the impact will depend heavily on how long the measures remain in place, says Marcos Carias, an economist for North America at Coface.
Retailers may be able to cushion some of the initial impact by building inventories of non-perishable goods, but prolonged tariffs could eventually feed through to consumers, Carias said.
Furniture, cosmetics, hardware, appliances, dairy and seafood are among the retail categories most exposed to the current tariff measures, Carias said, reflecting the types of products most prominently represented in the affected trade basket. Whether retailers and suppliers absorb the additional costs or pass them on to shoppers will depend in part on consumer demand, which has remained stronger than expected, as well as any government support for businesses affected by the counter-tariffs.
If the trade dispute persists, the effects could extend beyond prices to retail sales, consumer spending and business investment, with small and mid-sized retailers likely to be particularly vulnerable, Carias said. While the tensions are increasing pressure on Canadian businesses to diversify their suppliers and reduce reliance on the U.S., he said shifting supply chains and building the necessary trade infrastructure will take time and will not produce immediate results.
“For prices, I think a lot is going to depend on what happens after the tariffs kick in. Anybody who follows this knows the landscape can change quickly, they can find a compromise, and then the tariffs end up just being in place for a month or two. For any non-perishable commodities, that’s something retailers can at least partially mitigate by building up inventory in the next few weeks. After that, it’s going to depend on how well demand holds up. If we fail to get resolution and de-escalation a couple of months from now, that’s when we start seeing inflation,” said Carias, adding that retail categories such as furniture, hardware, appliances, dairy and seafood are likely to be the most exposed to current tariff measures.
Carias said it is hard to say beforehand how much of the additional tariff costs are likely to be absorbed by retailers and suppliers versus passed on to Canadian consumers as businesses and policymakers have discretion here.
“The first factor is the resilience of consumer demand, which has been surprising us on the upside lately. The labour market has been improving. If demand is strong, there’s more leeway to raise prices. The second one, on which we don’t have that much clarity yet as far as I know, is what the Government will do to support importers affected by counter-tariffs. If we see something similar to what was done to support exporters, then price increases will be harder to justify.”
Could the current Canada-U.S. trade tensions accelerate efforts by Canadian retailers to diversify their suppliers and reduce their dependence on U.S. products, or are there practical limits to how quickly retailers can change their supply chains?
“Both are true. The harder things get with the US, the more there is a collective awareness of Canada’s need to diversify trade. But that by itself will not materially accelerate the completion of the necessary trade infrastructure. In the long term, it might strengthen the will to devote resources to that diversification push among business and government leaders, but that won’t yield results overnight,” explained Carias.
If the tariff dispute continues for an extended period, he said the broader impact on Canadian retail sales, consumer spending, business investment and the financial health of retailers, particularly small and mid-sized businesses would deteriorate particularly among small and mid-sized businesses.
Coface is a leading global player in trade credit risk management for 80 years.
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