Small businesses in Canada are facing significant challenges due to recent changes in U.S. trade policies. Terra Nord, an artist from Terrace, British Columbia, has seen her work take on a political tone this year. Inspired by President Donald Trump's comments and tariffs, she created designs that resonated with Canadian sentiments. "I hit a few Canadian designs that really took off this year," Nord said, referencing her popular artwork featuring a beaver riding a Canadian goose with phrases like "Tariff this, hoser."

Despite a surge in Canadian sales, the majority of Nord's business has come from U.S. customers. For the past three years, she has shipped her products to the U.S. duty-free, thanks to a de minimis exemption for low-value goods. However, this exemption was recently suspended, forcing many small business owners, including Nord, to halt shipments to the U.S. as they navigate the complexities of the ongoing U.S.-Canada trade war.

The economic landscape in Canada is also concerning. The country is experiencing slowing GDP growth and high unemployment rates. Statistics Canada reported a 1.6 percent contraction in GDP for the second quarter, which was worse than expected. The annualized growth for the first half of the year was only 0.4 percent. The unemployment rate remains high at 6.9 percent, with nearly 41,000 Canadians losing their jobs in July, predominantly affecting young workers aged 15 to 24.

In response to these economic pressures, many business owners are cutting costs and delaying hiring. A recent survey by Merchant Growth, a lending company, revealed that 76 percent of small business owners have reduced spending, and 38 percent have postponed hiring. David Gens, CEO of Merchant Growth, noted, "Sixty-one percent of the business owners we surveyed believed we were in a recession. It’s only gotten worse since then."

Corinne Pohlmann, executive vice-president of the Canadian Federation of Independent Business (CFIB), highlighted the decline in customer demand as a major barrier for small businesses. "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," she said.

The impact of U.S. tariffs has been felt by Canadian businesses, which have absorbed many costs so far. However, the loss of duty-free shipping is expected to worsen their financial situations. Merchant Growth has seen a surge in lending activity this summer, a typically slower season. Many small businesses are seeking financing to maintain their operations. Gens reported that the average loan amount is $40,000, with the firm funding about $230 million in loans last year.

To adapt to the new trade environment, small businesses must consider becoming compliant with the Canada-United States-Mexico Agreement (CUSMA) to continue shipping goods duty-free. This requires businesses to track the origin of their product components, with a threshold of 62.5 percent for qualifying goods. Pohlmann advised that business owners should seek professional guidance to navigate the self-certification process and avoid potential audits.

Finding new suppliers to meet CUSMA requirements can be time-consuming and costly. Gens explained that businesses may need to pay upfront for materials from new suppliers, which can strain their finances. Alternatively, raising prices to cover added duties could alienate customers. Pohlmann noted that this could increase product prices significantly, making it difficult for businesses to maintain their customer base.

Some small exporters are considering marketing their products to alternative markets, but this transition also requires time and resources. CFIB members estimate it could take up to nine months to shift customer bases.

Experts are calling for federal support to assist small businesses during this challenging period. Merchant Growth's survey indicated that access to more credit and liquidity is the top priority for business owners. Other requests include permanent tax relief, expanded small business deduction limits, and incentives for hiring and rent subsidies.

Pohlmann emphasized that many small businesses are still recovering from COVID-19-related debts and are hesitant to take on more loans. The CFIB is advocating for the government to return some of the revenue generated from retaliatory tariffs to small businesses.

A recent CFIB survey found that 19 percent of members fear they may not survive another six months under the current tariff conditions. Pohlmann noted that this data was collected before the cancellation of retaliatory tariffs, which could provide some relief.

The future remains uncertain for small businesses as they navigate these trade challenges. Nord, like many others, must decide whether to pursue CUSMA certification or find alternative strategies to sustain her business. For now, she is focusing on creating new products, including a coloring book featuring animals in everyday activities, steering clear of political themes.