As Canada’s economy grapples with the repercussions of U.S. tariffs, a recent survey highlights significant shifts among large and mid-sized enterprises in response to these additional costs. The KPMG National Business and Trade Outlook survey, involving 359 leaders and decision-makers, reveals that a substantial majority have adapted their pricing strategies due to the financial burden imposed by tariffs.
Survey Insights Reveal Pricing Adjustments
Released on Wednesday, the survey indicates that 66 per cent of participating business leaders have increased their prices to offset the impact of tariffs. In contrast, 39 per cent reported no changes in response to the additional costs. Businesses are often caught in a dilemma when confronted with rising expenses; they can either absorb the costs—which may diminish profit margins—cut costs elsewhere, or pass the burden onto consumers.
The findings show that 35 per cent of companies have transmitted some tariff-related costs to customers, while 31 per cent have transferred the full extent of these costs. Meanwhile, 15 per cent have sought alternative solutions to mitigate expenses. “Initially, many Canadian businesses opted to absorb some of the tariffs, observing how the situation unfolded. However, we may see that trend shift, with closer to 80 per cent of costs being passed on to consumers in the long run,” explained Lachlan Wolfers, national leader for KPMG Law.
Tariffs and Their Broader Impact
Tariffs, which are taxes imposed on imported goods, currently affect a range of Canadian products, including steel, aluminium, softwood lumber, automobiles, and electronics. The survey was conducted between June 25 and July 13, prior to the announcement of new 50 per cent tariffs on Canadian dairy, alcohol, and other goods slated to take effect on August 19.
Wolfers voiced concerns that if the survey were conducted today, the looming threat of these heightened tariffs would likely skew responses, pushing businesses towards a more immediate focus rather than a long-term perspective. “Canadian businesses are evaluating their situations with an eye on the future, yet the uncertainty of upcoming tariffs could shift their outlook dramatically,” he said.
Exporting and Market Diversification
Notably, 72 per cent of survey participants export goods or services internationally, with 79 per cent of those exports compliant with the Canada-United States-Mexico Agreement (CUSMA). Many products that are now subject to tariffs previously crossed the border without additional fees under this agreement. Nearly half of the businesses surveyed consider CUSMA essential for their operations.
Despite the challenges posed by tariffs, a considerable number of companies are looking beyond the U.S. for new export opportunities. Approximately 33 per cent plan to enter new markets within the next one to three years, while 26 per cent of exporters are seeking additional markets with existing trade agreements.
Wolfers remarked, “From a Canadian business perspective, we are gradually moving from a phase of tariff turmoil towards a state of managed uncertainty, which is likely to persist until at least the end of the current U.S. administration.”
Why it Matters
The findings of this survey underscore the ongoing strain that tariffs exert on Canadian businesses, affecting pricing strategies and operational decisions. As companies navigate these economic challenges, the shift towards international markets signifies a broader strategy to mitigate risks and maintain competitiveness. Understanding these dynamics is crucial, not only for business leaders but also for policymakers aiming to foster a resilient economic environment in Canada. The trajectory of trade relations with the U.S. will undoubtedly shape the future landscape of Canadian commerce.