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As Canada navigates the complexities of an economy strained by increasing U.S. tariffs, a recent survey highlights that a significant number of Canadian businesses have had to recalibrate their pricing strategies. According to the KPMG National Business and Trade Outlook survey, which engaged 359 leaders from mid-sized and large enterprises, 66 per cent have adjusted their prices to reflect the additional costs arising from these tariffs.
The Economic Landscape
Conducted between June 25 and July 13, the KPMG survey sheds light on how Canadian businesses are responding to the financial pressures imposed by U.S. tariffs. The participants, representing companies with annual revenues between £10 million and £20 billion, reflected a broader trend as they grapple with the impact of tariffs on goods such as steel, aluminium, softwood lumber, and automobiles.
A notable 35 per cent of respondents indicated that they have passed on some of the tariff-related costs to their customers, while 31 per cent admitted to transferring the full burden of these costs. Conversely, 15 per cent found alternative methods to curtail expenses instead of raising prices.
A Shift in Business Strategies
The decision to adjust pricing is not taken lightly. Businesses face a challenging crossroads: they can absorb the extra costs—thus diminishing their profit margins, cut expenses in other areas, or increase prices for consumers. Lachlan Wolfers, the national leader for KPMG Law, noted that many Canadian firms initially opted to absorb some of the tariff costs, but there is a growing expectation that this trend will shift, with about 80 per cent of costs likely to be passed on to consumers in the future.
“I think we’re going to see that for a period of time, although obviously, governments, both here and in the U.S., are very focused on managing inflation in the economy,” Wolfers stated, indicating a complex interplay between corporate pricing strategies and government economic policies.
Exporters Facing New Challenges
The survey also revealed that around 72 per cent of the participating businesses are engaged in export activities. Of these, 79 per cent confirmed their compliance with the Canada-United States-Mexico Agreement (CUSMA), which had previously allowed many goods to cross the border tariff-free. With the impending introduction of new 50 per cent tariffs on a range of products, including dairy, alcohol, and cosmetics, businesses are bracing for further challenges.
Wolfers expressed concern that the current climate of uncertainty regarding tariffs could skew future surveys, as companies may be more reactive to immediate pressures than they were during the initial survey period. “If you carried out a survey right now, you are looking at staring down the barrel at potential 50 per cent tariffs,” he cautioned, highlighting the precarious situation businesses find themselves in.
Looking Beyond the U.S. Market
Despite these challenges, a significant portion of Canadian businesses is actively seeking to expand their reach beyond the U.S. market. The survey indicated that 33 per cent of firms plan to explore new international markets over the next few years. Furthermore, 26 per cent of exporters are particularly focused on identifying markets where Canada has established trade agreements, demonstrating a strategic pivot towards diversification.
“From a Canadian business perspective, I think we’re moving from a position, hopefully, from tariff turmoil to managed uncertainty,” Wolfers remarked, suggesting that while the immediate future may be fraught with challenges, there is an opportunity for businesses to adapt in a changing global landscape.
Why it Matters
The implications of these findings are significant for both the Canadian economy and consumers. As businesses adjust their pricing in response to tariffs, the potential for increased costs could lead to inflationary pressures in the market. This dynamic not only affects the financial wellbeing of businesses but also impacts consumer behaviour and spending patterns. Understanding how companies navigate these challenges will be crucial for assessing the resilience of the Canadian economy in the face of ongoing trade tensions.
