Tariffs 101: Understanding How They Work in Canada
Tariffs have been the biggest talking point economically in the world in 2025. These have had a tangible effect on consumer habits and on businesses. This article explores how to navigate them as a business owner in Canada.
With all the recent news about tariffs between Canada and the United States, many Canadians are wondering: what exactly are tariffs, and how do they affect me? Let's break down this important economic tool in simple terms.
What Are Tariffs?
Think of tariffs as taxes on imported goods. When a product crosses the border into Canada, the government may charge an additional fee on top of the regular price. This fee is called a tariff. It's not the same as GST or HST – it's an extra cost that gets added to foreign products.
How Tariffs Work in Practice
When you buy an imported item, here's what happens:
The product arrives at the Canadian border
Customs officials determine if tariffs apply
The tariff (if applicable) gets added to the product's value
Regular taxes (GST/HST) are then calculated on the new, higher price
These costs typically get passed on to consumers
For example, if a $100 American product has a 25% tariff, it becomes $125 before regular taxes are added.
Why Does Canada Use Tariffs?
Tariffs serve several purposes:
Protecting Domestic Industries: By making imported goods more expensive, tariffs can help Canadian manufacturers compete. If American steel costs more due to tariffs, Canadian steel becomes more attractive to buyers.
Responding to Unfair Trade: When other countries subsidize their exports or "dump" products at unfairly low prices, tariffs can level the playing field.
Economic Leverage: Tariffs can be used as a negotiating tool in trade disputes, encouraging other countries to change their policies.
Revenue Generation: Though less common today, tariffs can provide government revenue.
Current Tariff Situation
As of 2025, Canada has implemented significant tariffs in response to U.S. actions:
25% tariffs on $155 billion worth of U.S. goods (being phased in)
Special tariffs on vehicles that don't meet CUSMA (formerly NAFTA) requirements
50% surtax on certain steel products from countries without free trade agreements
These are retaliatory measures designed to protect Canadian interests and encourage fair trade.
How Tariffs Can Benefit Canada
Job Protection: Canadian workers in protected industries may keep their jobs when domestic companies remain competitive.
Industry Development: New Canadian businesses may emerge or expand when they can compete more effectively against imports.
Innovation Incentive: Protection can give Canadian companies time to innovate and improve efficiency.
Supply Chain Resilience: Encouraging domestic production can reduce dependence on foreign suppliers.
The Importance of Scale and Exports
Here's where it gets interesting for Canadian businesses:
Export Opportunities: When other countries face tariffs, Canadian companies may find new export markets. If U.S. products become more expensive in third countries due to tariffs, Canadian alternatives become more attractive.
Scale Matters: To benefit from tariff protection, Canadian industries need to scale up production. A small tariff won't help if domestic producers can't meet demand.
Competitive Advantage: Countries with efficient, large-scale production can use tariffs strategically to capture market share globally.
Real Impact on Canadians
For Consumers: Some imported goods become more expensive, but this may be offset by:
More competitive pricing from Canadian alternatives
Potential job creation in protected industries
Stronger domestic economy
For Businesses:
Import-dependent businesses face higher costs
Domestic manufacturers may see increased demand
Export opportunities may expand in some sectors
For Workers:
Some industries may see job protection or creation
Others may face challenges if their employers rely on expensive imports
The Bigger Picture
Tariffs aren't just about making imports expensive – they're part of a broader economic strategy. When used effectively, they can:
Strengthen domestic industries
Create jobs
Improve trade balance
Provide leverage in international negotiations
However, they work best when combined with policies that help domestic industries become more competitive and efficient.
What This Means for You
As a Canadian, understanding tariffs helps you:
Make informed purchasing decisions
Understand price changes in stores
Recognize opportunities in your industry
Participate more effectively in economic discussions
Remember, tariffs are temporary policy tools. The goal is often to create conditions for fair trade and strong domestic industries, not to permanently isolate the economy.
Looking Forward
The current tariff situation between Canada and the U.S. is evolving. These measures are designed to protect Canadian interests while encouraging negotiated solutions. As trade relationships stabilize, some tariffs may be reduced or eliminated.
The key is building Canadian industries that can compete globally, with or without tariff protection. This requires investment in innovation, efficiency, and scale – areas where Canadian businesses have historically excelled.
Understanding tariffs helps us all navigate these economic changes more effectively and recognize the opportunities they can create for Canadian workers and businesses.
