How Tariffs and Cross-Border Changes Are Hitting Canadian Small Businesses in 2025

Canadian small businesses are feeling the squeeze. Between higher U.S. tariffs on imported goods, increased shipping costs, and the loss of the U.S. De Minimis exemption, owners are facing thinner margins and tougher choices.

Merchant Growth’s 2025 SME Impact Survey shows just how serious the pressure has become: 74% of Canadian small business owners surveyed say they are feeling the pressures on their business due to inflation and rising costs. Some noted that the constant changes in tariff policies have caused customers to slow down their purchasing behaviour, which is impacting their revenue.

If you import materials, rely on U.S. suppliers, or sell online across the border, these changes likely feel personal. The good news? You’re not alone. Across the country, entrepreneurs are finding creative ways to adapt, from sourcing locally to renegotiating contracts and leaning on financing to bridge cash-flow gaps.

Key Takeaways

• Tariffs and new shipping rules are driving up costs for importers, retailers, and e-commerce sellers.
• Many SMEs are responding with salary cuts, price increases, and delayed growth plans.
• The Buy Canadian movement is helping some local producers but hasn’t yet offset the spike in imported-input costs.
• Businesses that diversify suppliers, control expenses, and leverage government tools and financing are weathering the storm more effectively.

Why Tariffs Matter for Canadian Small Businesses in 2025

In late 2024, the Trump administration announced steeper tariffs on a broad range of imports. While these tariffs technically target goods entering the U.S., they ripple into Canadian supply chains. Many Canadian retailers, manufacturers, and distributors source components or finished products through U.S. intermediaries — so the higher the tariff at the U.S. border, the higher the price Canadians pay upstream.

On top of rising tariffs, Canadian small businesses were dealt another blow with the loss of the U.S. de minimis exemption under CUSMA. Until recently, Canadian retailers shipping low-value goods to U.S. customers could benefit from a higher threshold that allowed many parcels to cross the border without duties or added paperwork. Now, that break is gone — meaning even modest-value shipments face new customs requirements, brokerage fees, and extra costs at the border.

The combined effect: Canadian SMEs are absorbing higher input costs and then competing with U.S. sellers who can offer lower prices and faster delivery. It’s a one-two punch that’s hard to ignore.

Canadian Small Businesses Speak Out: How Tariffs Are Hitting Home

To understand how these trade shifts are affecting real people behind the numbers, Merchant Growth surveyed 131 small business owners across Canada. Most respondents ran lean teams of 2–9 employees — the kind of businesses where every dollar counts and every cost increase is felt immediately.

These businesses represented a broad mix of industries — auto, construction, food and beverage, healthcare, manufacturing, professional services, and transport and logistics — with the largest group coming from retail (19%).

The findings reveal just how challenging 2025 has been:

• 21% of owners reported that U.S. tariffs had a significant impact on their business this year.
• 50% said weak customer spending added even more strain to their bottom line.
• 29% shared that their business is doing somewhat worse compared to last year.
• 71% said they do not feel adequately supported by the government, with some calling for new loan programs to help them weather the storm.
• 48% have taken on additional funding or debt to cope with rising costs.
• On a positive note, 41% said they feel at least somewhat more resilient after learning to navigate these challenges.

The survey underscores what the headlines often miss: tariffs and shifting cross-border rules aren’t abstract policies — they’re reshaping hiring decisions, delaying investments, and testing the resilience of Canada’s small-business community.

Financial Pressures Canadian SMEs Are Facing

Tariffs and rising trade costs don’t affect businesses in isolation — they influence everything from inventory purchases to payroll decisions. In our survey, the financial impact was clear across industries and regions. The data shows that Canadian small businesses are facing a perfect storm of higher input prices, escalating shipping fees, tighter cash flow, and difficult staffing choices — all of which can slow growth and put extra stress on owners.

Rising Input Costs

For many small business owners, the challenge begins before a product even reaches the shelf. 74% of Canadian small businesses we surveyed said rising costs and inflation are having the largest impact on their operations, and 56% reported that increased costs of goods and supplies have been the most noticeable effect of tariffs.

Higher Shipping & Customs Fees

Beyond materials, higher shipping and customs fees are chipping away at already-thin margins. Cross-border e-commerce sellers in particular say they’re spending more on brokerage, courier charges, and paperwork than ever before. These costs often feel unavoidable — they show up in every box shipped, no matter how careful the planning.

