The Decibel - How Canadian businesses are getting caught up in U.S. tariffs on China
Episode Date: May 27, 2025It’s been a challenging few months for Canadian businesses. Even though Canada has been largely spared from the worst of U.S. President Donald Trump’s sweeping tariffs, many Canadian small busines...s owners are finding themselves caught in the crosshairs of the U.S. tariffs targeting China.Mariya Postelnyak is a consumer affairs reporter for The Globe and Mail. She’s on the show today to explain how small businesses are being affected by the trade disputes between the U.S. and China, how they have been preparing for potential disruptions, and what this all means for their ability to survive.Questions? Comments? Ideas? E-mail us at thedecibel@globeandmail.com
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It's been a challenging few months for Canadian business owners.
When US President Donald Trump came back into office earlier this year, his global trade
war created an environment of uncertainty.
Now, Canada hasn't had to face the sweeping tariffs that other countries have seen.
But Canadian small businesses are still getting hit
by the effects of the trade war.
And something that's having a major impact
are US tariffs targeting China.
Maria Postelniak reports on consumer affairs for the globe.
Today, she's here to talk about
how Canadian small business owners are getting caught in
trade disputes between the US and China, how they've been preparing for these disruptions,
and what all this means for their ability to survive.
I'm Maynika Raman-Wilms and this is The Decibel from The Globe and Mail.
Maria, thank you so much for being here. Thanks so much for having me. from the Globe and Mail.
Maria, thank you so much for being here. Thanks so much for having me.
So between the US tariff threats,
uncertainty around Canada Post,
and a potential looming recession now,
I know it's been a tough few months for Canadian businesses.
What are you actually hearing from small business owners?
Well, small business owners
are really in survival mode right now. They've been through a series of setbacks, one after the other in the past few years,
with some of them telling me that, you know, they're still recovering from the COVID-19 pandemic
and the impact that's had on global supply chains.
I think about 14% had considered bankruptcy in 2022.
And then now we have Donald Trump threatening
sweeping tariffs as high as 25% a few months ago. And although there's been some reprieve
on that, they're still facing tons of uncertainty.
Okay, so it seems like lots of uncertainty, especially in the last little while. And of
course, Canada has seen targeted tariffs from the US, but we had been spared the more general tariffs
that a lot of countries are facing.
However, Canadian companies are still
getting caught up in the crosshairs
when it comes to US tariffs on China somehow.
This is actually a really interesting thing.
This has something to do with the de minimis exemption,
Maria.
Can you explain for us, like, what exactly is that?
So de minimis is a Latin term that
translates along the lines of the least significance.
So the de minimis exemption itself, it's a rule that allows packages of a certain small
or insignificant value to enter a country duty free.
So many countries have some sort of a de minimis exemption.
For example, Canada sets ours at $150 for countries
like the US, but you may actually still
need to pay taxes like GST and HST on packages valued
at $40 or higher.
The US, which is this enormous market for businesses,
has a de minimis exemption for packages valued at $800
or less, which means that those packages
can enter the country duty free.
Okay, so this is like the average person ordering clothes online or something.
If it's under that threshold, 800 in the US, 150 in Canada, it sounds like, then you're
okay.
You're not paying extra duties on that.
Exactly. And it's important to note that in 2016,
the US raised their de minimis exemption from $200 to $800.
And that's what really allowed a lot of businesses, big
and small, to not just grow but thrive.
One business owner I spoke with, Blair Nadeau,
who runs a bridal accessories e-commerce store, she has about 85 to 90 percent of her business coming from the US and so she's
really built her entire business model around this exemption.
Okay, so this is really interesting. This is basically allowing for the free trade
of goods for small amounts, kind of when, you know, people are buying things
themselves, they're not going to get hit with massive tariffs or anything.
Exactly.
What's happened with this exemption in the US
through the course of this trade war
that we've seen over the last few months?
