CFIB wants retaliatory tariff revenue chaneled back to smaller Canadian businesses

After warning that nearly one in five small Canadian businesses impacted by tariffs couldn’t last more than six months without intervention by the federal government, the Canadian Federation of Independent Business changed its tune late last week, saying it welcomed Ottawa’s decision to drop retaliatory tariffs on a wide range of U.S. goods.

Damaging retaliation

“This is a step in the right direction and will take some of the pressure off Canadian small businesses as trade talks continue,” said CFIB vice-president of advocacy Corinne Pohlmann

However, she maintained that many small business owners had told the CFIB before then that Canada’s retaliatory measures were almost as damaging as the U.S. tariffs themselves.

“While small firms were in favour of Canadian counter tariffs as the trade war began, their support has been falling since February,” Pohlmann added.

While maintaining that the government’s announcement provided some relief going forward, she said the CFIB still wants Ottawa to immediately release tariff revenue to small businesses and work quickly to resolve small business requests still tied up in the remissions process.

Free trade is on again

In a statement issued by Prime Minister Marc Carney’s office last week, Carney said that the Canadian government decided to match the United States by removing all of Canada’s tariffs on U.S. goods, specifically those covered under the Canada-US-Mexico trade agreement.

The decision takes effect on September 1. “In short, Canada and the U.S. have now re-established free trade for the vast majority of our goods,” Carney said.

However, Canada will retain tariffs on steel, aluminum and autos as it works intensively with the U.S. to resolve the issues there. The federal government underscored the fact that Canada is the second-largest foreign investor in the U.S.

Carney said that to address challenges in strategic sectors from agriculture to autos, the government will soon announce a new comprehensive industrial strategy that protects Canadian jobs, boosts Canadian competitiveness, buys Canadian goods, and diversifies Canadian exports.

Small business hit hardest

The CFIB said before the government’s announcement that new data it obtained revealed small businesses were being hit hardest by U.S. and Canadian tariffs on steel and aluminum and Canada’s own retaliatory tariffs on other U.S. goods. In addition, according to the CFIB, nearly one-third of Canadian SMEs would be negatively affected by the loss of the $800 U.S. de minimis exemption.

U.S. President Donald Trump had signed an executive order on July 31, raising tariffs on some Canadian goods to 35 per cent. Canada might have been able to avoid the hike had it managed to strike a new trade deal with the U.S. by an August 1 deadline, although that didn’t happen. 

The Canadian government had imposed retaliatory tariffs on U.S. goods three times since the trade war began, including counter-tariffs on $60 billion worth of U.S. consumer goods and additional tariffs on U.S. autos.

Bad deal vs. lasting uncertainty

“Small businesses don’t have a lot of runway left,” Pohlmann warned last week before the federal government’s latest announcement. She said the worst outcome for Canada in the trade war would be “a bad deal,” but the second worst outcome would be the regularization of an uncertainty that small business owners had been contending with for the past six months.

“The federal government needs to provide some stability and return tariff revenue to help small businesses,” she said. “We’ve suggested several options, including temporarily reducing the federal small business tax rate to zero or a tariff rebate designed on earlier models, like the carbon tax rebate.”

CFIB data indicates that nearly two-thirds (62 per cent) of small businesses face higher expenses, while many are also seeing lower revenues (48 per cent), supply chain disruptions (41 per cent), and paused investments (36 per cent).

As well, nearly one in five (19 per cent) of small businesses dealing with extra tariff costs reported they would not be able to last more than six months if the tariff status quo remained, while nearly four in 10 (38 per cent) said they would last less than a year.

What happens to collected tariffs?

With Ottawa having collected billions in additional tariff revenue on U.S. imports, a strong majority (82 per cent) told the CFIB the government should ensure that any tariff revenue that is returned includes support for smaller businesses affected both directly and indirectly by trade disruptions.

“The trade war’s impact on Canada’s small businesses should be top of mind for the government as Canada continues its negotiations with the U.S. Canada can’t fix its productivity crisis without empowering its entrepreneurs,” according to Pohlmann.

“If the government wants to build one Canadian economy, it needs to ensure small businesses are part of the solution and that includes providing them with tariff support during this very challenging time,” she said.