Nearly 20 per cent of Canadian small businesses are at risk of having to shut down in as little as six months as owners grapple with higher costs brought on by tariffs, new data suggests.
“Small businesses don’t have a lot of runway left. They are trying their best to absorb the costs, but if nothing changes, they will be forced to make some tough decisions,” said Corinne Pohlmann, executive vice-president at the Canadian Federation of Independent Business (CFIB).
“The worst outcome for Canada in the trade war is a bad deal, but the second-worst outcome is the never-ending uncertainty small business owners have been wrestling with for the past six months.”
According to the CFIB, nearly one in five (19 per cent) of small business owners report they won’t last more than six months if the tariff status quo remains, and nearly four in 10 (38 per cent) said they would last less than a year.
United States President Donald Trump sparked a trade war earlier this year by imposing tariff policies on virtually all countries, including Canada, which also led to counter-tariff measures.
Although many goods listed under the current trade agreement, known as the Canada-United States-Mexico Agreement (CUSMA), are exempt from most tariffs, there are still many goods that businesses have to pay more for due to these new tariffs.
Other trade tensions between Canada and China have also meant higher costs for some sectors, including the Canadian canola industry.
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One of the ways businesses are staying afloat is by “absorbing” the higher costs from tariffs, as noted by the Bank of Canada in July following the release of its latest survey of business and consumer sentiments.
“Tariff-related cost increases are also putting upward pressure on firms’ expected selling prices,” the Bank of Canada said in its survey summary.
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“Because customers are sensitive to price increases, many firms are absorbing a portion of these increased costs, compressing their profit margins in an effort to preserve market share.”
The data from the CFIB suggests that may not be an option for much longer.
“There is a breaking point, and I think we’re coming to that breaking point where some of them (small business owners) are saying, ‘I just can’t continue to absorb this and stay competitive — it’s just becoming too difficult,’” Pohlmann says.
“In the meantime, some are temporarily laying people off because they just don’t have the work, or they’re just trying to find other ways to address the expenses that are coming their way, and of course many are increasing prices to do that.”
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The federal government will be releasing its fall budget soon, which is expected to include billions in new spending aimed at bolstering the Canadian economy amid the trade war.
The focus of these spending promises has been mainly on the housing, industry and energy sectors, but there hasn’t been as much clarity on supports specific to small business owners.
“There’s many different suggestions we’re making to the government on how they can do this. It could be something along the lines of a rebate to many small businesses impacted. Another could be to lower certain taxes even temporarily in order for them to have a bit more to keep in their business for now rather than have to pay to government,” Pohlmann says.
“There’s lots of different ways that they could find to help those small businesses potentially keep some of that cash within their business and hopefully help them last a bit longer.”
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