So starting around February, Donald Trump
began threatening to get rid of the de minimis exemption
for a number of countries importing small value parcels
into the US, including Canada.
And that's when small business owners like Blair
were just holding their breath.
She said removing the exemption for Canada
would have been catastrophic for her business,
since a majority of her orders used that exemption.
Eventually, Donald Trump ended duty-free entry
for Chinese goods alone.
So this was also during the same time
as Washington and Beijing were sort of playing this tariff
tag and taking turns imposing these mind bogglingly high duties on one another.
Most recently, the US had a 145% tariff on China and then China imposed a 125% tariff
on the US.
At the same time, the US had a 120% tariff on de minimis packages coming from China.
So the duty for those was a bit different.
Obviously, things were getting out of hand.
And in early May, the leaders of the two countries, they instated this 90-day truce, which we
have now.
Tariffs were still in place, but they were much lower.
For commercial shipments, the US now has a 30% tariff on China instead of the 145%. But for
de minimis packages, that 120% tariff slipped to 54%.
Okay, just so I understand, so the US still has these tariffs now than on
direct to consumer goods coming in from China. So that 800 de minimis exemption,
anything coming in from China, doesn't 800 de minimis exemption, anything coming in from China,
doesn't count anymore.
So for Americans who are ordering clothing online,
like I think of a company like Shein or something,
what does that mean for them?
So for US customers ordering from Tmoo, Shein,
that usually means seeing a higher price point at checkout.
It's not always necessarily the full amount of the tariff, as some businesses
might absorb some of that, but definitely a large chunk. There was actually a recent
analysis from an American publication of sheen prices in early May, and that found that prices
were on average higher, about 43% on a sample of 300 women's apparel items. But actually a separate report
also found that sheen prices had grown as much as 377% for some items.
Okay so American consumers are really seeing a difference then.
Exactly.
Wow. Let's come back to this question then of how Canadian companies are affected by the tariffs on China.
So even though the de minimis exemption for Canada remains intact, the US tariffs on China are still affecting Canadian companies are affected by the tariffs on China. So even though the de minimis exemption for Canada
remains intact, the US tariffs on China
are still affecting Canadian companies.
How is that happening, Maria?
So there are a few ways that this might be happening.
The first is that a lot of Canadian businesses
use some materials from China, which
means that they might also face the same or similar penalties as if their product came directly from China,
according to customs brokers I spoke with.
This will depend on a few different factors, like how much raw materials from China were transformed in Canada
when that product or that material arrived, and also what value of the product came from China.
So let's say you're a rubber rug company.
If imported materials like rubber from China
make up a significant portion of your product's value,
or if the product underwent a substantial transformation
before entering Canada, you'll likely still
face similar hurdles as if you were sending from China directly to the US.
Okay, so if these companies are bringing products in from China and integrating that into their goods,
they're getting hit there. Are there any, I guess, workarounds or options they have to kind of minimize the hit they take?
Well, Steve Bozacevic, one of the customs brokers I spoke with, he said that companies need to get creative. For example, when the
issues value, some businesses can lower supplier costs, they can blend imported and local materials,
or they can increase production costs in Canada, even by doing things as, you know, sounding
outrageous as, you know, giving a raise to your employees, because that actually increases
production complexity
and costs in Canada, then you say, okay, well, my manufacturing costs increased by 20% in
Canada.
So the value of the product goes up.
Oh, that's so interesting.
Okay.
So if you increase the value of what's being done in Canada, that decreases the value of
the Chinese component.
Exactly.
With a proportion of the value.
Okay.
So it sounds like if you've got a product that's being shipped to the U.S., but it has some components that came from China, you could still be hit with this then.
Exactly. But the second problem, though, is that companies that have no ties to China whatsoever are still facing delays.
They're still being confronted with this chaos at the border.
They're up against longer verification process
by customs border officers.
Their packages are getting torn open.
Things are getting verified because the officers
at the border are obviously looking for failure.
