Tariff costs and uncertainty mount as small firms absorb fallout from unresolved US trade talks
Canada could face a 35 percent tariff on goods exported to the United States if no trade deal is reached by August 1, a move that would escalate pressure on sectors already contending with elevated costs.
US President Donald Trump said that the proposed tariff would target goods not covered under the Canada-United States-Mexico Agreement (CUSMA), citing national security concerns tied to fentanyl trafficking.
The Canadian Press reported that Prime Minister Mark Carney said on Wednesday that talks with the US remain in an “intense phase,” but acknowledged that “it is possible that [negotiations] may not conclude by the first of August.”
While Carney previously stated he would not accept a deal “whatever it costs,” he now faces increasing pressure as Trump imposes sector-specific tariffs — including a new 50 percent tariff on semi-finished copper products starting Friday.
As per the Canadian Federation of Independent Business (CFIB), nearly 70 percent of small businesses that import from the US have paid full Canadian retaliatory tariffs, with a median cost of $9,000 since March.
On exports, 63 percent of small firms reported absorbing or sharing the cost of US tariffs, paying a median of $22,500.
CFIB president Dan Kelly said, “It is clear that most small exporters have had to eat much of the cost of US tariffs in order to keep their American customers.”
CFIB has called on the federal government to return the billions in retaliatory tariff revenue collected from US imports if no agreement is reached.
In a letter to Ottawa, the group proposed temporary measures such as reducing the small business tax rate from 9 percent to 0 percent, a rebate program for affected businesses, or lowering Employment Insurance premiums for employers.
According to Catherine Fortin Lefaivre, senior vice-president of international policy and global partnerships at the Canadian Chamber of Commerce, reducing the current 50 percent tariffs on steel, aluminum, and copper should be a top priority.
She called the existing rate “egregious” and said, “That status quo is not acceptable.”
Kelly emphasized that a successful deal must maintain zero tariffs on products currently protected under CUSMA.
“What’s most critical, I’d say, for businesses right now is … whether we’re going to be able to protect the CUSMA exemption,” he said.
While sectoral tariffs on copper, cars, aluminum, and steel remain a concern, Kelly noted that most manufactured goods still benefit from pathways to tariff-free trade — a condition he hopes is preserved.
As reported by The Canadian Press, the US has already doubled tariffs on steel and aluminum imports to 50 percent and plans to apply the same to copper starting August.
Carney confirmed that the US considers sectors such as aluminum, steel, automobiles, pharmaceuticals, semiconductors, and lumber as strategic.
University of Toronto professor Drew Fagan said Carney’s focus will likely be on reducing these sectoral tariffs rather than eliminating them, since they are applied globally.
“If and when they [are removed], it’ll probably be done globally,” he said.
Despite these pressures, Fagan noted the average tariff on Canadian exports is now two percent, up from near-zero last year. “That’s 10 times higher than what it was last year,” he said, adding that they can manage the current rate and remain forward-looking.
However, he warned that a 15 percent across-the-board tariff would be “a pure disaster” and “something that I would expect the prime minister would walk away from.”
Hillman and LeBlanc, Canada’s chief trade negotiators, have also downplayed the likelihood of a deal by the August 1 deadline.
Hillman said last week, “It’s important for us to recognize that there is a time when the deal is the right deal, and it’s important for us to be in a position to continue negotiating until we get to that point.”
Kelly also said Canadian businesses are watching whether Canadian retaliatory tariffs on US imports will remain in place, noting, “They are really crippling small businesses even more than the US tariffs.”
Fortin Lefaivre added that the Chamber of Commerce is more focused on the upcoming 2026 CUSMA review than this week’s deadline.
“Really what we would like to see is that the conditions for the most favourable CUSMA outcome are laid out in the foreseeable future,” she said.
Kelly echoed this, saying many business owners want “a conclusion to this ugly chapter in Canadian-US relations.”
While agreeing that “no deal is better than a bad deal,” he cautioned that prolonged uncertainty is also damaging. “The second worst-case scenario is the uncertainty created by no deal,” he said.