Shrinking Margins & Cash-Flow Strain

Trying to stay competitive with U.S. sellers, many Canadian SMEs are absorbing as much of these increases as they can rather than passing them fully onto customers. That loyalty-driven choice comes at a steep cost: 87% of small business owners told us they’ve made personal sacrifices to keep their businesses running smoothly amid rising expenses.

Those sacrifices include 69% who have stopped paying themselves or reduced their own salaries, and 55% who said they’ve delayed major life milestones — such as starting a family or buying a home — to reinvest money back into their businesses. These are not just balance-sheet adjustments; they’re deeply personal trade-offs that show the strain of trying to keep Canadian businesses afloat.

Salary Cuts & Budget Freezes

Even after these personal sacrifices, many businesses have had to make difficult staffing decisions. 35% of surveyed owners said they’ve reduced staff hours or cut positions entirely in response to economic pressures. These decisions are often described as “heartbreaking” by owners who worry about the impact on employee morale and their ability to hire again when things improve.

BC Small Businesses Weather the Storm: Adapting Under Pressure

Across British Columbia, small business owners are facing a perfect storm of rising costs and operational hurdles. A striking 82% of BC business owners in our survey said inflation and higher expenses are having the biggest impact on their operations in 2025.

While 35% reported that their businesses are performing about the same as in 2024, the majority are still feeling the pinch. Nearly two-thirds (64%) have seen a rise in the cost of goods and supplies due to tariffs, and 35% reported supply chain disruptions that make it harder—and more expensive—to keep shelves stocked.

Many owners feel they’ve been left to navigate these challenges without enough guidance. 64% said they feel unsupported by government policies, and for many, this lack of direction has meant tough decisions and a sense of going it alone.

To stay afloat, 42% of BC business owners turned to additional funding or debt to help cover rising costs, while 39% raised prices—a move that’s necessary for survival but risks discouraging already cautious customers. Others took a different approach: 35% diversified their products or services to create new revenue streams and reduce their vulnerability to tariffs.

The personal toll is unmistakable. An overwhelming 86% said they’ve had to make personal sacrifices to keep their businesses running, and of that group, 66% reported they reduced their pay or stopped paying themselves a salary. These sacrifices highlight the resilience and dedication of BC’s entrepreneurs—committed to keeping their businesses alive even when it means putting their own financial security on hold.

Despite the challenges, BC’s small businesses continue to show ingenuity. By seeking new markets, renegotiating supplier contracts, and leaning on financing to bridge the toughest months, they’re proving that adaptability is just as vital as grit in today’s economic climate.

Ontario’s Small Business Reality Check: Resilience Amid Rising Costs

Ontario’s small business community is grappling with some of the toughest conditions it has faced in years. Inflation and tariffs are hitting from all sides, with 72% of Ontario business owners in our survey citing rising costs as their biggest challenge in 2025.

The pressure is being felt across industries—from manufacturing hubs near Windsor to independent retailers in Toronto. Over one-third (37%) said their business is performing worse than it did in 2024, with 60% reporting noticeable cost increases in goods and supplies directly linked to tariffs. To make matters more complicated, 34% said they’ve experienced lower customer demand, a double hit that forces tough decisions about pricing and operations.

The financial strain has left many feeling they’re navigating these challenges alone: 72% believe the government has not provided enough guidance or support. In response, more than half (53%) have turned to additional funding or debt to keep their doors open, while 39% have raised prices to protect their margins—a move that comes with the risk of further dampening customer spending.

Staffing has been another casualty. Nearly 39% of Ontario small businesses reported reducing staff or cutting hours to manage rising expenses. But perhaps the most sobering figure is that 83% of owners have made personal sacrifices to stay afloat, with 72% saying they’ve reduced or stopped paying themselves a salary.

Despite the strain, Ontario’s small business owners are finding ways to adapt—streamlining operations, seeking local suppliers, and leaning on financing options to bridge cash-flow gaps. This determination reflects the grit and resourcefulness that has long defined Ontario’s entrepreneurial backbone, even in the face of economic uncertainty.

The Buy Canadian Movement – Opportunity With Limits

Rising tariffs and supply chain disruptions have renewed interest in buying locally produced goods. The Buy Canadian movement encourages consumers to support domestic producers, keeping more money in local communities and reducing reliance on unpredictable international shipping routes.

For some businesses, this shift has been a welcome boost. Food producers, home-goods makers, and niche apparel brands reported stronger domestic sales and deeper customer loyalty as Canadians look for locally made alternatives.