So nobody really gets away from this unscathed.
Can you explain that a little bit more?
When you say the verification process at the border,
what exactly is happening there?
Well, for example, one of the business owners I spoke with, Blair
Nadeau, she needed to create stickers made in Canada labels, ad hang tags,
provide a certificate of origin, provide details about the manufacturing
information even of the product. All that has to be included for every separate package, which has essentially
taken what used to be a two-minute packing process for one order to the U.S. into a 20-minute
process at about 15 minutes in addition to all the other documents that she needs to
find, all the other paperwork she needs to file. So it's really added additional costs but also just time that businesses need
to take. So it sounds like because there's now this additional scrutiny at
the border, Canadian companies are having to go through this process of like
really proving that these products are from Canada then. Exactly. I think Blair
and a few others I spoke with, they're also considering going to the Canadian
Chamber of Commerce to just get a special certificate that helps
move things along. But these are additional headaches that these small
businesses need to tackle on their own. They often don't have the same resources
as large companies, so you can understand what kind of problems that will create.
We'll be back in a moment.
So, Maria, we've been talking about the kinds of changes that Canadian businesses are dealing with.
Do we know practically what all of that looks like at the border?
Absolutely. One of the spokespeople for Chit Chats, which is this
shipping company specializing in e-commerce deliveries, one of the spokespeople for Chit Chats, which is this shipping company specializing in e-commerce
deliveries, one of the spokespeople I spoke with,
she said that the situation at the border was just pure chaos.
They had a whole truckload of their goods
turned around at one point because the packages,
they weren't properly declared.
And since that time, they've had to work with customers
to make sure they had all the proper documentation,
to make sure that their package is either not turned away and can get through the border,
or they'll have to not ship it out for the time being.
And actually what was interesting is that a lot of businesses specializing in vintage or antique goods,
many of those had to stop delivering entirely because it was
often impossible to get all the manufacturing information, all the kind of details about
the product's origin. So they've stopped operating entirely.
So bottom line, it sounds like even though Canadian goods may not be hit directly by
certain tariffs, there's still a lot of impact that's happening here.
Exactly.
So Maria, it does sound like things are changing often here, and it's got to be really challenging
for business owners to constantly respond to these different shifts.
What have they been doing in Canada to prepare for all of this unpredictability?
So one thing that a lot of businesses have been doing is stockpiling these giant heaps
of excess inventory from both the US and elsewhere around the
world in preparation for any possible future US tariffs on Canada and any possible counter
tariffs that Canada might put in place. Actually, a February survey from the Canadian Federation
of Independent Business found that about 13% of their members were stockpiling these products as one strategy to kind of
mitigate any future harm.
Okay.
So when we say stockpiling, like, can you give us some examples?
What does this actually look like?
Yeah, for sure.
So they're renting new warehouse space across Canada, paying often, you know, hundreds of
thousands additional dollars to bring inventory in truckloads and just
make sure that they have enough product in case there's any new tariffs that come into
place.
I'll give an example of Leah Corrin.
She's the owner of Essence of Elle in White Rock, BC.
She had to put tens of thousands of dollars in cash upfront to stock up on perishable ingredients and compounds for her cosmetics.
Okay, so trying to get basically these ingredients into the country and ready to go in case those prices go up then at some point.
Exactly. As one warehouse operator spoke with put it, he said that, you know, there's always going to be someone who would take your market share if you're not flexible.
So what if the tariffs that they have feared did come into play, then those companies would
have a harder time becoming nimble and adapting.
So this is just a risk that they're taking to make sure that they're prepared.
Okay.
So one of the risks sounds like for sure an extra cost at having to basically house these
products for so long.
Are there other risks to the business
in stockpiling in this way?
Well, a lot of the goods that these companies are stockpiling
are perishable goods.
So for example, Ashley Chapman, the chief operating
officer at Chapman's Ice Cream, he
needed to spend thousands to rent extra warehouse storage
space to stockpile hundreds of pallets of Georgia
pecans, cherries, all the good stuff. All the ice cream ingredients basically.
