How Canadian businesses are adapting to US tariffs

Canadian businesses continue their efforts to expand exports to countries other than the United States. Trade tensions are also leading Canadian businesses to rely less on US imports.

Canadian businesses are looking for new markets and suppliers outside of the United States. Although these adjustments will initially be costly, they will help boost future economic growth.

Diversifying Canada’s exports will take time

Increased US protectionism has raised costs and uncertainty. Exports in sectors that are affected by tariffs have fallen sharply. Even in sectors that have not been hit by tariffs, exports have declined. Uncertainty about future trade policy has caused some Canadian businesses and US customers to become reluctant to do business with each other. Overall, exports in the third quarter of 2025 were 4% lower than they were before US tariffs were imposed.

Some businesses in Canada are working to diversify their export markets, but this shift is likely to occur gradually. Finding new markets and building new export supply chains will take time and be costly.

Businesses are adjusting their supply chains

US tariffs have also led Canadian businesses to rely less on US inputs and instead seek alternatives within Canada or from other countries.

Imports from the United States have fallen noticeably since the start of 2025, while imports from other countries have risen. Approximately 80% of the decline in the share of US imports has been in sectors where Canada imposed counter-tariffs (Chart 23). However, now that most counter-tariffs have been lifted, the shift away from US imports has partially reversed.

A key feature of trade between Canada and the United States is the cross-border movement of intermediate components. On average, content sourced from the United States makes up about one-fifth of the total value of Canada’s exports to the United States. Because demand from US customers has softened, Canadian manufacturers are importing fewer of these intermediate components.

Canadian businesses are also adjusting how they import goods from other countries. In 2024, roughly one-quarter of Canada’s non-US imports were routed through the United States before entering Canada. This share has since fallen, and the share of goods imported directly into Canada has grown (Chart 24). Importing directly into Canada is likely more expensive than it was to route through the United States before tariffs were imposed, adding to price pressures.1

Other factors account for the rest of the decline in imports from the United States. These factors could include the Buy Canadian sentiment as well as an effort by businesses to diversify their supply sources. The latter reflects strategies by businesses to reduce their exposure to trade uncertainty and to strengthen the resilience of their supply chains. New sources of supply tend to be more expensive than those used before US tariffs were imposed, increasing price pressures.

Endnotes