As Canada continues to navigate the complexities of U.S. tariffs, a recent survey reveals that a significant majority of large and mid-sized enterprises have adjusted their pricing strategies in response to escalating costs. The KPMG National Business and Trade Outlook survey, released on Wednesday, encapsulates insights from 359 business leaders and decision-makers, representing firms with annual revenues between £10 million and £20 billion.
Tariff Impact on Pricing Strategies
The survey indicates that approximately two-thirds (66 per cent) of the participating business leaders have modified their prices to reflect the additional expenses incurred from tariffs. In contrast, 39 per cent reported no changes in their pricing related to these tariffs. This divergence highlights the tough choices businesses face: either absorb the increased costs, which can threaten profitability, implement cost-cutting measures elsewhere, or pass the additional costs onto consumers.
According to the KPMG survey, 35 per cent of businesses have partially transferred some tariff-related costs to their customers, while 31 per cent have passed on the full impact. Moreover, 15 per cent have sought alternative methods to mitigate costs. Lachlan Wolfers, national leader for KPMG Law, commented, “Initially, many Canadian businesses tried to absorb some of the tariffs, but it’s likely that in the long term, around 80 per cent of these costs will be passed on to consumers.”
The Broader Economic Picture
The implications of these tariffs are significant, as they encompass various sectors including steel, aluminium, softwood lumber, automobiles, and electronics. The survey, conducted between June 25 and July 13, came just before the announcement of new 50 per cent tariffs on Canadian dairy, alcohol, vehicles, cosmetics, and other goods set to take effect on August 19.
Wolfers noted, “Canadian businesses were initially viewing this situation with a long-term lens. However, a survey conducted now would likely reflect a more immediate concern given the looming potential for 50 per cent tariffs and the pressure of upcoming negotiations with the U.S.”
Export Focus and Future Outlook
Roughly 72 per cent of the businesses surveyed engage in international trade, with 79 per cent of those exporters adhering to the Canada-United States-Mexico Agreement (CUSMA). Many products previously traded duty-free under CUSMA are now subject to new tariffs, prompting concerns among businesses about their operational viability.
The survey also revealed that nearly half (49 per cent) of the participants consider CUSMA essential for their operations. However, a notable shift in focus is emerging, with 33 per cent of businesses planning to explore new international markets in the next one to three years, and 26 per cent looking into markets that benefit from existing trade agreements.
Wolfers expressed cautious optimism, stating, “From a Canadian business perspective, we are transitioning from a phase of tariff turmoil to one of managed uncertainty, which is likely to persist until at least the end of the current U.S. administration.”
Why it Matters
The findings from the KPMG survey underscore the significant challenges Canadian businesses face in light of evolving trade dynamics with the U.S. As tariffs reshape pricing structures and operational strategies, the long-term implications for consumer prices and market competitiveness remain uncertain. This situation not only affects the profitability of individual businesses but also has broader repercussions for the Canadian economy as it adapts to a landscape characterised by trade tensions and shifting market conditions.
