The trade relationship between the U.S. and Canada has become much more complex in the last year, and tariffs are a big reason why. These newly imposed taxes are creating real headaches for small businesses on both sides of the border as they try to navigate these tariffs.
That’s exactly why we sat down with Arnaud Franco, Director of Economic Research at the Bank of Canadian Entrepreneurs (BDC), to chat on Secret Life of Inventory. Arnaud helps us unpack what these tariffs actually mean in practice and how small businesses can navigate an increasingly uncertain trade environment. Check out the whole conversation below!
Understanding tariffs and why they’re so disruptive
For the uninitiated, tariffs are essentially taxes imposed on imports. And these are nothing new. But here’s what makes the current situation much more disruptive: the scope. While governments typically use tariffs of 5-10% as standard economic tools to protect domestic industries, we’re now seeing tariffs of 25%, 35%, and even up to 135% in some cases.
The current state between the U.S. and Canada involves multiple layers. The U.S. announced a 25% tariff on Canadian goods (increasing to 35% as of August 1st, 2025), with targeted tariffs of 50% on steel and aluminum, 25% on automobiles, and 50% on copper. It goes without saying that these massive increases have a major impact on businesses’ landed costs.
It’s important to note that at the time of the podcast recording, these tariffs could stack. China, for example, faced a combined 55% tariff from three different measures. However, the U.S. government has since eliminated tariff stacking through an executive order on April 29, 2025.
Avoid tariffs by staying compliant
Here’s where it gets interesting for Canadian businesses navigating tariffs. Roughly 94 to 95% of Canadian goods could qualify as USMCA-compliant, but many don’t in practice. Why? In most cases, it comes down to paperwork. Many Canadian producers only discovered their products were subject to tariffs after the fact, simply because the proper compliance documentation hadn’t been completed.
Arnaud explains the trend we’re seeing is increasing compliance levels, which is a good thing. These levels went from around 60% in April to much higher levels as businesses recognize the importance of proper documentation.
While the process isn’t overly complex, business owners are understandably overwhelmed. Franco suggests businesses create a task force within their company made up of 2-3 people who stay informed and leverage AI to research future needs.
Strategic resources and planning horizons
One of the most significant changes businesses need to understand is the compression of planning horizons. Traditionally, short-term meant 1 year, medium-term 2-3 years, and long-term 3+ years. Now, with rapid disruptions and accelerating news cycles, the short-term is really 30 days, the medium-term is 3-6 months, and the long-term is 6+ months.
To navigate these new tariffs in the short term, focus on what’s at arm’s length: know your customers and suppliers, and understand your exposure to tariffs. Franco emphasizes the “L’s and P’s” – liquidity (cash), leverage (debt), productivity (controlling costs), and profits (maximizing revenues).
Supply chain flexibility and scenario planning
The key to navigating this environment is flexibility and adaptability. Larger purchases and carrying excess inventory became crucial when tariffs were announced. We’ve seen this with Canadian businesses stocking up ahead of tariff implementations. But it’s not just about knowing what you need now; it’s about anticipating what’s coming.
Franco recommends scenario planning as a powerful tool. Build multiple scenarios, not to pick one and align with it, but to understand the range of possible outcomes. When you model extreme scenarios (very good or very bad), you gain insight into the limits of your playing field and potential exposure.
Finding opportunities amid challenges
While tariffs create difficulties, they also present opportunities. The U.S. is imposing tariffs on countries worldwide, which could put Canadian businesses in strategic positions. For instance, if you’re producing goods under USMCA free trade while competitors face tariffs, you could easily undercut their prices and capture market share.
The key is staying connected. Don’t hesitate to reach out to your banker, consultants, partners, and even competitors. Attend association events and industry meetings. The entrepreneurial community is generous with advice, and you’ll be amazed at the stories of businesses that have capitalized during tumultuous times.
Essential resources for Canadian businesses
BDC offers comprehensive resources on its tariffs page, including the Tariff Tracker tool, which helps you determine whether your goods are subject to tariffs. Export Development Canada (EDC) provides support for both direct and indirect tariff exposure. The Trade Commissioner’s office, with staff in over 100 countries, offers free assistance to Canadian businesses looking to connect with suppliers, clients, and market opportunities abroad.
Looking forward
The reality is that some level of tariffs will likely be part of the future U.S.-Canada trade relationship. The current announcements often serve as negotiating tactics, but targeted tariffs on specific industries, such as steel, aluminum, and automotive, are here to stay as the U.S. seeks to rebuild domestic manufacturing capacity. Watch the complete episode of Secret Life of Inventory to dive deeper into Franco’s insights on navigating tariffs, supply chain management, and economic trends affecting Canadian businesses.
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