U.S.-Canadian Trade War Puts Pressure On Businesses And Consumers
A customer shops at a Target store in Austin, Texas. The ongoing U.S.-Canada tariff war is taking a toll on consumers, who are concerned about the price of groceries and the price of gas at the pump. (Photo by Brandon Bell/Getty Images)
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The U.S.-Canada trade war is raising prices for certain products, disrupting supply chains, and creating uncertainty for families, especially in areas associated with Canadian imports – the $20 billion worth of products such as food, alcohol and wood – earmarked for duties. Canada is saying it’s planning its own retaliatory levies.
For U.S. shoppers, the fallout will be seen at the checkout as retailers decide how much of the added costs they can absorb before passing them on to consumers.
This comes at a particularly sensitive time for shoppers, who have prioritized saving money. As more customers gravitate to Walmart and Target, it’s not just the value-oriented who are concerned about price, but even those earning $100,000-plus annually.
John Mercer, head of global research and managing director of retail research at Coresight, said the direct impact from tariffs on apparel would be limited since Canada accounts for only about 1 percent of clothing imports to the U.S. The bigger threat, he said, is that consumers might try to cut back because they’re concerned about the tariffs and preoccupied with potential price increases precipitated by events, such as the war with Iran over the Straight of Hormuz, which has sent gas prices soaring.
The U.S. Producer Price Index (PPI) suggests that rising fuel prices may be beginning to weigh on wholesale margins, as ongoing tensions in the Straight continue to strain global energy markets.
Perception and Reality
“There’s the consumer perception to be concerned about with consumers thinking there’s a risk of inflation rising,” Mercer said. “Consumers start to adjust how they spend. They tend to overestimate their own rate of inflation and overreact to that rate, seek savings and cut back and trim their spending.”
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“The big picture is that businesses and retailers have been through an extended period of unpredictability and volatility,” Mercer said. “If you look at the last 15 to 18 months, it’s been a period of changeability for companies. Gas prices have gone up hugely and we know consumers are very sensitive to that. For some consumers, it’s cut into their essential budgets.”
The Trade Conflict and President Trump
The trade conflict has been escalating. On Monday, President Donald Trump, said the U.S. would place 50% tariffs on Canadian cars, trucks and automotive parts starting in January, after Canadian Prime Minister Mark Carney vowed to hit America with retaliatory tariffs after the collapse of trade talks over the weekend.
Canada hit back at the U.S. on Tuesday with retaliative duties on about $20 billion worth of American products, including dairy, appliances, farm equipment and steel, as the trade war between the once-friendly neighbors heightened.
It’s the latest salvo in the contentious conflict that’s disrupting supply chains and the United States-Mexico-Canada Agreement, which took effect on July 1, 2020. Canada said it plans to initiate the tariffs in September, which could spark an even bigger trade war.
Retail Tariff Statistics
According to Capital One, tariffs apply to 42.6% of consumer goods by value imported to the U.S. The largest U.S. retailers import 70.9% of their inventory. In 2025, importers paid a total of $264 billion in tariffs. Total tariff collection on imports increased 234% from $79 billion in 2024. Tariffs for all products could total up to $3 trillion over 10 years, until 2035. Tariffs cost U.S. households an average of $1,958 in 2025.
Investing in Inventory
Marcus Shen, CEO of B-Stock, said the tariffs’ impact on retail overstock has retailers are trying to figure out how best to manage inventory, stock inventory and price inventory in the midst of volatility created by tariffs and the Straight of Hormuz situation. Merchants are thinking about what they should buy, how much they keep on the shelves and what they sell it for.
Years of trade issues have made retailers more resilient, Shen said, noting that it’s nonetheless created ups and downs from both the supply and demand perspectives. “As far as who is going to bear the costs of potential tariffs, sometimes the retailer will say, ‘We’ll absorb some and won’t pass them along to consumers.’ Sometimes, it gets pushed onto the manufacturer, and sometimes, the distributor. “It depends on the category,” Shen said. “Somewhere, someone is going to have to absorb some of it.”
Straight of Hormuz’s Impact on Consumers
Shen said the Straight of Hormuz has far-reaching implications in the form of higher gas prices and possibly higher freight charges – the cost of getting things delivered. “It’s all starting to add up,” he said. “It’s all starting to pile on. It’s not going to be good for the overall retail environment.” He added that some retailers will gird against the advancing prices and “frontload” merchandise, while others will stay the course and still others will play a wait-and-see game.
An obstacle of the conflict is ongoing uncertainty that persisted in July with renewed tensions between the U.S. and Iran. Brent crude oil and retail gasoline prices firmed again too and may have weighed on businesses more than economists pencilled in.
Omar Qari, CEO and cofounder of Logicbroker, said the challenge for retailers is how quickly tariff rules can change. Merchants may place orders months before goods arrive, which means they’re making purchasing and pricing decisions without knowing exactly what the final cost will be.
For example, the Federal Reserve Bank of St. Louis reported that tariff-related pressure on inflation had leveled off through May, though its analysis preceded tariffs announced in July. That timing matters because the latest changes have yet to work their way fully through supply chains and onto store shelves.
Treating Tariffs as an Operating Condition
The strongest retailers are treating tariffs as an ongoing operating condition rather than a short-term disruption. “From our work with large ecommerce brands, we see a greater focus on understanding exposure at the product and supplier level, assessing alternate sources and keeping inventory commitments flexible,” said Qari.
Data released today found that U.S. consumer confidence fell for the second consecutive month in August, reaching its lowest level in seven months, with Americans citing oil, gas and grocery prices, as well as uncertainty around geopolitical conflicts as primary concerns.
An overlooked consequence of tariff uncertainty is already starting to be felt. What happens to all the inventory retailers brought into stores early if consumer demand doesn’t match their forecasts?
But as more tariff uncertainty unfolds, retailers have sped up shipments and adjusted purchasing to get ahead of tariffs, which has contributed to an unusually early peak import season. With that strategy, comes the risk of retailers left holding the bag for costly inventory for longer periods, holding up working capital, while storage handling and markdown costs continue to grow.
Jonathan Gold, vice president for supply chain and customs policy at the NRF, said, “One round of tariffs has been replaced with another, but retailers will be well-stocked for the coming holiday season. Retailers know how to adapt to shifting situations and are well prepared to meet consumers’ demand for affordability and choice.”
Abigail Watt, economist at UBS, and an author of “U.S. Economic Perspectives. Fresh Tariffs on Imports from Canada,” said the duties will be imposed under a never used trade law provision section 338 of the Tariff Act of 1930, which grants the President the authority to impose tariffs, up to a maximum of 50%, where they “find as a fact” that a foreign country discriminates against U.S. industry.
Interest Rates Weigh on Capital Spending
“Our survey comments continue to state that interest rates bear down on capital spending and interest-sensitive sectors,” Watt said. “As a result, services sector activity could have been weaker than we appreciate, or support from the One Big Beautiful Bill Act, which led to larger than average individual tax refunds, have waned and contributed to slowing consumer demand.”
“For U.S. consumers we’ve gone through relatively strong fiscal impetus,” she added. “I would sense we’re past that peak stimulus. For the U.S. consumer, they’d say that if we continue to see tensions in the Middle East, it would be important to watch disinflation. There’s been a buffering on the part of the U.S. consumer that is not sustainable.”