On Feb. 1, 2025, US President Donald Trump announced the imposition of a 25% tariff on imports from Canada, including a 10% tariff on Canadian energy imports (including oil, natural gas and electricity).
In response, Canada said it would implement immediate retaliatory tariffs of 25% on $30 billion worth of US goods, with a further $125 billion in US goods within the next 21 days.
The US and Canadian tariffs have been paused for 30 days, following a Feb. 3, 2025, meeting between Canadian Prime Minister Justin Trudeau and Trump.
Despite this, trade tensions between the US and Canada remain high, with potential implications for various industries and consumers in both countries should tariffs be levied come March.
While this presents challenges for Canadian businesses, it also opens the door for strategic adjustments and new opportunities in the evolving trade environment.
From aerospace to agriculture, manufacturing and lumber, these tariffs will hit multiple industries hard. But that doesn’t mean we’re defenseless. Canadian businesses need to adapt, strategize and, in some cases, insure themselves against risk.
Understanding tariffs: What they are and how they work
A tariff is a tax imposed by a government on imported goods and services. The primary purposes of tariffs are:
- To increase the cost of foreign products, making them less competitive compared to domestic goods.
- To generate revenue for the government through these taxes.’
Tariffs can have unintended consequences, such as increased costs for consumers, disruptions in supply chains and retaliation from trading partners.
In this case, Canada said it will levy countermeasures on American goods in response to US tariffs, which will also have ripple effects on businesses within Canada.
Canadian industries feeling the tariff heat
Aerospace: A supply chain in turbulence
Canadian aerospace companies, like Bombardier and Optima Aero, rely heavily on the US for parts, manufacturing and final assembly. With tariffs in place, the cost of aircraft components will soar — making it harder to remain competitive.
Projected tariff impact on Canadian aerospace industry
- Aircraft parts shipments to the US (valued at over $9 billion in 2024) will see sharp cost increases.
- Smaller aerospace suppliers will scramble to find non-US buyers or absorb losses.
- Some companies are stockpiling parts before tariffs take full effect.
What the Canadian aerospace industry can do in response to tariffs
- Seek tariff exemptions by proving national security or economic necessity.
- Strengthen partnerships with European and Asian buyers to reduce dependence on the US.
- Explore joint ventures with US companies to shift some production stateside.
Agriculture: A crop of problems
Canadian farmers — especially those exporting wheat, pork and canola — are looking at steep price hikes when selling to the US. The biggest concern? American buyers may look elsewhere, leaving farmers scrambling to find new markets.
Projected tariff impact on Canadian agriculture industry
- Canada exports nearly $7 billion in wheat annually, with the US as a major buyer.
- Pork exports may take a hit, with tariffs pushing US consumers toward domestic or European suppliers.
- Farmers might have to sell domestically at lower prices — shrinking profit margins.
What the Canadian agriculture industry can do in response to tariffs
- Lock in long-term supply contracts with US buyers to minimize short-term losses.
- Look to emerging markets (like India or China) for alternative buyers.
- Work with industry groups and government trade officials to negotiate tariff relief.
Auto and manufacturing: Costlier cars, costlier components
The automotive industry in Canada — especially in Ontario — relies on the US for 70% of its exports. Tariffs on auto parts mean production costs will rise, leading to higher car prices for consumers and potential job losses.
Projected tariff impact on Canadian auto and manufacturing industry
- Tariffs could add $2,000 – $4,000 per vehicle for Canadian-made cars.
- Some automakers might shift production to the US to dodge tariffs.
- The steel and aluminum supply chain will see a ripple effect, increasing costs for manufacturers.
What the Canadian auto and manufacturing industry can do in response to tariffs
- Negotiate tariff-sharing deals with US partners.
- Invest in domestic supply chain alternatives (more local parts = fewer tariff costs).
- Explore Mexico as a cost-effective manufacturing alternative.
Lumber and forestry: An industry already under siege
Canada’s softwood lumber industry is no stranger to trade disputes — tariffs have been an ongoing battle with the US since 2017. But with additional duties coming in, the industry could face further struggles.
Projected tariff impact on Canadian lumber and forestry industry
- Expect a 20–25% increase in the cost of lumber exports.
- US homebuilders may pass costs onto consumers, making houses more expensive.
- Job losses in BC and Quebec could mount if mills scale back production.
What the Canadian lumber and forestry industry can do in response to tariffs
- Push for federal aid or government compensation to offset losses.
- US homebuilders may pass costs onto consumers, making houses more expensive.
- Advocate for a new Canada-US softwood lumber agreement to ease tensions.
Pharmaceuticals & life sciences: Rising costs for drug exports
Canada’s pharmaceutical industry exports billions in medical products to the US, including vaccines and specialty drugs. Tariffs could increase costs for American buyers, affecting demand.
