How Canada’s counter-tariffs impacted consumer prices

For six months in 2025, Canada imposed counter‑tariffs on a wide range of goods from the United States. This short and well‑defined episode offers a unique opportunity to examine how Canadian retailers adjust prices in response to tariffs—and how retailers’ expectations and transparency with consumers affect pricing decisions.

In March 2025, Canada imposed counter-tariffs of 25% on a broad range of goods imported from the United States. These goods ranged from grocery products, appliances, electronics and furniture to household items. Then, six months later, Canada lifted most of these counter-tariffs.

Accurately measuring when and by how much tariffs impact retail prices is generally not easy. But the 2025 experience provides a distinct period to study pass-through and pricing behaviour.

We analyze a large dataset of online retail prices and find that prices for goods that were subject to counter-tariffs increased by about 6% more than those of non-tariffed goods. These relative prices returned to their pre-tariff level about three months after the counter-tariffs were removed.

We also find that retailers’ pricing decisions depended on how long they expected counter-tariffs to persist and whether retailers explicitly identified for their customers the reason behind the price increase.

About one-quarter of the counter-tariff rate showed up in retail prices

To conduct this analysis, we examine prices from seven major Canadian retailers that have multiple brick-and-mortar stores as well as online storefronts. We track these retailers’ daily online prices of more than 110,000 products between February and December 2025. Artificial intelligence tools help us classify products by country of origin based on information available on retailers’ websites and other online sources. These tools also help us identify US products subject to the Canadian counter-tariffs. To estimate the effects of counter-tariffs, we compare price changes for tariffed US products against price changes in a control group composed of goods produced domestically and in non-tariffed categories.

Our results show that prices of tariffed products rose gradually after March 4, 2025—when Canada first imposed counter-tariffs on some US products (Chart 1). By mid-June 2025, these prices stood about 6% above those of the control group—or roughly one-quarter of the 25% counter-tariff.

A pass-through rate of one-quarter of Canada’s counter-tariffs closely matches estimates of tariff pass-through to consumer prices in the United States, reported in other studies covering the same period.

Interestingly, we see no significant price increases, relative to the control group, among products that were not subject to the Canadian counter-tariffs, such as:

• domestic substitute goods
• foreign substitute goods imported from countries other than the United States
• foreign non-substitute goods imported from the United States or elsewhere

Our results also show that, when most Canadian counter-tariffs were removed on September 1, 2025, prices fell back quickly toward those of the control group. For groceries and appliances, the reversal was nearly complete within three months.

Retailers’ expectations for how long tariffs would last affected how much they raised their prices

On April 2, 2025, the United States announced sweeping new global tariffs. At that point, Canadian counter-tariffs had already been in place for a full month. Yet, we find that prices of some goods subject to counter-tariffs jumped sharply in the days that followed that announcement.

For example, compared with the prices of the control group, prices at an appliance retailer in our sample rose by 7% between April 1 and April 3 and peaked at an increase of 10% less than a month later (Chart 2).

Yet no new Canadian counter-tariffs took effect on April 2. Instead, the US escalation may have signalled that the trade conflict would deepen and last longer than retailers had originally expected. Retailers then responded by passing through to consumer prices a larger share of the extra costs associated with the counter-tariffs, which they had so far been absorbing. This abrupt adjustment of the pass-through of costs may indicate that retailers updated their beliefs about how long the tariffs would last.

This finding highlights that expectations about the duration of tariffs can drive the pass-through of costs as much as the tariff itself does. When firms expect a tariff to be short-lived, they absorb most of the cost. When they expect a tariff to last for some time, they pass some of it on to consumer prices.

Larger price increases were observed on tariffed products clearly identified as being tariffed

Two retailers in our sample displayed a "Tariffed" banner on the web page of some affected products. This allowed us to test a simple question: are price changes systematically different for tariffed products with a visible banner compared with tariffed products without one?

The short answer is yes. We find that tariffed products with a visible banner had larger and faster price increases than those that did not have a banner (Chart 3). Despite being also subject to the tariff, the products without a banner showed no meaningful price increase.

Why does visibility matter? Research shows that consumers tend to view unexplained price increases as unfair and might reduce their purchases in response. But a visible "Tariffed" banner can shift the perceived driver of the increase away from the retailer. This reduces the risk of customer backlash and gives retailers more room to pass through cost increases, which is what appears to have occurred in 2025.

What this could mean for prices and inflation

Our findings point to four key takeaways:

• Tariff pass-through is significant but partial. About one-quarter of the counter-tariffs imposed by Canada reached consumer prices, adding roughly 0.3 percentage points to consumer price inflation.
• Retailers’ expectations matter. Announcements about tariffs—even those not directly targeting Canada—can trigger rapid price adjustments by affecting how long retailers expect tariffs to last.
• Visibility shapes pricing. Visible explanations—such as a “Tariffed” label—can reduce resistance to price increases and allow the tariff to be more easily passed through to consumer prices.
• Price increases were short-lived. Prices reversed quickly once counter-tariffs were lifted. This suggests that removing tariffs can promptly undo their effects on inflation.

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