Small businesses in Canada are facing significant difficulties as a result of the current trade war, especially with the United States. Richard Martin, a CEO of one company, is facing a liquidity crisis to cover the costs of operations. Martin explained that he cannot lower the prices of his products to American buyers because of the tariffs. If he did, his profit margins would be significantly reduced. The Canadian market cannot compensate for what the company is losing in the US market, so the most difficult option remains moving operations across the border to avoid the tariffs, which requires a huge investment.
Many small business owners in Canada are facing the same challenges. These companies represent about 90% of Canada’s total exports, with the United States as their largest export market. In 2023, these companies’ sales amounted to about 18% of the total value of Canada’s exports to the United States.
The Impact of the Trade War on Small Business
Most of these companies operate on thin profit margins and have limited cash. As such, they find it very difficult to adapt to sudden fluctuations in the market. Economic shocks, such as the threat of tariffs, can shut down small businesses that operate under these conditions. “Small businesses are less able to absorb the negative impact than larger businesses,” says Simon Gaudreau, chief economist at the Canadian Federation of Independent Businesses. “They will feel the pain faster than others.”
In a February survey by the Canadian Federation of Small and Medium Businesses, 33 per cent of respondents said their goods had become more expensive due to the threat of tariffs. Another 26 per cent felt a drop in customer demand, while 18 per cent of businesses had cancelled or suspended contracts.
The impact of small businesses on the Canadian economy
So, she refuses to pass this cost on to customers, because that could lead to a decline in demand. Noel says her business is largely dependent on customers being able to buy products at affordable prices. Local food manufacturers are also facing similar challenges. Dana McCauley, CEO of the Canadian Food Innovation Network, said food manufacturers have started to reduce some products or change their ingredients to avoid tariffs on materials.
Despite the significant challenges they face, small businesses play a huge role in the Canadian economy. Between 2017 and 2021, small businesses with fewer than 100 employees contributed 34.4 per cent of the private sector’s GDP. They were also responsible for employing about 46.5 per cent of Canadians in 2023. So, the impact of the trade war is not limited to companies alone, but extends to the national economy as a whole.
On the other hand, Goodrow points out that the majority of these companies are not prepared to face the challenges resulting from the trade war. Only 4 per cent of companies responding to the CFIB survey in February were well equipped to deal with the current trade threats. Finding New Markets: Solutions and Challenges
Canadian small businesses must adapt to the new economic landscape. The ideal solution for them is to find new markets outside the United States, but this is a difficult task. According to the CFIB survey, 26% of importers indicated that it would take them more than six months to find suppliers outside the United States.
The biggest challenge is for Canadian exporters who direct their exports to the United States. More than half of these exporters indicated that finding new markets would take more than six months. “Our ability to reorganize our economy in the near term is limited,” said Goudreau.
Future Impacts of the Trade War on Small Businesses
As small businesses enter a period of adjustment, some small businesses are anticipating a delayed impact from the tariffs. For example, the owner of Leader Plumbing in Woodbridge, Ontario, is continuing to communicate with suppliers to see how the tariffs will affect their costs. He is also looking for local alternatives in Canada. He expects it will be about a month before he gets that information.
In agriculture, Chris Hedges, an Ontario apple farmer, expects that the tariffs will continue into next season, leading to a major crunch in fruit sales. “If the tariffs continue until September, it will be worse than it is now,” he said.
Ongoing economic challenges: From the pandemic to inflation
Small business owners are also facing other economic challenges due to the COVID-19 pandemic. Years of inflation and high interest rates have made it harder to save money or invest it in their businesses. “Unless the money is free, I’m not going to borrow anymore. I’m done,” said one businessman.
In the meantime, the Canadian government is trying to provide some support for these small businesses. Quebec, for example, is offering low-interest loans to local businesses, and New Brunswick is planning to provide $40 million to help export-dependent companies find new markets.
Loan crunch and uncertainty for small businesses
But for Richard Martin, the owner of a playground equipment factory, loans don’t seem like a good option right now. He borrowed before during the pandemic and is still paying off debts. “I’m not going to do it this time,” Martin said. “Unless the money is free, I’m not going to borrow anymore. I’m done.”
Ultimately, Canada’s small business crisis is manifested in the ongoing uncertainty surrounding the trade war and tariffs.
