The recent imposition of tariffs by the U.S. on Canadian goods has sent shockwaves through the Canadian economy, with far-reaching consequences for businesses, workers, and the overall economic landscape.
With additional U.S. tariffs set to take effect on April 2, 2025, in addition to the existing 25% duties, industries across Canada are bracing for increased costs, reduced competitiveness, and potential economic contraction.
Uncompetitive Exports
The U.S. tariffs, including a 25% duty on Canadian exports, significantly increase the cost of Canadian goods in the American market. This makes them less appealing compared to domestic U.S. products or goods from countries not subject to these tariffs. As a result, Canadian businesses are facing a substantial reduction in U.S. sales, which can lead to a loss of market share and revenue.
Price Increases and Economic Ripple Effects
The retaliatory tariffs imposed by Canada on U.S. goods have also led to price increases for Canadian consumers. This surge in costs can further dampen demand for goods, exacerbating the economic downturn.
The OECD has warned that these tariffs could push Canada’s inflation rate above 3%, exceeding the Bank of Canada’s target range, which could drive higher interest rates to control inflation12.
Canadian Retaliatory Tariffs
In response to U.S. tariffs, Canada has taken a strong stance by imposing a 25% tariff on $29.8 billion worth of U.S. goods, including steel, aluminum, computers, sports equipment, and cast-iron products. This builds on the $30 billion in tariffs applied since March 4, 2025. These measures aim to counteract U.S. trade policies and protect Canadian industries from unfair competition.18
Planned U.S. Tariff Expansion
The U.S. has announced plans to expand its tariffs further as part of its “Fair and Reciprocal Plan,” which seeks to match tariffs charged by trading partners. These additional tariffs are set to take effect on April 2, 2025.
In anticipation of this move, Canada has indicated it will delay its second round of retaliatory tariffs until April 2, 2025, pending U.S. actions. This strategic pause reflects Canada’s cautious approach, aiming to avoid escalating tensions unnecessarily while maintaining its position in the trade dispute17.
Government Strategy: Balancing Retaliation and Resilience
Prime Minister Mark Carney has emphasized a dual approach: ensuring Canada is prepared for further trade barriers while safeguarding domestic economic stability. He stated that Canada will be ready with retaliatory tariffs that have maximum impact on the U.S. while minimizing the impact on Canada. The revenue from these tariffs will be used to fund worker protection programs.
Carney has highlighted the importance of Canadian procurement for large projects and removing interprovincial trade barriers to strengthen the domestic economy and mitigate reliance on international markets14.
Beyond our borders, the government is actively negotiating new trade agreements with other countries to reduce Canada’s dependence on the US market. Agreements like the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) eliminate tariffs on most goods traded between Canada and the EU, opening up new markets for Canadian businesses.
The grassroots and government initiative, “Buy Canadian” campaign encourages Canadians to support local businesses by purchasing domestically produced goods and services. This initiative aims to bolster the domestic economy and promote economic growth.
Business Challenges and Adaptation Strategies
To mitigate the impact of reduced sales and higher costs, Canadian companies are being forced to implement severe cost-cutting measures. This includes reducing staff, which could lead to significant job losses in industries heavily reliant on U.S. exports, such as manufacturing and agriculture.
The manufacturing sector—responsible for 10% of national employment—is particularly vulnerable15.
Impact on Commercial Real Estate
The economic downturn triggered by tariffs is also affecting the commercial real estate sector. With businesses scaling back operations or facing potential closure, there is a growing concern that manufacturing and office vacancies could increase. This could lead to a surplus of unused commercial space, further depressing property values and rents in affected areas.
Steel and aluminum are the backbone of commercial real estate, shaping everything from structures to interiors.
Rising tariffs will push costs higher across multiple sectors:
- Leasehold Improvements – Tenants planning expansions, office redesigns, or facility upgrades should prepare for higher construction and renovation expenses.
- New Developments – Cost increases could impact the pricing of new commercial projects, potentially creating delayed deliveries, reducing available space and increasing lease rates
- Tenant Improvement Allowances – There may be increased pressure on tenant improvement allowances to fund these additional costs.
Potential Business Closures
The cumulative effect of reduced demand, higher costs, and decreased competitiveness could push some Canadian businesses to the brink of collapse. Small businesses, which often lack the financial resilience to weather such storms, are particularly at risk.
The Canadian Federation of Independent Business has noted that many small businesses support the retaliatory tariffs but are still struggling with the increased costs of importing U.S. goods.
Proactive Approaches to Mitigate Tariff Impacts
Despite these challenges, Canadian businesses can take proactive steps to mitigate the effects of tariffs:
- Supply Chain Diversification: Identifying alternative suppliers and increasing domestic sourcing can reduce reliance on tariff-affected imports and enhance supply chain resilience. Local procurement helps to support the Canadian economy.
- Contract Renegotiation: Auditing leases and updating contracts with flexible pricing clauses and tariff-adjustment provisions can help businesses maintain financial stability amid cost fluctuations.
- Government Support: Canadian businesses should actively pursue available grants, subsidies, and low-interest financing options offered by federal, provincial, and local governments. These resources can help offset the financial burden of transitioning to local sourcing or upgrading operational capabilities.
- Scenario Planning: Developing detailed contingency plans for varying levels of tariff increases can help companies remain agile and protect profit margins. This involves identifying key risk areas and setting up cross-departmental teams to monitor changes in trade policy.
- Market Diversification: Expanding into new markets outside the U.S., such as Europe, Asia, or emerging regions, can diversify revenue streams and reduce dependency on any single trade route.
Looking Ahead
The tariffs imposed by the U.S. on Canadian goods have unleashed a chain reaction of economic challenges that threaten the stability of the Canadian economy. While the impact on exports, consumer prices, employment, and commercial real estate is devastating, proactive strategies can help businesses navigate these challenges.
By diversifying supply chains, renegotiating contracts, leveraging government support, engaging in scenario planning, and expanding into new markets, Canadian companies can mitigate some of the negative effects and position themselves for resilience in a tariff-prone world.
By implementing proactive measures, Canadian companies can enhance their resilience, ensuring long-term sustainability in a rapidly evolving global trade climate.
Frequently Asked Questions
How do tariffs affect commercial real estate in Canada?
he economic slowdown caused by tariffs is increasing manufacturing and office vacancies as businesses scale back operations or close altogether. Rising costs for construction materials like steel and aluminum are also driving up expenses for new developments and renovations.
What is the long-term outlook for Canada’s economy amid these trade tensions?
While current conditions are challenging, proactive measures such as market diversification and supply chain resilience could help mitigate long-term impacts. However, sustained tariffs could lead to prolonged economic stagnation if not addressed through policy changes or trade negotiations
How does lease administration support businesses dealing with tariff-related challenges?
Lease administration services help businesses manage their real estate portfolios more effectively. By renegotiating leases or consolidating spaces, companies can reduce overhead costs and allocate resources toward mitigating tariff impacts.