Projected tariff impact on Canadian pharmaceutical and life sciences industry
- Higher prices on Canadian pharmaceutical exports, reducing competitiveness in the US market.
- Increased research and development costs, impacting innovation.
- Potential job losses in biotech and life sciences sectors if production shifts elsewhere.
What the Canadian pharmaceutical and life sciences industry can do in response to tariffs
- Seek partnerships with non-US pharmaceutical firms to diversify export markets.
- Work with regulatory bodies to maintain tariff exemptions for critical medicines.
- Invest in domestic healthcare markets to offset losses from US sales.
Mitigating risk: A strategic approach to navigating Trump’s tariffs
Navigating the impact of tariffs requires a multi-faceted risk mitigation strategy. Canadian businesses should proactively assess their exposure and take strategic steps, such as:
- Supply chain diversification and vertical integration: Shift sourcing away from US suppliers to countries not impacted by tariffs (e.g., Europe, Mexico or even local Canadian suppliers). Reduce exposure to tariffs by acquiring or partnering with companies in your supply chain to gain more control over raw materials, production and distribution.
- Reevaluating contracts: If you sell to the US, consider renegotiating contracts where US buyers absorb part of the tariff costs instead of your business taking the full hit.
- Cost absorption and pricing strategy: Businesses should analyze whether they can absorb tariff-related costs without pricing themselves out of the market. Sometimes, a marginal price increase can be justified.
- Exploring government incentives, advocacy and lobbying: Keep an eye on Canadian government relief programs designed to support exporters affected by tariffs. Work with industry associations and government representatives to advocate for favorable trade policies, exemptions or relief programs that mitigate tariff impacts.
- Automation and efficiency investments: Reducing costs through technology and automation can help offset the financial burden of tariffs.
- Strategic partnerships: Work with logistics providers, financial institutions and trade groups to find creative solutions to manage tariff-related expenses.
- Flexible inventory and procurement strategies: Adopt a more dynamic procurement model that allows for stockpiling key materials before tariffs take effect or adjusting sourcing in response to market shifts.
- Legal and regulatory adjustments: Stay compliant with evolving trade laws and consider restructuring operations to take advantage of free trade zones or tariff-exempt regions.
- Currency hedging: Use financial instruments to mitigate the risks of exchange rate fluctuations impacting trade costs.
- Expanding domestic market presence: Shift focus toward strengthening sales within Canada by enhancing domestic distribution networks, marketing and customer engagement strategies.
- Leveraging trade agreements and alternative markets: Explore opportunities under trade agreements such as CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and CETA (Comprehensive Economic and Trade Agreement with Europe) to expand exports to non-US markets.
- Investing in research and development (R&D): Develop innovative products and production processes that reduce dependency on imported materials and enhance competitiveness in global markets.
Insurance as a safety net: Protecting your business
Tariffs create uncertainty, and the right insurance coverage can help offset financial risks. While specific insurance products designed exclusively to cover tariff-related costs are not commonly available, here are key options Canadian businesses should consider:
Trade disruption insurance
- Protects against losses from sudden trade policy changes like tariffs.
- Helps recover lost revenue due to increased costs or supply chain disruptions.
- Ideal for companies heavily reliant on US trade.
Supply chain insurance
- Covers losses due to delays or disruptions in shipments from key suppliers.
- Mitigates financial risks if US tariffs lead to logistical bottlenecks.
Political risk insurance
- Shields businesses from financial loss due to government actions, tariffs or trade embargoes.
- Especially valuable for exporters operating across multiple global markets.
Trade credit insurance
- Protects businesses against non-payment by customers due to insolvency, default or bankruptcy.
- Helps ensure cash flow stability for companies selling goods on credit.
- Reduces financial risks when dealing with new or international buyers.
By leveraging insurance as part of a comprehensive risk management strategy, Canadian businesses can protect themselves against the unpredictable nature of global trade.
The road ahead for Canadian businesses
Yes, Trump’s tariffs are still a possibility. Yes, they’ll make things harder. But Canadian businesses are nothing if not resilient.
By adapting quickly, diversifying markets, renegotiating supply chains and considering insurance coverage, companies can weather this storm.
It’s a challenging time, no doubt. But with the right strategies in place, Canadian businesses won’t just survive — they’ll thrive.
Aliya Daya, Senior Client Executive, serves as a Cyber Technical Specialist and National Mixed Specialties Practice Team Lead at Acera Insurance. With more than 25 years of experience in the insurance industry, Aliya specializes in innovation, technology, cyber insurance and privacy breach, political risk, manufacturing/fabrication/wholesale/distribution, hospitality, healthcare, banking/finance, non-profit and faith-based organizations, as well as disruptive and emerging industries.
You can reach Aliya at 403.717.5895 or aliya.daya@acera.ca.