The US’ renewed pitch to impose significant tariffs on Canadian goods have driven Canadian businesses to pause investments, according to the recent “Business Insights Quarterly” report published by the Canadian Chamber of Commerce’s Business Data Lab.
Last month, US president Donald Trump made three tariff proclamations under s.338 of the US Tariff Act of 1930. If imposed, 50 percent tariffs will be levied on products like wine, hockey sticks, and cement, as well as on products once shielded from import taxes under the United States-Mexico-Canada Agreement.
Tariff concerns have contributed to declining business confidence, low demand, and continuous uncertainty. As a result, businesses are opting to wait out the volatility even if they are financially capable of investing.
“Right now, many businesses simply aren’t convinced the conditions are there to justify major investments. That’s becoming one of Canada’s biggest economic challenges. Businesses aren’t responding to uncertainty by packing up and leaving Canada. They’re responding by standing still,” said Patrick Gill, the BDL’s vice president, in a statement.
He warned that the investment dropoff would cause productivity, competitiveness and long-term growth to grind to a halt as well.
A recent KPMG report indicated that 42 percent of Canadian manufacturers had either moved production to the US or were planning to do so due to current trade volatility and rising pressure from competition; the manufacturing industry has been most affected by the instability, with significant rates of delayed investment and postponed expansion in Canada.
However, the BDL’s report found that just 1 percent of businesses intended to set up shop in the US. Canada’s economy continues to hold on, with inflation relaxing, interest rates falling, and growth stabilizing; nonetheless, Canadian businesses invest only 55 cents per worker for each dollar invested in the US and 82 cents for each dollar invested across the OECD, which restricts productivity and competitiveness in the future.
The report noted that trade policy-related uncertainties were impacting business decisions even before the current tariff proposal was publicized.
“Businesses are adept at adapting to changing market conditions. What they struggle with is constant uncertainty,” Gill said. “Every investment decision that gets postponed today is a factory expansion, technology upgrade or productivity improvement that doesn’t happen tomorrow. That’s the hidden economic cost of uncertainty, and it’s one Canada can’t afford to continue.”
The “Business Insights Quarterly” report is based on the “Canadian Survey on Business Conditions” conducted by Statistics Canada. Over 9,200 Canadian businesses provided input from April 1 to May 6.