As Canada’s economy confronts the ramifications of ongoing tariffs imposed by the United States, a recent KPMG survey indicates that a significant proportion of Canadian businesses, particularly those in the large and mid-sized categories, are adjusting their pricing strategies in response to these added costs. The survey, released on Wednesday, involved input from 359 business leaders and decision-makers, representing companies with annual revenues ranging from £10 million to £20 billion.
Majority Adjust Prices to Counteract Tariff Costs
The KPMG National Business and Trade Outlook survey reveals that two-thirds (66 per cent) of the participating leaders have modified their pricing structures to address some or all of the increased expenses linked to U.S. tariffs. Conversely, 39 per cent reported that they have made no adjustments in relation to these tariffs.
Businesses face a challenging dilemma when dealing with heightened costs, including tariffs and other duties. They must choose between absorbing these expenses—which can erode profits—cutting costs elsewhere, or passing the increased costs on to consumers. The survey illustrates that 35 per cent of businesses have transferred some tariff-related costs onto their customers, while 31 per cent have passed on the full increase. Additionally, 15 per cent have opted for other cost-reduction strategies.
Lachlan Wolfers, KPMG Law’s national leader, noted, “Many Canadian businesses initially absorbed some of the tariffs while observing the situation. However, the longer-term outlook suggests that as much as 80 per cent of these costs might eventually be passed on to consumers.”
The Economic Landscape and Future Outlook
The survey was conducted between June 25 and July 13, prior to the announcement of new 50 per cent tariffs on Canadian dairy, alcohol, motor vehicles, cosmetics, and other goods set to take effect on August 19. This looming deadline could further alter the landscape for Canadian businesses, compelling them to reconsider their pricing strategies.
“Canadian businesses were assessing the situation with a longer-term perspective,” Wolfers elaborated. “However, if we were to conduct this survey today, the anxiety surrounding potential 50 per cent tariffs and impending negotiations with the U.S. could skew the responses towards a more immediate perspective.”
Exporting Amidst Turbulence
The KPMG survey also highlights that approximately 72 per cent of the businesses surveyed engage in exporting goods or services internationally, with 79 per cent of these exporters confirming that their products are compliant with the Canada-United States-Mexico Agreement (CUSMA). Many products targeted by the new tariffs previously benefited from duty-free status under CUSMA.
Notably, nearly half (49 per cent) of the businesses identified CUSMA as critical to their operations. Despite the challenges presented by tariffs, many companies are now looking beyond the U.S. for international opportunities. About 33 per cent plan to expand into new markets over the next one to three years, while 26 per cent of exporting businesses are exploring additional markets where Canada has established trade agreements.
Wolfers remarked, “From the standpoint of Canadian businesses, the hope is to transition from a state of tariff turmoil to one of managed uncertainty. This uncertainty is likely to persist, especially considering the current U.S. administration’s policies.”
Why it Matters
The findings of the KPMG survey underscore the ongoing challenges that Canadian businesses face in a shifting economic landscape marked by tariff-related pressures. As companies adjust their pricing and explore new markets, the broader implications for inflation and consumer prices will be critical to monitor. The ability of Canadian businesses to navigate these challenges will determine not only their profitability but also the resilience of Canada’s economy in the face of external pressures.