However, the impact isn’t universal. In our survey, 57% of small business owners said the Buy Canadian movement has had no noticeable effect on their sales, while 25% reported only a minor positive impact. Many industries — especially those in electronics, automotive parts, and textiles — still rely heavily on imported components.

For these businesses, the Buy Canadian sentiment may help generate goodwill at the checkout counter but does little to offset the higher costs of imported materials. The movement is a bright spot for some Canadian-made brands, but for many others, it’s not enough to counter the financial strain caused by tariffs and rising input costs.

Ongoing Challenges for Canadian SMEs

Even as small businesses adjust pricing, diversify suppliers, and find creative ways to cut costs, some challenges are harder to solve alone. These barriers are baked into the current trade environment and continue to shape how Canadian SMEs compete and plan for the future.

• Competitive Disadvantage: Canadian sellers often face higher landed costs than U.S. rivals due to the De Minimis gap.
• Customer Pushback: Higher retail prices risk driving shoppers to cheaper alternatives south of the border.
• Administrative Complexity: Added customs paperwork slows delivery and increases admin overhead.
• Economic Uncertainty: With future U.S. tariff policy unclear, long-term planning is risky.

While resilience is a defining trait of Canadian entrepreneurs, these structural hurdles demand more than individual effort. Addressing them will require coordinated solutions — from policy clarity to better cross-border logistics — so that small businesses can focus less on reacting to trade shifts and more on growing their companies.

Practical Strategies to Adapt and Build Resilience

Canadian small businesses have always been known for their determination and creativity — qualities that are being tested more than ever. Across industries, SMEs are proving that with the right adjustments, it’s possible not only to survive but to stay competitive.

Below are some of the most effective strategies businesses are using right now to adapt:

1. Cost-Control Measures

When every dollar counts, controlling expenses can have an immediate impact on the bottom line. Many businesses are renegotiating contracts with their suppliers to lock in better rates or payment terms. Others are consolidating shipments to reduce per-unit courier fees, a particularly useful tactic for e-commerce sellers with frequent small orders. Some have even turned to alternative ports of entry to avoid the highest surcharges on busy trade routes. These changes may seem small individually, but collectively they help preserve margins in a time of rising costs.

2. Supply-Chain Diversification

One lesson of the last few years is that over-reliance on a single supplier or country can leave businesses vulnerable. By exploring Canadian or non-U.S. suppliers for certain inputs, small businesses can reduce exposure to U.S. tariffs and cross-border paperwork. This shift often requires research and relationship-building, but even partial diversification can help stabilize costs and delivery timelines.

3. Shipping Efficiencies

Shipping remains one of the largest and most unpredictable expenses for many SMEs. Some businesses are experimenting with hybrid carriers — combining the cost-effectiveness of Canada Post for standard routes with the speed of couriers for urgent or cross-border orders. Others are using bulk-shipping models to cut per-unit costs, especially for seasonal or high-volume products. These logistical tweaks can free up cash flow that might otherwise be eaten up by surcharges and last-mile fees.

4. Leveraging Government & Trade Resources

There are tools available to help, though many businesses don’t always know where to start. The Canada Border Services Agency (CBSA) provides duty and tariff calculators to predict landed costs more accurately — a key advantage for budgeting and pricing decisions. Meanwhile, provincial export-assistance programs can help SMEs find new markets at home and abroad. Learning to tap these resources can take pressure off owners who have been navigating challenges largely on their own.

5. Financial Planning Tools

In volatile times, visibility is everything. Businesses are increasingly turning to expense-tracking apps, cash-flow forecasting software, and tariff-impact calculators to get a clearer picture of future costs. Having this information upfront allows owners to make proactive decisions — from adjusting pricing to timing their inventory purchases — rather than reacting to surprises after the fact.

These strategies won’t eliminate the challenges overnight, but they can help small businesses regain a sense of control in an unpredictable trade climate. Step by step—through smarter cost management, diversified supply chains, and better financial planning—Canadian entrepreneurs can create the breathing room they need to keep serving their customers and move forward with confidence.

How Merchant Growth Can Help Canadian Businesses Weather Tariff-Driven Costs

Tariffs and shipping surcharges often hit suddenly — and so do the cash-flow gaps they create. Whether it’s covering a larger-than-expected inventory bill, paying higher courier fees, or investing in new local supplier relationships, access to capital can be the bridge that keeps operations moving.

That’s where flexible financing can help — allowing you to manage rising costs today while protecting your growth plans for tomorrow.

Talk to Merchant Growth to explore funding options that help your Canadian small business stay competitive and resilient amid ongoing trade-policy shifts.