Canadian businesses brace for impact as U.S. tariffs on China take effect

Despite a temporary pause on tariffs targeting Canadian goods, nearly two-thirds of Canadian businesses are feeling the effects of newly imposed 10 per cent U.S. tariffs on Chinese imports, according to new research from KPMG Canada.

The study, which surveyed 250 business leaders across Canada, found that supply chain disruptions and the threat of additional trade barriers are forcing many companies to rethink their operations. With the possibility of 25 per cent tariffs on Canadian exports still looming, experts at KPMG say businesses need to prioritize resiliency and agility within their supply chains.

“The uncertainty caused by potential tariffs on Canadian goods and newly imposed tariffs on China has made it very difficult for Canadian companies to plan, operate and stay competitive,” said Alain Sawaya, national leader of KPMG in Canada’s supply chain practice.

In response to the tariffs, 88 per cent of surveyed businesses said they had already diverted or were considering diverting goods to countries not currently affected by trade restrictions. Nearly half (44 per cent) reported actively reconfiguring their supply chains to bypass the U.S. market, while an equal proportion said they were exploring this strategy.

Additionally, 57 per cent of respondents indicated they were shifting production away from China due to both U.S. tariffs and concerns over forced labour. Overall, 63 per cent said the latest U.S. trade policies would negatively impact their businesses.

“With Canada caught in the trade crosshairs of the U.S. and China, industries that depend on suppliers and customers—such as manufacturing—are especially vulnerable to increased costs, delayed shipments and disrupted production and planning schedules,” Sawaya said. “Smaller suppliers with fewer options may struggle to absorb added costs, leading to a heightened risk of insolvency.”

Recognizing these challenges, 83 per cent of Canadian businesses said they need to enhance their supply chain resilience. Many are exploring solutions such as alternative materials sourcing, inventory optimization, predictive demand management and AI-driven supply chain monitoring.

KPMG suggests that companies leverage digital tools to map their supply chains and conduct scenario planning.

“Organizations that digitally map out their supply chains for probable scenarios have a competitive advantage when new risks arise,” Sawaya said. “If the digital map is a real-time model that’s part of the decision-making process, the supply chain and the business will ultimately be more resilient.”

Beyond immediate supply chain adjustments, KPMG’s research found that 79 per cent of respondents anticipate the U.S. will impose tariffs on the European Union, suggesting that few trading partners will be spared from escalating trade tensions.

Nancy Chase, National Risk Services Leader at KPMG Canada, cautioned that while modifying supply chains can help businesses avoid some tariff-related costs, it also introduces new risks.

“Reconfiguring supply chains could help businesses avoid the hit from tariffs on affected countries, but it also creates a whole new set of risks because they’re turning to new, third-party suppliers that are relatively unknown,” she said. “Businesses thinking of switching third-party suppliers need to ensure their contractual obligations are properly reviewed and revised, and they also need to have effective risk controls in place. For example, how will they manage fraud or cybersecurity risks—both of which tend to rise when businesses engage new suppliers with an unproven track record?”

To mitigate these risks, Chase recommends companies conduct comprehensive enterprise risk assessments, refresh contract terms and leverage AI-driven analytics to monitor vulnerabilities in their supply chains.

Survey methodology

KPMG in Canada conducted the survey between Jan. 21 and Jan. 27, 2025, through Sago’s premier business panel, using the Methodify online research platform. Of the 250 respondents, 88 per cent export or sell to the U.S. The surveyed companies varied in size, with annual revenues ranging from $10 million to over $1 billion.