Canadian small businesses say they need help to weather Trump's cross‑border trade storm
Terra Nord’s paintings often feature natural themes, but this year, Donald Trump inspired a more political edge to her work. When the U.S. president provoked Canadians with his “51st state” rhetoric and tariffs, Nord created products to meet the moment.
“I hit a few Canadian designs that really took off this year,” she said, referring to her images of a beaver riding a Canadian goose with statements like “Tariff this, hoser.”
While the Terrace, British Columbia-based artist saw a brief but “enormous boom” in Canadian sales, especially for those political designs, the vast majority of her sales have gone to U.S. customers for the three years she’s been in business.
Nord, 37, has largely shipped her U.S.-bound parcels duty-free because the contents, valued under US$800, qualified for the de minimis exemption. That waiver for low-value goods shipments, however, was suspended last week by Washington, leaving global exporters scrambling as they face duties and higher shipping costs.
Nord and many other small business owners and exporters have suspended shipments to the U.S., at least for now, as they face this latest hiccup amid the U.S.-Canada trade war.
Clouds gathering?
Canada is facing economic headwinds, including slowing GDP growth and persistently high unemployment.
The economy contracted significantly more in the second quarter than economists expected, with GDP decelerating by 1.6 per cent, according to Statistics Canada. The total annualized growth for January to June was modest, at just 0.4 per cent.
While the unemployment rate has held steady, it has done so at an eye-watering 6.9 per cent. Nearly 41,000 Canadians lost their jobs in July, and 83 per cent of those – some 34,000 jobs – were once held by young people, aged 15 to 24.
Business owners, meanwhile, are cutting spending and delaying hiring decisions.
Merchant Growth, a lending company specializing in finance solutions for small businesses, recently surveyed 150 of its clients and found that the majority of them are making changes. A whopping 76 per cent have cut spending, 38 per cent have delayed hiring, and over half of them believe the economy is in dire straits.
“Sixty-one per cent of the business owners we surveyed believed we were in a recession,” said David Gens, CEO of Merchant Growth, noting how that was a couple of months ago. “It’s only gotten worse since then.”
While some economists believe Canada is at risk of recession — it’s not officially there, as the country has avoided two consecutive quarters of negative GDP growth — it’s definitely a tough time for small businesses.
Corinne Pohlmann, executive vice-president of advocacy for the Canadian Federation of Independent Business (CFIB), pointed to how demand for virtually everything has gone down.
“One of the biggest barriers right now for a lot of small companies — that’s keeping them from growing — is that customer demand has been decreasing quite a bit over the last six months.”
“Everybody’s holding onto their dollars a little bit more.”
While U.S. tariffs have been largely absorbed by Canadian businesses so far, she said, “the additional financial strain from that and from losing duty-free shipping will only exacerbate their challenges.”
Strained balance sheets
As a result of trade pressures, Merchant Growth is seeing a lot of lending activity this summer, a time when business is usually slower. More and more small businesses — those with revenues under $5 million annually — are increasingly seeking financing options to boost their working capital.
“We’ve seen growth of about double what we saw last year at the same time,” Gens said. He noted that the firm’s average loan is $40,000 and that it funded about $230 million in loans last year.
Small companies need more working capital to adjust to the changes they’re being forced to make. This involves either getting certified to send goods duty-free by becoming Canada-US-Mexico Agreement (CUSMA) compliant, establishing new supplier relationships to qualify for CUSMA compliance, raising prices, or finding new markets.
Most of the small businesses that relied on the de minimis exemption for shipping never bothered to seek CUSMA compliance because it didn’t affect their bottom lines. Now it does.
To get certified, businesses must account for where the components of their products come from – the more that originate from Canada, Mexico, or the U.S., the better. For most products, the required threshold is 62.5 per cent. But given that it’s a self-certification process, and that businesses could be subjected to audits, Pohlmann said business owners should seek professional guidance to reduce their risks.
If products that Canadians are exporting include too many elements from further afield, they may want to shift to CUSMA-compliant suppliers to save on duties. But finding these suppliers takes time, and shifting involves its own challenges.
“You don’t have credit yet with that supplier, so you’re gonna have to pay up front for everything,” Gens said
Alternatively, simply paying the added duties and broker fees, said Pohlmann, would mean having to charge customers more. “It’s going to take a product from being 20 or 25 bucks to being 40 or 50 bucks, suddenly overnight,” she said, noting how many owners are trying to figure out how to navigate the added costs without losing customers or eating into their already thin profit margins.
Another option is for small Canadian exporters to start marketing their products to alternative markets. But, again, this takes time and money. CFIB members have reported that they expect it would take up to nine months to shift customer bases, said Pohlmann.
Having adequate working capital, Gens explained, is important for filling the gaps between finding these new consumers and getting paid.
In search of lifelines
Many experts have emphasized the need for federal support to help small businesses navigate this tough period.
Merchant Growth recently asked its members what they would most like to see by way of federal help. Unsurprisingly, given their business focus, the No. 1 demand was access to more credit and liquidity. Bank loans are expensive, but government loans can be made at better rates and for longer terms, Gens noted.
Other items on the wishlist included permanent tax relief, expansion of the small business deduction limit, a refundable credit for supply chain diversification, as well as wage and hiring incentives, rent subsidies, and a lighter regulatory burden.
Pohlmann’s CFIB, meanwhile, says that loans like those from the Business Development Bank of Canada – which are meant to be easier to access to deal with the tariff costs – are fine, but not ideal. Provincial loans are also available, but they tend to require a lot of investment up front from the borrower, which excludes smaller businesses.
“A lot of our members and small businesses in general are still trying to pay off COVID debt,” she said. “So the last thing they want to do is add more debt to get through yet another crisis.”
Instead, the CFIB is trying to get Ottawa to see beyond lending – namely by returning some of the money raised from retaliatory tariffs to small businesses. Before Prime Minister Mark Carney cancelled these retaliatory duties on Sept. 1, the government raised billions.
“Much of that (money) came from smaller companies,” Pohlmann said. “We’d love to see some of that money returned to small companies to help address some of the challenges they’re facing as a result of these tariffs.”
Carney has yet to announce any de minimis-related relief measures.
The CFIB recommends that the money be returned in the form of a rebate or tax cut. Eliminating the small business tax rate, for example, could help businesses reinvest in their facilities and get through the tough period, she said.
Hazy outlook
A CFIB survey of its members showed that 19 per cent feared they would not be able to survive another six months of tariffs without facing difficult decisions – either closing shop, laying people off, or finding a new business model. But, Pohlmann said, that data was collected before Carney cancelled the retaliatory tariffs, which could offer some relief.
What would help even more, however, is getting to a point where there’s some certainty again in U.S.-Canada trade. Ideally, that involves Carney and Trump reaching an agreement, preferably one with fewer tariffs, Pohlmann said.
Barring that, “we need to make sure there are supports out there for small businesses that have been directly impacted and hurt by these just as much as some of those larger companies,” she added.
Like many Canadian exporters, Nord faces a choice: She must decide whether to get CUSMA certified so she can ship her art to U.S. customers duty-free – or find another way to pivot and thrive. For now, she’s designing a colouring book with animals engaging in human activities – without a beaver, goose, or tariff in sight.
National Post
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