Exactly, they're the most popular flavors they have for sure. And Donald Trump
obviously very unpredictable, regularly shifts course on tariffs, so Canada
actually ended up being largely spared in the latest round of sweeping duties on
global trade partners
that Donald Trump had announced on April 2nd, which also meant that they were spared from
a possible second round of counter tariffs that Canada was aiming to put in place. So
now Ashley Chapman rented all this space, brought all this product in, and it's sort
of unnecessary for him. Wow.
He could have saved that money for all the other uncertainties he might face.
And now he's got all of these perishable goods that are sitting in this warehouse that he's
paying a lot of money for.
Exactly.
Exactly.
And something else that I imagine is on these business owners minds is the uncertainty with
Canada Post right now because workers are not on strike but they aren't working over
time and that means delivery for lots of items could be delayed.
So Maria, what kind of impact could this have
on small businesses who are already dealing
with the effects of this trade war?
Well, the Canada post-strike is just another hit
in a series of blows that businesses have been facing.
And for many, it's really sending them over the edge.
It could be the final nail in the coffin.
The potential of a strike, essentially, yeah.
Exactly.
So for example, one business I spoke with, Vessi Seeds,
they're a mail order gardening company.
They said that the really devastating losses
that they faced during the last postal strike,
which saw them lose I think 6,000 to 7,000 orders
and hundreds of thousands of dollars worth of their business,
they're now making sure that no matter what happens with Canada Post, they're
prepared. They had to switch to a private courier and that added about 10 to 15
percent additional cost on their business. So businesses have already had
to front capital in order to make sure that they're prepared and switched to
these other companies. Just another thing they're trying to prepare for then.
Exactly, yeah.
Very lastly here, Maria, before I let you go,
it does seem like there is a lot of uncertainty
for Canadian small businesses right now.
We keep saying this word because it seems to kind of
encapsulate the feeling here.
How serious could all of this uncertainty be
for business owners?
So all of this is really testing the limits
of how much business
margins can be squeezed and just how much companies can adapt
before it becomes just kind of either useless
or to the detriment of their business.
A KPMG survey released in February
when the new tariffs on China were just introduced,
it showed that about 90% of surveyed business leaders
said they had or they were at least considering diverting goods to countries not facing tariffs.
That was in February, but since April, almost every country in the world has become subject to a minimum 10% tariff on imports to the US.
So that just shows that, you know, shifting supply chains in this highly volatile and uncertain environment, that can
sometimes prove to be dubious or just plain risky.
My colleague Pippa Norman actually, she recently spoke to the Canadian business owner of a
company making model trains.
He had about 75%, so majority of his business in the US.
He explained that diversifying from China as a manufacturing base, you know,
it's something that they considered, but it's just it doesn't make sense financially.
So he was a Canadian company, but his trains are made in China then exactly and then sold
in the US primarily sold in the US 75% of his clients are in the US. So it just didn't
make sense for their business. There are a handful of North American model train
manufacturers, but they just don't, A,
have the same degree of detail.
And manufacturing in China is just so much less expensive
and more efficient that this is not something that would
benefit them to move it elsewhere.
He's been calling the situation a sort of doomsday
scenario for business.
And I think that reflects how many small businesses are feeling as well.
Yeah. Maria, thank you so much for your reporting on this and for taking the time to be here today.
Thanks so much for having me.
That was Maria Postoniak, The Globe's Consumer Affairs reporter.
That's it for today. I'm Maynika Ramon-Wilms.
Our intern is Kelsey Howlett.
Our associate producer is Aja Souter. Our producers are Madeline White,
Michal Stein, and Allie Graham.
David Crosby edits the show.
Adrian Chung is our senior producer,
and Matt Frainer is our managing editor.
Thanks so much for listening, and I'll talk to you tomorrow.